By: Chuck Frey
When companies start up a new venture to explore a breakthrough innovation, there are many challenges. Some are operational, but others are caused by the ways in which leaders and managers typically think about their work. Vijay Govindarajan and Chris Trimble, in their new book, 10 Rules for Strategic Innovators, describe how companies often get lost in the gap between the beginning of the innovation process, were creativity is needed, and the end of the innovation process, were efficiency is needed.
When companies start up a new venture to explore a breakthrough innovation, there are many challenges. Some are operational, but others are caused by the ways in which leaders and managers typically think about their work. Vijay Govindarajan and Chris Trimble, in their new book, 10 Rules for Strategic Innovators, describe how companies often get lost in the gap between the beginning of the innovation process, were creativity is needed, and the end of the innovation process, were efficiency is needed. The DNA of most organizations is heavily focused, either on efficiency or creativity, and executives have a hard time envisioning anything in between these polar opposites:
“In the middle, most companies are lost. They do not understand the code for turning breakthrough ideas into breakthrough growth. Because they are lost, they gnash teeth over the stark contrasts of the two organizational codes that they understand… But during (the new venture’s) awkward adolescence, neither creativity nor efficiency is the dominant priority. The need for creativity declines after you have a business plan, and focusing efficiency is premature until the businesses proven and stable.”
The authors identify three challenges that arise when you try to make a new venture coexist with a mature business within the same corporation:
Forgetting: The new venture must set aside the existing organization’s orthodoxy, it’s deeply rooted ways of thinking and doing things. The new venture must come up with its own versions of answers to the basic questions that define a business: Who are our customers? What value do we provide? How do we deliver that value? The new venture must also forget the entrenched mindset of “exploiting” an existing market, and instead focus on “exploring” a new business opportunity, with its often unproven business model.
Borrowing: According to the authors, a new internal venture can only compete effectively with startups by borrowing from its parent company’s assets, including existing customer relationships, distribution channels, supply networks, credibility, manufacturing capacity and expertise in a variety of technologies. This enables the new internal venture to tap into concrete resources that a start-up could only dream of. But the new venture must be careful not to “borrow” its parent company’s mindset, biases and assumptions (see the challenge of “forgetting” above).
Learning: The new venture must improve its predictions of business performance as quickly as possible. “At the outset, such prediction are always wild guesses. But as the management team learns, wild guesses become informed estimates and informed estimates become reliable forecasts. The faster predictions improve, the faster (the new venture) will zero in on a working business model — or abandon a failed experiment. Fast learning minimizes time to profitability, lowers risk exposure and maximizes the probability of a major victory over the competition.” In summary, the new venture must forget the parent company’s success formula and devise its own.
The authors also point out that, during the adolescent stage of growth, an internal venture often comes into conflict with the values, policies, risk tolerance and investment capabilities of its parent company (how much money should we divert from maximizing our existing, profitable business to put into this unproven new venture?). The strategies for handling this balancing act is the focus of this book, which I highly recommend!