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Andrew Binns, Charles O’Reilly, Michael Tushman: Corporate Explorer

Corporation and innovation

A Corporate Explorer must translate methodologies designed for one context and try to make them work for theirs. These are people who do what others say is impossible: lead disruptive innovations from inside large corporations.

Explore Aspiration

Corporate Explorers are leaders who build innovative businesses inside existing corporations.

Innovation Advantage

In his famous book about innovation Christensen argued that those that led in one generation of a product had no incentive to invent and commercialize a replacement. But after 25 years since the book, big companies are learning to use their assets to beat the odds of disruption.

Digital business makes it even tougher for established firms. Digital has democratized disruption with technologies that enable firms large and small to build revolutionary business models.

Authors believe there are four main factors that permit firms to initiate disruption:

  • First, senior leaders realized that they needed to set a strategic ambition with a scale equal to the opportunity or threat of disruption.
  • Second, a global innovation industry codified innovation disciplines so that corporations could improve the rigor with which these methods are applied.
  • Third, more companies are becoming ambidextrous organizations, separating out the core business from the disruptive ventures, so that they had the autonomy to grow, while retaining access to the assets of the core business.
  • Finally, explore leadership has emerged as a distinct capability in corporation.

Some of the tools and methods of global innovation industries are design thinking, lean startup and business model canvas.

  • Ideation is about generating new, breakthrough ideas with which to build disruptive businesses that realize a firm’s strategic ambitions.
  • Incubation is the discipline of converting a great concept into a validated business proposition. Or, if the evidence dictates, canceling or pivoting the project.
  • Scaling converts a validated business model into a sustainable, revenue generating business.

Unless you scale the incubated idea, there is no market impact and revenue.

Incubation starts with a set of hypotheses about the customer, the market, and the need the solution will meet. Then we test these assumptions. Experiments analyze customer responses to low-fidelity, minimally viable versions of the solution. At the end of a rigorous set of business experiments what emerges is a business proposal validated with real customer data and insight.

These developments: leaders setting a disruptive ambition, the disciplines of ideation, incubation and scaling, plus the rise of the Corporate Explorer; put firms in a position to beat the odds of disruption. However, they still need a willing investor. Some leaders, when faced with the opportunity to convert an incubated idea into a new revenue stream, fail to act.

Corporate Explorers need to be great innovators and adept leaders of change.

Corporate Explorers in Action

Innovation is as much about leadership as it is about method, strategy, organization and culture.

Kristztan Kurtist at UNIQUA Insurance illustrates the way a Corporate Explorer operates in action.

Insurance originated as a community effort for covering members’ losses in bad times. The first modern insurance company grew out of the Great Fire of London in 1666. Over time industry became more focused on selling policies, administering them and preventing losses, than on helping communities.

Customers had become a cost to manage, not a community to serve.

Kurtis wanted to disturb an industry. New service Cherrisk was born. It is a user-friendly, low-cost line of insurance products that is available base don a monthly subscription.

Purpose is the fuel on which Corporate Explorers thrive.

Corporations are famous for failing to capitalize on opportunities.

Many Corporate Explorers fall into the trap of overadvocating the promise of the new business. Being certain about how a new venture will develop in an uncertain market is likely to expose weakness in the underlying case. The alternative is to test an incomplete idea with executives and welcome them as advisers.

Humans have a complex relationship with all types of exploring, corporate or otherwise. We admire entrepreneurs and the explorers. However, we are uncertain about the value of such heroics.

Investing in an unproven venture is itself a new skill for the management to learn.

Strategic Ambition

Balaji Bondili at Deloitte is aiming to upend the hundred-year-old management consulting model of full-time consultants operating on client premises.

Jim Peck at LexisNexis introduced a technology-led model for business insight that was a first of a kind.

Many Corporate Explorers have no peers inside the company and, at least at first, most have no team.

An ambition needs to have an emotionally compelling quality that evokes a higher purpose. It also needs to be aspirational about performance. It should also be logical, providing guidance on what to do differently.

Bold ambitions give Corporate Explorers the permission to be just that – bold.

Ambition provides the link between today and what is to come – it helps reset expectations.

Ben Werwaayen: “The biggest mistake a CEO can make is to believe what is written on his business card.” CEO are not primary executors, they influence, set a context and the agenda, and pick the people. This is the CEO’s power to convene a group, bring them together and give them a task.

Some examples of strong strategic ambitions are Huang at Nvidia, Roche at Analog Devices and IBM strategy leaders Bruce Harreld (2000 to 2008).

At the core of innovation lies a paradox. Too little diversity of ideas and it is hard to find breakthrough, business ideas; too much and innovation can become disconnected from strategy. Authors advise CEO’s to set boundaries around the license to explore. Define high-level hunting zones. These high-level hunting zones align to the firm’s strategic ambition.

If you need more detailed information as Corporate Explorer to decide if high-level zones are worth pursuing consider four factors:

  • Megatrends – changes in society, politics, regulatory changes, technology.
  • Company advantages – assets you can leverage from the core business.
  • Market attractiveness – hypotheses about the size of the potential markets.
  • Attractive Customer Problems – evidence of something that customers cannot do today that would generate value for them if they could.

The underlying logic of a strategy is often very clear when the company is founded, but as it ages some of that clarity is lost.

A strong link between the Corporate Explorers idea for the new venture and the senior team’s strategic ambition sustains them on the journey. Authors find scaling starts in ideation because that is where this vital connection is forged.

Constraints through hunting zones is an important element of corporate innovation, and different from entrepreneur’s world. In the corporate world, innovating without constraint is a recipe for creating zombie businesses disconnected from the strategy that nobody wants to fund.

A strategic ambition inspires more Corporate Explorers and enables their success, through five different mechanisms:

  • It sets new rules for making strategic choices.
  • These rules create an explicit license to explore.
  • The strategic ambition becomes a rallying point for senior managers.
  • By defining hunting zones – where it wants to invest to realize its growth ambitions – the ambition gives guidance to Corporate Explorers.
  • Leaders articulate their ambition in a manifesto, thereby helping explain the ambition, new rules, license to explore, hunting zones, and social movement, to the wider organization.

Innovation Disciplines

An integrated model for understanding the innovation work based on the three disciplines: ideation, incubation, and scaling.

Ideation: Generating Ideas for New Ventures

Ideation for building disruptive ventures involves making a strategic ambition and hunting zones tangible in the form of a business concept ready to incubate. The key outputs are a customer problem worth working on and a means to solve it.

Our idea addiction makes humans more excited by ideas than by the problem they solve. That creates a risk of falling into a solution trap, where managers bend evidence to confirm their ideas, rather than learning how customers see the world.

Corporate Explorer start by learning the customer’s definition of success.

  • Five practices to help do a thorough job of customer discovery:
  • First, Corporate Explorer need to be open investigators. Avoid recency bias, data exclusion and a group think.
  • Second, manage the tendency by adopting a discipline that forces you to articulate the logic underpinning your conclusions.
  • Third, make it an immersive experience, intense enough to disrupt your starting viewpoint.
  • Fourth, often the richest learning comes from being an observer during immersion.
  • Fifth, focus on outcomes, not simply activities or motivations.

A customer value map. This tool is like the popular customer journey method in that it describes the steps a customer goes through to satisfy a given need and highlights where that journey breaks down. They are moments for innovation, the points at which the customer is looking for a different solution. The added contribution of the customer value map is that it quantifies the outcomes.

Idea generation captures a lot of resources and attention in corporations. Corporate Explorers get most value from idea generation when they know the high-value customer problem that they want to solve.

Many Corporate Explorers start with an insight about a problem they want to solve. They need to be watchful of not falling prey to idea addiction, which can drive them into the solution trap. This makes it harder to learn what customers want.

Incubate: How Corporate Explorers Learn Through Experimentation

Balaji Bondili proposed giving Deloitte access to high-value, hard to hire expertise via a crowd-sourced platform. He called his venture Deloitte Pixel.

Methodologies such as lean startup, proposed by Steve Blank and further developed by Eric Ries, have transformed entrepreneurship from a mysterious art form into a disciplined method.

Incubation takes the outputs from ideation – the customer’s most important problems and how to solve them – and uses multiple cycles of experimentation to test each element of the business.

Experimentation cycles go like this:

  • Hypothesis.
  • Test.
  • Learn.
  • Iterate.
  • Decide.

Corporate Explorers should strive to have explicit, comprehensive and testable hypotheses about what it will take to make a business idea succeed.

Writing down your hypotheses makes them explicit.

A Corporate Explorer needs to have hypotheses about the key issues that will contribute to the venture’s commercial viability.

Six business design questions that a Corporate Explorer should address:

  • Customer selection: Who will buy and use products?
  • High-value customer problem: Does product address a problem customers care about?
  • Value proposition: Does product solve the customer’s problem in a way that they find compelling?
  • Value capture: Will product generate enough value for the company to make it worth doing?
  • Ecosystem adoption: Will it be easy for customers to adopt and use product?
  • Strategic control: What level of sustainable competitive advantage or differentiation can the business achieve?

A good hypothesis has a clear testable point of view.

You are most likely looking to create an outcome that affects the quality, the quantity or availability of a product, the timing or cost.

Deciding which assumption is the most critical is key to learning. One approach is to build a tree that describes the logical connection between each assumption.

Critical assumption matrix has: level of uncertainty and importance to innovation; axis.

Every experiment has an independent and dependent variable.

Learn from your results.

The adoption chain is the sequence of steps needed for a product to be used. Ecosystem problems often do not receive the attention they deserve in business experiments. Corporate Explorers map ecosystems by identifying each of the players involved in delivering an innovation to its intended users. Then, for each one assessing, what do you need them to do? What are their motivations or incentives for doing what you need them to do? Finally, how can you make this happen?

Iterate after your experiments.

Corporate Explorers should expect to iterate the business design. One of the values of writing it down when you start is that you know what has changed.

Follow the evidence and decide.

There are too many possible sources of bias and error involved in how humans process information to accept the data from a business experiment as truth. The scientific method has evolved over many centuries to fight the impact of the fast brain, making sure that a scientist’s discoveries are subjected to a rigorous process of verification and falsification.

Incubation generates information to reduce uncertainty about the decision to scale a new venture. It makes decisions on when to scale evidence based.

Scale: Assembling the Assets to Build a New Venture

Scaling is turning a validated idea into a revenue-generating business.

Authors’ recommendation is that Corporate Explorers have a plan for combining assets from different sources to take a new venture to scale. Acquire with a purpose, not as a shortcut to success.

Having a hypothesis about the destination makes it possible to have a roadmap and to do route recalculation as circumstances changed.

Corporate Explorers assemble three types of assets: customers, capabilities, and capacity. The strategy for combining assets is a scaling path. It describes the anticipated sources for the assets – acquisitions, new build, leverage from the core, partnerships, investments, platforms – together with an initial entry point.

In the early 2000s, Jim Peck saw an opportunity to create one of the world’s first big data analytics companies. He head worked for decade for Lexis Nexis.

Three types of assets:

  • Customers: access to channels, customer base, sales teams, and so on that provide market reach needed to drive revenue.
  • Capabilities: the technologies, products, skills, and the business models needed to deliver on the value proposition.
  • Capacity: the ability to manage business operating at increasing volumes, which could mean fulfillment, logistics, manufacturing, customer service, call centers, and so on.

Brand is another customer-facing asset to leverage.

There are five steps that Corporate Explorers take to build a scaling path:

  • Sketch a path to get capabilities, customers, and capacity to scale.
  • Select an entry point. Perhaps the hardest part of the scaling path is deciding where to start.
  • Select critical assets to build. Having established your entry point, you need to decide where to go next.
  • Build out the path. Corporate Explorers execute on the path by making decisions, about what to build, what to buy, what to leverage from the core, and when to partner with other firms to get the assets they need.
  • Decide on trigger points. These are the moments at which you decide to execute on a plan to add access to customers, capability, or capacity.

A scaling path is a hypothesis about the assets a new venture will need. Scaling starts at ideation.

Corporate Explorers have four different options for where assets come from:

  • Build.
  • Buy.
  • Leverage. Assets from the core business.
  • Partner.

Ambidextrous Organization

The core business of a successful company has an operating rhythm all its own. An explore business unit has a different rhythm. It lives with high uncertainty. Although separate, the explore business is not independent.

Explore Organization

Dual approach called an ambidextrous organization is focusing on growing the core and growing the new venture. The ambidextrous organization approach is the best option for supporting a Corporate Explorer.

Some alternatives to the ambidextrous organization are spin-in or acquiring disruptive technology or new capabilities by acquiring a startup and then scale it up within the organization.

Two questions when you are looking for the best approach:

  • Is the innovation strategic to the future of the firm?
  • Is there anything to leverage inside the core business that could help the new venture scale more successfully?

Three main versions of the ambidextrous organization that companies adopt:

  • Focused. Pursuing a specific opportunity or strategy, most often initiated by a CEO or a business leader.
  • Bottom up. Using disciplined approach with formalized processes to facilitate bottom-up idea generation with a path into incubation and scaling.
  • Top down. A project led from the top of the company that aims to create a portfolio of new businesses by establishing a lab or growth team.

Explore Business System

You are trying to create an interface between two contradictory logics. The core and explore, short term and long term, known markets and unknown emerging ones.

Design explore business system. Six different mechanisms are key to this system:

  • Use team design to manage interfaces.
  • Be selective in sales team integration.
  • Design interfaces to corporate functions to be support not controlled functions.
  • Adopt a resource allocation mechanism that takes new venture outside the annual business plan process.
  • Hold Corporate Explorers accountable using a feedforward management system.
  • Allocate executive attention to Corporate Explorers outside the operating rhythms and practices of the core business.

Resource bottleneck can be solved with hybrid teams, sprint teams or extended teams.

Authors see three common pitfalls that Corporate Explorers face when trying to leverage an existing sales team: competition, skills and value destruction.

Feedback is the practice of gathering information after an event. Feedforward control acts on information that anticipates an outcome, rather than waiting for a problem to occur.

Corporate Explorers need a business that can evaluate its progress based on feedforward metrics that act as lead indicators of performance.

A Corporate Explorer’s most scare resource is not money, but executive attention.

A feedforward management system can help to keep the attention of executives. Authors recommend five elements for such a system:

  • Lead indicators. A small number of feedforward metrics.
  • Cadence. You need an agreed frequency of reporting.
  • Decision-making group. You need a small team of senior decision-makers who have the ability to approve financial plans and funding.
  • Enterprise view. You need someone in the decision-making group who can connect the work of the venture to the long-term goals or strategic ambition of the enterprise.
  • New context. Meetings should take place outside the usual time and place of management reviews.

You need a clear separation between failure and poor performance. Failure that contributes to learning can be celebrated. Failure from sloppy performance that does not contribute to learning is poor performance.

Risk and Reward for the Corporate Explorer

Four strategies firms have adopted to close the risk/reward gap between Corporate Explorers and entrepreneurs.

  • First is the venture model that aims for the best of both world.
  • Second is the use of shadow stock that aims to achieve a similar goal, but withing the corporation.
  • A third approach is to adapt existing compensation plans by creating long-term incentives or bonus plans.
  • A fourth approach is to try to replicate the risk side of the equation, both by adjusting compensation to try to replicate more of the sacrifice of the entrepreneur, and by limiting the ability of employees to return to the mothership.

Career risk is a big concern for Corporate Explorers.

Corporate Explorers are wired differently as entrepreneurs. It is more valuable to focus on helping them achieve the shared outcome of building a new business than it is to figure out how to make them billionaires.

Explore leadership

Silent Killers of Exploration

In 2013, GE’s then-CEO Jeff Immelt hired Bill Ruh to lead GE Digital, a new unit charged with reinventing the 100-year-old industrial company into a software company.

In June 2018 Immelt was gone. And so was the digital unit. Bill Ruh came face to face with a Corporate Explorer’s most formidable foe: the core business system.

The core business system presents four main recurring challenges, or silent killers, to a Corporate Explorer:

  • Preserve core professional competences or identity.
  • Avoid, or minimize risk.
  • Optimize for short-term gain.
  • Maintain harmony, maximize comfort.

Risk aversion is the most common management approach. CFO calls it a balanced view of risk.

Risk aversion and go-big investment are twin pathologies reinforcing one another in the lives of corporations.

The new venture is measuring itself against progress toward a new vision or ambition. When a firm applies feedback measures to a new venture, they quickly become frustrated as performance expectations are missed.

The work of Corporate Explorers is to be more than innovators, they are also agents of change. Managing the double helix of innovation and change is one of the key differences between the capabilities of an entrepreneurs and Corporate Explorer.

The Double Helix: How Corporate Explorers Lead Innovation and Change

There are three main dependencies a Corporate Explorer needs to manage:

  • The corporation as investor. They get to define expectations, release funding, and evaluate progress. The Corporate Explore as a teacher, showing senior executives how to engage with data and insights from experiments and manage to progress milestones. They should be storytellers able to develop a memorable narrative that communicates the purpose behind the new venture. They must also be a reputation managers, making sure the story is positive.
  • Second dependency is that the Corporate Explorer wants access to the Core business assets (customers, technology,…) that it needs to scale.
  • The third dependency runs the other way. The corporation is dependent on the Corporate Explorer to be a pathfinder for how it will transform over time.

Startup and corporations have very different cultures. Startups are good at digital product management.

Making decisions based on the case-experiment-data trinity means valuing evidence, rather than gut instinct or the loudest voice in the room.

A good story has a few key elements: structure, message, subtext, protagonist, and compelling image or memorable analogy. A simple structure is:

  • Customer problem.
  • Customer context.
  • Innovation solution.

Players in the internal ecosystem are:

  • Allies – someone with influence and authority.
  • Advocates – peer or manager.
  • Ambassadors – peer or manager.
  • Angels – senior executive sponsor with the ability to secure resources.

The key is forging a connection to the strategic ambition of the leader – what do they most want to get done that they cannot do today.

Outsiders who are hired from the management to pursue an ambidextrous strategy are high-risk tolerant, but they lack the firm’s social network. One research suggests that the best Corporate Explorers are veteran insiders.

Readiness to Act: Leadership and Scaling a New Venture

Instead of developing competitive strategies of core and innovation, choose both/and strategy. There are five steps to this approach:

  • Separate the components of the problem.
  • Reframe the either/or choice as both/and challenge.
  • Recombine assets.
  • Learn how to balance commitments by using incubation approaches described in this book.
  • Reconnect with the higher-level purpose provided by the strategic ambition.

At Amazon, they define the difference between one-way doors (once you commit, there is no way back), and two-way doors (you can commit, learn, and decide).

The zone of productive tension is when a conversation has sufficient candor to raise emotion in the group because the issue of consequences are being discussed, but not so much that it is impossible for the group to understand one another.

Courage is a necessary but not sufficient condition of success. The Corporate Explorer can inspire courage with passion.

The capabilities of the Corporate Explorer to manage uncertainty and mobilize an organization around them may be increasingly in demand.

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