How do innovation teams help promising concepts transition to the core business for scale-up?
This is one of the most difficult challenges facing large enterprises. It’s one thing to launch a new product within an existing line of business. That process is well understood. Breakthrough growth, however, demands that we continually explore ways to reinvent the core business or enter adjacent markets. For most large organizations, these explorations take place in a special incubator or accelerator. Once a concept finds success in the incubator, it must transition to the core business to be scaled. This process – the transition to scale- up – is a common failure mode for innovation. Many external acquisitions fail to meet their goals after the deal closes. Similarly, many innovations fail after they have been validated in the incubator. Why?
From 2015-2016, Peer Insight set out to understand the causes and possible solutions to this challenge. First, we held an extensive series of panel discussions with experienced practitioners. The second stage was a series of in-depth, one-to-one interviews. This allowed us to drill- down into unique approaches as well as zoom-out to see larger patterns.
Eventually, we engaged over two dozen practitioners over a ten-month period. Each of the participants has from 6-25 years experience in the field, and holds a position within the corporate incubator (or equivalent) at a Fortune 500 firm. The spirit was this: A small group of admired, non-competitor firms putting their senior practitioners together to help each other improve. No other agendas, just straight talk in a safe setting.
Our research surfaced 10 key findings:
FINDING 1: It’s one thing to kill a concept early. But when it succeeds in the incubator only to fail in the Core Business, that shakes our faith.
FINDING 2: In a large enterprise, the gap between explore and execute is just too great to be crossed with ease, even by the most promising venture.
FINDING 3: The failure modes for transition-to-scale-up include both false positives and false negatives. CIUs do well to study both.
FINDING 4: It’s not what’s wrong, it’s what’s missing. CIUs must introduce new elements to form a more complete innovation system.
FINDING 5: As Step 1, CIUs enhance their ability to de-risk new concepts. They become a better petri dish in 3 ways.
FINDING 6: As Step 2, the innovation group must build connective tissue with the Core Business. Once a customer, now a collaborator.
FINDING 7: As an emergent Step 3, many CIUs are experimenting with a middle way. A place to go from post- revenue to post-profit.
FINDING 8: Another emerging practice is to tap into third party risk capital and IP. Think of it as Make vs. Stake.
FINDING 9: Step 4 is to empower senior leadership with a dual mindset; lead execution with certainty, lead exploration with curiosity. Just like a VC.
FINDING 10: The strongest connective tissue is human-to-human. The CIU leader and staff must serve as growth whisperers.
All the benchmark firms have experienced significant failures. All have struggled mightily with the transition to scale-up. Yet none has declared defeat and departed the field. Quite the opposite is happening; more firms than ever are investing in innovation labs based on human-centered design and lean startup principles. Why?
Growing through incremental innovation can only address a small portion of our growth opportunities.
M&A can supplement that growth in certain areas, but it is expensive and risky.
Extending our capabilities into adjacencies and new environments requires certain resources and assets that only exist within our firm:
Deep understanding of our existing IP
An insider’s knowledge of our strategy
Organizational and cultural know-how to overcome obstacles
To be a successful growth company, firms need all three capabilities. The central innovation unit has evolved over time, but it has been a persistent capability at most firms for the past 10-15 years.
Since conducting this research we’re still hearing that some CIUs are faltering, so we’re going back out and conducting a listening tour with leaders of CIUs to understand how they’re thinking about risk, business model innovation, and accelerating their ventures without triggering corporate antibodies. Check out what we’re doing here.