As part of their innovation strategies, large companies are looking to start and scale new corporate ventures, but the success rate is low. Companies can use ecosystem-thinking to stimulate radical startups and carefully scale up these embryonic businesses to generate new growth. The article discusses how the Institute for Manufacturing’s approaches can be combined with the Lean Scale-up methodology for venture scaling in the 2021 Peer Group later in 2021.
7 minute read
How can companies in the current business environment almost choose the growth directions they want?
Many companies find that they are not able to scale up new technology in-house and achieve the business impact they expect. Statistics speak loud and clear and tell a sad story: According to Capgemini, only 10 per cent of Automotive companies have mastered the basics of Smart Factories so that they are ready to scale. Only 13 per cent of companies have deployed AI in production and in Retail, only one of five stores has deployed automation.
This is just one side of a bigger problem. If one looks outside the company walls, firms are not successful in building new technology-enabled businesses. According to both McKinsey and Bain, 85-90 per cent of corporate startups fail and do not create a meaningful business impact.
This is a problem.
The good news is that the root cause of venture scaling failure can be located. By knowing where the problem sits, we can develop solutions.
The IfM at Cambridge University has created a suite of front-end innovation and technology management approaches. The first is ecosystem mapping that identifies sources of value exchange between ecosystem members. The second is strategic roadmapping that can be used in exploratory mode to map a narrative for growth. These taken together provides a front-end to stimulate high-potential new venture ideas.
An additional methodology can then be used to nurture these ideas from a start-up state to, with success, a scale-up corporate venture that delivers significant returns to the parent corporation.
The first part describes the front-end of ecosystems mapping and roadmapping.
In the second part, the founder of Lean Scale-up, Frank Mattes outlines the approach for taking startups through the Scaling-up journey.
3 Minute Video
Harvest the Ecosystem to Identify New Ventures
If a company wanted to stimulate more ideas for new ventures, how could it start and how should it align, coordinate and synchronise its venture scaling activity?
One answer lies in ecosystem mapping and strategic roadmapping.
Recognising that companies sit within a business network of firms and organisations that can influence the way the focal firm creates and captures value through the provision of a product or service. Ecosystem mapping is an approach to explore different configurations and partnerships in the ecosystem and consider potential innovations that can deliver new services including business venture ideas.
A second approach is to use strategic roadmapping as a planning technique. The collaborative nature of roadmaps supports strategic alignment and dialogue between functions in the firm and between organisations. Roadmapping can be used in an exploratory mode to identify new sources or non-incremental innovation and map the necessary capabilities and the vision for the ventures to be started and subsequently Scaled-up.
These combined approaches together formulate a toolbox for corporate innovators to potentially identify “On Demand” viable new venture ideas and then develop the venture through the Lean Scaling methodology; from start-up to scaleup.
But what are the challenges faced as corporate startups run the gauntlet on achieving scale to satisfy its corporate investors?
Let’s explore the problem and the solution.
The problem of corporate evolution and extinction
To understand what is happening it is helpful to understand that under one company roof you find two engines, or to be more precise, management systems.
The first system is designed to execute day-to-day operations. It comprises today’s core business and the space of incremental innovation. This system is designed to flawlessly and efficiently execute on a chosen business model. This business system plays out in a so-called “red ocean” with known markets, known competitors and a known technology base. The underlying business logic puts predictability front and centre. Predictability refers to outcomes such as quarterly and annual targets, as well as the processes that ensure execution. In this system of “Predictability DNA”, risk is a bad thing. It needs to be carefully examined and mitigated.
The second system is designed to explore the innovative use of new technology and the chances to build a new business that is adjacent to today’s Core business. This is the innovation space that plays out in “blue oceans” in which new, untapped value pools are to be found and the search for repeatable, profitable business models sought.
The most promising approach for success in this space with unknown customer needs, in many cases new or unfamiliar technologies and uncertainty about the best business model, is build-test-measure-learn. To win in this space, one needs an “Agility DNA” which acknowledges the inherent uncertainty and systematically reduces it to manage risks. Due to the uncertainty in this space, there are few business processes.
Closing in on the scaling-up solution
Here comes the challenge: innovation concepts are generated in the innovation space with its “Agility DNA”. Putting new technology to use or building a sizable business needs to have a “Predictability DNA”. In other words, Scaling-Up means transitioning from one business system to another one.
The transitional point for venture-scaling success or failure is the Minimum Viable Product (MVP) and explains why there is such a high drop-off after this point. A new startup venture must shift from “Innovation/agility DNA” at the beginning and towards “Operations/predictability DNA” at the end when technology is used at scale and a sizable business has been built.
But what is the right operating model for success in this transitional journey? It can’t be the one that drives the innovation engine. Nor can it be the one from the operations engine initially, since at the start of the journey there are still uncertainties and risks.
For success in the new venture Scaling-Up, a gearbox between those two engines needs to be installed to make the transition successful.
Scaling Up Corporate Ventures
The problem statements raised at the beginning of this article are quite common. From 2017 a peer group of more than thirty leading companies shared practices and common themes emerged to enable a framework to solve the Scaling-Up problem.
This framework is called Lean Scaleup and was developed by Frank Mattes working alongside companies from a wide range of industries; from Manufacturing to Aerospace, from Chemicals to Financial Services and from Energy to MedTech. One example where this framework can be seen at work is bp’s “Scaling-Up factory” www.itslaunchpad.com built on the principles of Lean Scaleup.
Three pillars of the Lean Scaleup framework are,
- Methodology: how to validate if an idea is worth scaling, testing if it is ready to be scaled and knowing how to go about managing the Scaling-Up journey.
- Leadership: how to set the leadership tone and how to get the organization to think outside the box and prepare for the decisions through the Scaling-Up journey.
- Culture & Collaboration: how to embed Scaling-Up in the planning systems and how to structure the agreement between existing Core business and the scaleup and enable collaboration as a driver for cultural transformation.
One of the pieces in the framework is what the co-creators of the Lean Scaleup see as Best Practice for positioning a pilot
- Top Management skin in the game
- Align with KPI improvements (pilot team and operational people want to learn different things from a pilot)
- Avoid “the pilot trap” (select pilots that are sufficiently large enough to offer insights; know what’s next; establish pathways for scaling from the start)
- Make everyone look good
- De-risk it
- Less is more (what is the single most important insight to acquire or value proposition to test; ambition is the enemy, iteration is the aspiration)
Join the Peer Group 2021
I’ll be co-running the Peer Group later in 2021 under my association with IfM Engage and Lean Scale-up with Frank Mattes. If you are an innovation leader in a large company and would like to discuss participation, please contact me by email firstname.lastname@example.org or with a short message (Yes, I’m Interested.)
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Rob Munro is an innovation strategist and consultant focussing on improving innovation results for organisations. Please contact me to discuss ways to bring greater effectiveness to your innovation processes.
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