Playbook for Innovation in Large Corporation
Why innovation teams in large corporations fail and how to improve the chance of success.
Eric Yuan, founder of Zoom, used to work for Cisco.
Marc Benioff, founder of Salesforce, used to be an executive at Oracle.
Jan Koum, co-founder of WhatsApp, used to be a Yahoo engineer.
Kevin Systrom, co-founder of Instagram, used to be a Googler.
Do you see where I’m going with this?
All the founders above, regardless of their seniority level within those companies, regardless of To-B or To-C business model, regardless of their origin (Eric came from China, Jan from Ukraine, the other two from US), decided to leave the mother ship and start their own company in the HARD mode.
Or is it really the HARD mode?
A lot have been written about the founders of successful startups: how they had a humble start from their little garage, how hard it was for them to secure their first investment, how difficult it was for them to navigate through rough times and eventually lead the company to huge success in the market.
Then the question I have is:
Why did they decide to suffer all these when with their previous employer, everything they worked so hard for seemed within arm’s reach?
Offices of those big companies are usually spacious, they didn’t need to innovate in their garage; by working with colleagues who are on the company’s payroll, they didn’t have to worry about money; and lastly, no other places are safer than large companies with deep pocket during rough times.
Maybe the answer is: doing the same thing within large corporate is also in HARD mode, if not SUPER HARD.
It’s not that large corporations don’t do innovation. Actually a lot of labs, programs, teams, organizations are created within large corporations every year. However, maybe there’s only a handful of success at the best.
That’s what I would like to address today: why innovating within large corporate always fails and how to set your internal innovation team up for success from Day 1.
I’ll approach this discussion from the following 4 areas:
- Why do companies innovate?
- What do management team need to do?
- How to make an All-Star innovation team?
- What does the end game look like?
Why do you even have an innovation department/team?
One typical mistake a lot of companies make when it comes to innovation is FOMO (fear of missing out). They see everyone else is doing things about innovation, and they feel like they should do something too. So they set up a team without clear goal and thought they could manage this team the same way as they manage other teams. The result, needless to say, is usually inadequate.
Another reason why these teams exist, which makes a lot more sense to me, is to explore new technology/service model etc. that could be used to expand current business offering, or to test out completely new solution/product/service offering, which is not necessarily what the core business is currently about, but still relevant.
To explain this idea, I’m going to use a framework - the 3 Horizons of Growth - designed by McKinsey consultants some 20 years ago in the book The Alchemy of Growth.
The concept is quite simple: for large corporate who has a proved existing business, to ensure sustainable growth, they need to concurrently manage their business on these 3 different horizons. Some may argue that this 20th century concept is out of date because a lot of Horizon 3 ideas happen way faster than 5+ years, with which I partially agree. But I think the overarching concept of managing business on 3 different horizons still holds, because of the different natures of them three.
Most of the innovation work we are discussing here today happen on either Horizon 2 or 3. Only after recognizing this fact can companies do other things right. And it starts with the management.
What do management team need to do?
The first thing management team need to do is exactly what I just said in the last paragraph: they need to get a consensus within the organization on why they want to do this. Management need to ask themselves: are we doing this because of FOMO or are we doing this because we want to sustain the growth for long term?
With the goal of innovation sorted out, the next thing management need to do is to set the right mindset with realistic expectation. Many people think they can manage innovation team as they do to their existing business, which is completely wrong. From KPI to the talent you have on that team, even reporting cadence, everything is different and hence how you manage the team should also be adapted.
Because of the nature of innovation work, KPI should definitely be different from what you have for your existing mature business. Things like revenue growth, profitability, etc. are not applicable for sure. Although there are objective metrics like number of patents applied you can rely on (has it’s own problem too), many times executives have to acknowledge that innovation work is less numeric than they would like it to be.
The next thing management need to deal with is investment, financially and time wise: how much money are you willing to invest in this work, and how much time do they have to prove themselves? Very much like venture investment: you put down small amount of money to fund their seed round and as they grow, you may follow up with Series A/B/C. The investment should then be translated into different aspects of a “real startup”: labor cost, marketing cost, equipment cost (if any), etc. One thing that is often overlooked by a lot of executives is that even though they allocated certain amount of money for this team, because this team is still part of the organization, the innovation team sometimes can’t really deploy the funding the way that best suits their business need. Within large corporations, budgeting process is more rigid than agile and corporate ERP system could well get in the way too.
Another important aspect is organizational: who you identify as the executive-level champion for this team and how does this team work with other functions in your company. Appoint someone who is powerful enough to help pull any lever needed. At this stage, usually other teams within the company have little to none incentive to support the innovation team, which makes this executive-level champion even more important.
Lastly, but probably the most important: executives need to let go their ego and stay out of it as much as possible. Executives are expected to be a resource, not a boss. Let the team do the work but be ready to provide help at anytime (probably applies to many other scenarios too).
Who is on innovation team?
Some would argue Michael Jordan and Kobe Bryant wouldn’t be who they are if not Phil Jackson. I don’t know if that’s true, but at least Michael didn’t want to play for Bulls anymore when Phil left. So who leads the innovation team is critical.
Someone who is senior in the rank and has an overview of the entire business is an ideal candidate. But there’re a few issues with this when it comes to implementation: usually senior staff are less likely to be willing to risk what they already built in their current role and lead a team with uncertain prospect. “What if I fail” they may think, which is fair, as failure is a more probable event than success. And if this leader is from specific business unit, he/she might favor ideas that would help his/her previous organization, or could also worry about cannibalization of their existing business.
My recommendation would be some former executive who retired from the company but still loyal to the company and has deep network within. Such a profile helps solve the issues above: lack of authority and understanding of the business, nepotism, and worry for future. You just need to make sure this retired senior executive (both hierarchy and age) is open to new ideas/business model.
After you identify the team leader, other part of the team is relatively easy. You can either find within your organization or hire externally. Make sure they have relevant experience with this type of work (building new things) or with the business you are in (e.g. Uber needs people with experience of transportation).
What does the end game look like?
As you get deeper into the work, as you see the picture more clearly, company needs to plan for the end game.
End game or success means very different thing for large corp innovation teams and small business/startups. For startups, their first priority is to survive. If one thing doesn’t work, then try a different one. Take Slack as an example, the team started with game development but later commercialized the chatting app they developed along the way. If it were an innovation team for a large gaming company, it failed hard; but for a start-up, it not only survived but thrived.
Depending on how the new venture goes, there are 4 most commonly seen options for what the end game may look like for the innovation team (please note that each below deserves a semester of lectures, it’s only briefly discussed here):
- Create a new business unit (BU): this happens when innovation team shows enough business potential and can grow in the same strategic direction as the core business. Here the new BU is going to be evaluated just as any other BU, so the mentality of the team needs a refresh, maybe personnel too.
- Integrate back to an existing BU: when the innovation team created things that can help an existing business unit, the management may choose to merge the two teams. This is as tricky as a typical M&A deal, mostly because of the organizational complication it creates, e.g. who leads the BU after the merger?
- Spin off: this happens usually when the company thinks what the innovation team created is valuable but will be worth more if independent. And accordingly to my experience, it could be a good sign as well as a bad one.
- Dismiss the team: this of course is the last thing we want to see. When this decision has been made, the company has to make sure that no one is penalized. Remember success rate of this type of work is low by nature. More importantly, you would want your employee to still volunteer to join the game when you assemble for the next round.
What do we learn?
To summarize, a few things need to happen for innovation teams in large companies to succeed:
1. Management should form the team out of a strategic concern of long-term sustainable growth
2. Management need to recognize the fact that this team is very different from other existing and mature businesses, and hence should adapt their governing practice, from team composition to evaluation, etc.
3. Choose a candidate as the leader of the team, some one who is open-minded and well connected internally, but with little personal agenda
4. Plan for long term and always keep in mind why you started: to propel long-term growth of your business
I write about business strategy, product, and team management here at Medium. If you like the article, clap and let me know what you think about it by leaving a comment below. Also, connect with me on LinkedIn and let’s befriend on Twitter (@mingtian_yu). Thank you for your time☺
