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In his book “Collective Disruption:   How Corporations & Startups Can Co-Create Transformative New Businesses,’ Michael Docherty lays out a vision of how established companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the eighth of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

In the first part of his book , Michael explains the reason why open innovation is the recipe for creating innovation that is truly transformative, rather than just maintaining or expanding the core business.   In the second part of his book, he lays out his prescription for “collective disruption” as a way to achieve that open innovation ecosystem.

In the sixth chapter, Michael laid out the four phases of the collective disruption process:

1. DISCOVER:  identify transformational opportunities relevant to your business.  Bring with a customer focus and then identify the key players and the networks.   You need to provide seed funding and resources for these activities.
2. DEFINE:   define opportunities for an initial business opportunity through an iterative process, and use assessments to decide whether to explore these opportunities further or drop them.
3. INCUBATE:    Apply a modified version of lean methodology which can be done in one of three ways–1) inside-in (integrated), 2) inside-out (accelerators), 3) outside-in (imbedded entrepreneurs).
4. INTEGRATE:   Design new teams and structures that are both separate from and connected to the corporation.    These teams need to be separated to allow them to operate outside of the tight financial control of the current business, but they also need to be connected so that they eventually be absorbed into the existing corporate framework or spun off as something entirely new.

In the ninth chapter of the book, he discusses the INTEGRATE phase of the collective disruption process.

Let’s say you’ve gone through the discover phase and have a particular customer focus, and in the define phase have specified an initial business opportunity.   This chapter details how to take great new business ideas that have emerged in the define phase and to nurture and develop them.   Some of the lessons learned from unsuccessful attempts are as follows:

1. Senior-level corporate visibility and support are keys to success.    In creating a new product which may disrupt the market, you may face internal corporate “antibodies” who see it as a threat to their own security and jobs.
2. A degree of autonomy and separation is required for incubation of new ventures.
3. Incentives and reward systems will need to be different from those of the core business units.

With those caveats, Michael then talks about three way to structure the incubation phase.

1. Inside-in (integrated):   This model incubates ventures within the core business structure while engaging external partners.    Within this model are a spectrum of options, from dedicated internal groups to complete distributed models where new business incubation is managed directly within the business units.   Most companies do the former than the latter, with 3M being a notable exception.
2. Inside-out (accelerator):   This model uses corporate accelerators or corporate tie-ins to existing startup accelerators.   It can create a simple and efficient business model, but Michael does not recommend it if you want more than a typical 120-day incubation program.
3. Outside-in (imbedded entrepreneurs):   This model imbeds external partners and entrepreneurs into existing corporate structures.   This model is difficult to pull off I you don’t have the right entrepreneur who can navigate the corporate landscape.

Which model should you choose?   First of all, understand they are not mutually exclusive.   You can try one out and see if it fits your situation.

Now let’s assume that you have the organizational model for the incubation phase.   How do you actually go about doing it?   He recommends a lean approach, where you build early versions of the product from the perspective of the absolute minimum needed rather than the traditional approach of providing many bells and whistles, which apply to smaller and smaller subsets of your potential customer base.   This is termed a minimum viable product or MVP.    This is most easily understood in the software area.    By structuring experimentation as a series of learning experiments, this will drive the learning objectives of this incubation phase.

Let’s say you come up with an MVP that a) addresses a true unmet customer need, 2) is an innovative, unique solution, and 3) answers a marketplace opportunity in terms of timing, price point, business model, etc.   How do you scale up your solution for the mass market?   That is the subject of the NEXT chapter  on the INTEGRATE phase of the collective disruption process, and is the subject of the next post.

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In his book “Collective Disruption:   How Corporations & Startups Can Co-Create Transformative New Businesses,’ Michael Docherty lays out a vision of how established companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the eighth of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

In the first part of his book , Michael explains the reason why open innovation is the recipe for creating innovation that is truly transformative, rather than just maintaining or expanding the core business.   In the second part of his book, he lays out his prescription for “collective disruption” as a way to achieve that open innovation ecosystem.

In the sixth chapter, Michael laid out the four phases of the collective disruption process:

1. DISCOVER:  identify transformational opportunities relevant to your business.  Bring with a customer focus and then identify the key players and the networks.   You need to provide seed funding and resources for these activities.
2. DEFINE:   define opportunities for an initial business opportunity through an iterative process, and use assessments to decide whether to explore these opportunities further or drop them.
3. INCUBATE:    Apply a modified version of lean methodology which can be done in one of three ways–1) inside-in (integrated), 2) inside-out (accelerators), 3) outside-in (imbedded entrepreneurs).
4. INTEGRATE:   Design new teams and structures that are both separate from and connected to the corporation.    These teams need to be separated to allow them to operate outside of the tight financial control of the current business, but they also need to be connected so that they eventually be absorbed into the existing corporate framework or spun off as something entirely new.

This is the eighth chapter of the book, which discusses the INCUBATE phase of the collective disruption process.

Let’s say you’ve gone through the discover phase and have a particular customer focus, and in the define phase have specified an initial business opportunity.   This chapter details how to take great new business ideas that have emerged in the define phase and to nurture and develop them.   Some of the lessons learned from unsuccessful attempts are as follows:

1. Senior-level corporate visibility and support are keys to success.    In creating a new product which may disrupt the market, you may face internal corporate “antibodies” who see it as a threat to their own security and jobs.
2. A degree of autonomy and separation is required for incubation of new ventures.
3. Incentives and reward systems will need to be different from those of the core business units.

With those caveats, Michael then talks about three way to structure the incubation phase.

1. Inside-in (integrated):   This model incubates ventures within the core business structure while engaging external partners.    Within this model are a spectrum of options, from dedicated internal groups to complete distributed models where new business incubation is managed directly within the business units.   Most companies do the former than the latter, with 3M being a notable exception.
2. Inside-out (accelerator):   This model uses corporate accelerators or corporate tie-ins to existing startup accelerators.   It can create a simple and efficient business model, but Michael does not recommend it if you want more than a typical 120-day incubation program.
3. Outside-in (imbedded entrepreneurs):   This model imbeds external partners and entrepreneurs into existing corporate structures.   This model is difficult to pull off I you don’t have the right entrepreneur who can navigate the corporate landscape.

Which model should you choose?   First of all, understand they are not mutually exclusive.   You can try one out and see if it fits your situation.

Now let’s assume that you have the organizational model for the incubation phase.   How do you actually go about doing it?   He recommends a lean approach, where you build early versions of the product from the perspective of the absolute minimum needed rather than the traditional approach of providing many bells and whistles, which apply to smaller and smaller subsets of your potential customer base.   This is termed a minimum viable product or MVP.    This is most easily understood in the software area.    By structuring experimentation as a series of learning experiments, this will drive the learning objectives of this incubation phase.

Let’s say you come up with an MVP that a) addresses a true unmet customer need, 2) is an innovative, unique solution, and 3) answers a marketplace opportunity in terms of timing, price point, business model, etc.   How do you scale up your solution for the mass market?   That is the subject of the NEXT chapter  on the INTEGRATE phase of the collective disruption process, and is the subject of the next post.

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companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the seventh of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

In the first part of his book , Michael explains the reason why open innovation is the recipe for creating innovation that is truly transformative, rather than just maintaining or expanding the core business.   In the second part of his book, he lays out his prescription for “collective disruption” as a way to achieve that open innovation ecosystem.

In the last chapter, Michael laid out the four phases of the collective disruption process:

1. DISCOVER:  identify transformational opportunities relevant to your business.  Bring with a customer focus and then identify the key players and the networks.   You need to provide seed funding and resources for these activities.
2. DEFINE:   define opportunities for an initial business opportunity through an iterative process, and use assessments to decide whether to explore these opportunities further or drop them.
3. INCUBATE:    Apply a modified version of lean methodology which can be done in one of three ways–1) inside-in (integrated), 2) inside-out (accelerators), 3) outside-in (imbedded entrepreneurs).
4. INTEGRATE:   Design new teams and structures that are both separate from and connected to the corporation.    These teams need to be separated to allow them to operate outside of the tight financial control of the current business, but they also need to be connected so that they eventually be absorbed into the existing corporate framework or spun off as something entirely new.

This is the seventh chapter of the book, which discusses the DEFINE phase of the collective disruption process.

When you want to create new sources of revenue growth, this almost always entails business model innovation.   Too much attention can be focused in the beginning of a collective disruption partnership on the relationship at the expense of a focus on external market opportunity.   Rather than hammering out agreements about who gets what, you need to start out with the external perspective of “what does the customer get?”

Here is Michael’s blueprint for managing I/P (the “who gets what” question) in such a partnership.

1. Begin with non-confidential discussions.
2. Proceed to nondisclosure agreements for initial discussions
3. Move to teaming agreements that enable external exploration in the market; address existing I/P and sharing of limited new I/P creation
4. Finally, move to co-development and option agreements and complete I/P rights for co-development AFTER companies have progressed through step 1 through 4

Now, with the “who gets what?” question out of the way, it’s time to move on to the question of “what does the customer get?”, or the creation of a business model.   Here are the phases that Michael recommends to go through here.

Step 0.  Before beginning the business model mapping effort, ensure that the venture has the following:

• a clearly defined vision
• measures of success
• constraints
• the needs of each party.

Step 1:  Identify strategic levers,  i.e., variables at your disposal for bringing a big idea to market, which are relevant to the venture.   These are the columns of the framework.   Here are some examples of such strategic levers:

• Customer target
• Customer problem
• Value proposition
• Offering(s)
• Revenue model(s)
• Cost model (s)
• Distribution
• Partnering approach

Step 2.   Identify a realistic menu of options for each strategic lever that the venture could potentially explore or pursue.   You may add to this venue later as you begin to develop strategy options.

Step 3.  Map the default strategy.   Document it right up front; this will give you a base to compare other options you may explore later.

Step 4.  This is a “mixing-and-matching exercise”.    Pick a column.  For each menu choice under that column, use that item as the “stake in the ground” for that strategy option.  Have the group develop one or more strategies that are choices from the other columns that are a logical and coherent set of choices that support that strategy option.

Step 5.  Iterate on the process above.   Creative and yet internally coherent strategies will gradually emerge.   Start broad and fast and then go back and deselect those options that don’t pass the commonsense test, and then combine and redefine some of the more promising options which have surfaced.

Step 6.  Develop a business model summary statement for the most promising of the options which have surfaced.   The core elements of each strategy summary should include:

• Description of the strategy (target, offerings, etc.)
• Rationale
• Rough financial estimates (size of the potential revenue “prize”)
• Risks/uncertainties

Step 7.   Define which specific learning objectives can reduce risk.   Conduct limited-scope experiments to test your hypotheses around customer need, product/market fit, partnering approach, and related objectives.

These steps should be iterated until you have a promising direction that is worth moving to the next phase of development.   This is the “INCUBATE” phase, which is covered in chapter 8 and in the next post.

For examples of this business model concept map in action, please refer to chapter 7 of Michael Docherty’s book “Collective Disruption.”

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In his book “Collective Disruption:   How Corporations & Startups Can Co-Create Transformative New Businesses,’ Michael Docherty lays out a vision of how established companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the fourth of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

In the first part of his book , Michael explains the reason why open innovation is the recipe for creating innovation that is truly transformative, rather than just maintaining or expanding the core business.   In the second part of his book, he lays out his prescription for “collective disruption” as a way to achieve that open innovation ecosystem.

In the last chapter, Michael laid out the four phases of the collective disruption process:

1. DISCOVER:  identify transformational opportunities relevant to your business.  Bring with a customer focus and then identify the key players and the networks.   You need to provide seed funding and resources for these activities.
2. DEFINE:   define opportunities for an initial business opportunity through an iterative process, and use assessments to decide whether to explore these opportunities further or drop them.
3. INCUBATE:    Apply a modified version of lean methodology which can be done in one of three ways–1) inside-in (integrated), 2) inside-out (accelerators), 3) outside-in (imbedded entrepreneurs).
4. INTEGRATE:   Design new teams and structures that are both separate from and connected to the corporation.    These teams need to be separated to allow them to operate outside of the tight financial control of the current business, but they also need to be connected so that they eventually be absorbed into the existing corporate framework or spun off as something entirely new.

This post covers the sixth chapter, which covers the DISCOVER phase of the collective disruption process.

The first key step is to be clear on your goals.   Why are you looking for and what are your partners looking for?    However, you cannot settle on detailed plans and objectives based on some preconceived notion of what you’re trying to create.

To illustrate this point, let me relate the story told in Douglas Adams’ book The Hitchhikers Guide to the Galaxy.    In the story, a group of executives who want to assist a new colony in space to organize their society get on a spaceship headed towards that colony.   Unfortunately for them, their ship gets sucked into a wormhole that takes them back to prehistoric Earth in the time of the cavemen.   Undaunted by this setback, the executives decide they are going to use their advanced technology to jumpstart the technology of these primitive people by teaching them innovations such as fire, the wheel, etc.  But their project gets off on a rocky start, because the marketing department cannot decide what color the wheel is going to be.    (Their parallel efforts with introducing fire to the cavemen are similarly stymied by the fact that they cannot communicate well enough with them to organize a focus group to find out how the cavemen relate to fire.)

Now this is, of course, a parody, but it illustrates the concept Michael is talking about regarding making plans which are too detailed at the beginning.    I’m sure the cavemen would be impressed by the wheel no matter what color is turns out to be.

The strategy should be one where the solution emerges in a meaningful way.   You should have a GENERAL idea of which direction you are going towards.   Then, you develop a number of focus areas defined by a set of related opportunities that can fuel a line of products or hopefully a whole new business.    Michael refers to these focus areas as hunting grounds, and the key elements of a productive hunting ground are:

• it is defined by a set of consumers or customers and a set of unmet needs
• market gaps are observed where current players are not adequately addressing current and emerging needs
• it is narrow enough and actionable enough to enable efficient focus of resources to develop and identify solutions
• it is broad enough to encompass a variety of opportunities and not a single product solution

There are two elements of the process of finding success with a particular hunting ground.    One is making sure that the process is an emergent one, so that you use the startup as a sensing network that, like a dousing rod, gets closer and closer to a viable solution.

And the second element is making sure that the startup has an accurate signal about where the solution is.    This is done by focusing on

• Who the customer is (articulating a clear definition)
• What problem the customer faces (again, with clarity)

You need to get face to face with customers, which requires getting out of the building to TALK with them.   If you cannot find the customers you need for customer development interviews, it may be that may not exist in the numbers that you’re projecting on your spreadsheets.

In other words, customers are your first and foremost reality check on whether your dream is possible or not.

The next post will cover chapter 7, which goes more into the DEFINE phase of the collective disruption process.

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In his book “Collective Disruption:   How Corporations & Startups Can Co-Create Transformative New Businesses,’ Michael Docherty lays out a vision of how established companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the fourth of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

In the first part of his book , Michael explains the reason why open innovation is the recipe for creating innovation that is truly transformative, rather than just maintaining or expanding the core business.   In the second part of his book, he lays out his prescription for “collective disruption” as a way to achieve that open innovation ecosystem.

In the last chapter, Michael shows that corporate and entrepreneurial mindsets each have positive aspects which, if combined, could create a formidable framework called “collective disruption” for creating transformative innovation.   In this chapter, Michael goes into detail about the four phases involved in the collective disruption framework.

The four phases are:

1. DISCOVER:  identify transformational opportunities relevant to your business.  Bring with a customer focus and then identify the key players and the networks.   You need to provide seed funding and resources for these activities.
2. DEFINE:   define opportunities for an initial business opportunity through an iterative process, and use assessments to decide whether to explore these opportunities further or drop them.
3. INCUBATE:    Apply a modified version of lean methodology which can be done in one of three ways–1) inside-in (integrated), 2) inside-out (accelerators), 3) outside-in (imbedded entrepreneurs).
4. INTEGRATE:   Design new teams and structures that are both separate from and connected to the corporation.    These teams need to be separated to allow them to operate outside of the tight financial control of the current business, but they also need to be connected so that they eventually be absorbed into the existing corporate framework or spun off as something entirely new.

The next four chapters of his book discuss each of these four phases in turn.   The next post will cover the DISCOVER phase covered in chapter 6 of Michael Docherty’s book.

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In his book “Collective Disruption:   How Corporations & Startups Can Co-Create Transformative New Businesses,’ Michael Docherty lays out a vision of how established companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the fourth of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

In the first part of his book , Michael explains the reason why open innovation is the recipe for creating innovation that is truly transformative, rather than just maintaining or expanding the core business.   In the second part of his book, he lays out his prescription for “collective disruption” as a way to achieve that open innovation ecosystem.

Why can’t corporations and startups partner in venture co-creation similar to value creation networks (as discussed in chapter 3).    One objection that is often raised when bringing up such a possibility is the matter of culture:    corporations and startups are often thought of as having cultures that are different as oil and water.

In order to solve complex problems, one needs to leverage polarities as an ongoing process.    The apparent paradoxes between corporate and entrepreneurial approaches are polarities that we can harness.

Corporate approaches are, on the positive end of the polarity scale:

• disciplined
• strategic & business-focused
• scalable

Entrepreneurial approaches are, on the other hand:

• fast
• agile
• creatively courageous

Of course, with every yin there is a yang, so corporate approaches on the negative end show the following attributes:

• bureaucratic
• slow
• risk-averse

where entrepreneurial approaches have the following drawbacks

• reactionary
• chaotic
• starved & desperate

Here reactionary means reacting to an event rather than moving towards a well thought out goal, as opposed to the sense of being politically reactionary.

The idea is that you want to leverage a partnership that accentuates the positive in both, and reduces the negatives on both sides as well.

Let’s go over the positive aspects of the corporate approach and entrepreneurial approach and list the action steps in parentheses that help achieve them.

• CORPORATE:  disciplined (engagement & support from senior management)
• CORPORATE:  strategic (aligning ventures to business strategies)
• CORPORATE:  scalable (accessing scalability of opportunities)
• ENTREPRENEURIAL:   fast (focus on learning & experiments)
• ENTREPRENEURIAL:  agile (programs are pivoting based on learning)
• ENTREPRENEURIAL:  creatively courageous (sufficient autonomy for new business teams)

In the next post, I will discuss chapter 5 which discusses the wider collective disruption framework.

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In his book “Collective Disruption:   How Corporations & Startups Can Co-Create Transformative New Businesses,’ Michael Docherty lays out a vision of how established companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the third of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

In the last chapter, Michael showed why entrepreneurs and lean start-ups excel at transformative innovation.   In this chapter, he talks about why transformative innovation is best nurtured in an environment of “open innovation,” a concept championed by Henry Chesbrough in his seminal book with the same name.

Open innovation ignores the walls of traditional corporate structure, where companies should look both internally AND externally for ideas and work with partners to share both the risk and reward of innovation.

Michael starts the chapter with a notion that may be counterintuitive, but he says that open innovation, although most influential in the technology world, is not really about technology.   It’s about people, and creating relationships that are lateral rather than vertical by putting companies and entrepreneurs on equal footing.   Competitive advantage will not come from who has the best technologies but who has the best relationships.

Those in business still look skeptically at open innovation because they do not yet perceive clear evidence of a direct payment from it.    This perception is based on two reasons:

1. Open innovation is quietly becoming a more natural and integrated part of doing business.    It is planting the seeds of a new ecosystem, but the fruits have in some cases not yet emerged.
2. Open innovation has been focused on incremental core business efforts, and not yet on the truly transformative innovation that is possible with such an approach.

Open innovation requires one to make, as Michael puts it, a declaration of interdependence, where zero-sum games (I enrich you) are replaced by non-zero-sum games (we enrich each other).   But there are different ways of going about this.   here are some examples of different types of networks that can be used for innovation and collaboration.

• Feeder networks:   proactively identifying innovators and partners who can bring technology and capabilities to your company, including suppliers.   They feed you early access to what they are working on but they are also willing to adjust their own development pipelines to align more closely with your strategic goals.
• Internal networks:   networking within a company, but across divisions, brands, or silos.
• Peer-to-peer networks:   Companies share insights and co-develop opportunities.
• Events and forums:    “innovation crowdsourcing” or experimenting with a network before committing to it on a larger scale by creating discrete events aimed at creating and nurturing a network of innovators.

No matter which form of innovation network you decide to go for, Michael has the following advice for you.

• Set clear goals:   determine what goals you hope to achieve with your innovation network
• Identify key players:   identify and recruit a few influential and highly respected members both for the content they bring and their ability to help you further grow the network.
• Map your network:   map your network and key players in the technology and marketing space.   Draw interconnections you know about.   Look at gaps and develop strategies to build the missing connections.
• Informally launch:   informal event launching allows participants to create early relationships.   By making the approach informal, partners don’t feel overly pressured to make long-term commitments.   Let the network emerge and evolve naturally.
• Formalize and expand the network:   after the network has evolved for a while, THEN you can create more formal mechanisms for matters like forums for ongoing communication.   Introduce social networks, collaboration software, and online portals, but don’t forget good old-fashioned face-to-face meetings.
• Experiment and evolve:   create specific initiatives, projects, and co-developments efforts as catalysts.    Consumer needs, enabling technology, and marketplace opportunities are constantly changing and you need to continually look for the intersections of these three areas.

To get examples of the different types of networks and how they evolved, check out Michael Docherty’s third chapter “The Evolution of Open Innovation”!

This chapter three concludes the first part of his book “The Game Has Changed.”  In the second part of his book, he outlines the details of his solution called “Collective Disruption,” starting with chapter 4 “Embracing Collective Disruption,” which I cover in the next post.

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In his book “Collective Disruption:   How Corporations & Startups Can Co-Create Transformative New Businesses,’ Michael Docherty lays out a vision of how established companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the second of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

In the last chapter, Michael put forth the necessity of transformative innovation in today’s world of accelerated technological change.   This puts pressure on companies to ride this tsunami of technology by not only defending and supporting their core business (Horizon 1), expand their core business to include new products (Horizon 2), but ultimately expand the market itself (Horizon 3).   It is this latter category that constitutes “transformative innovation.”

The second chapter of Michael’s book shows why entrepreneurs and lean start-ups excel at transformative innovation.   Innovation used to be synonymous with big.   In the four industrial revolutions, which are

• First industrial revolution (1800s)–harnessing steam power, ushering in the power of mechanized production
• Second industrial revolution (late 1900s)–harnessing electrical power, ushering in the power of mass production
• Third industrial revolution (1960s onwards)-harnessing the power of electronics and computing, ushering in the power of automated production
• Fourth industrial revolution (now)–applying the power of digital systems to control biological or physical systems

the second industrial revolution had Thomas Edison’s Menlo Park as a center for innovation, and the third industrial revolution had Bell Labs as an innovation lab that became world-renowned.   I had a chance when I was in graduate school to interview John Bardeen, the only physicist to have won two Nobel Prizes for physics., for discovering the physical principles behind semiconductors and superconductors, respectively.   It was his work on semiconductors that he did when he was at Bell Labs which helped transform machines to being powered by electricity to those powered by electronics.

Today, however, it is entrepreneurs and start-ups that are creating the lion’s share of innovation, not the big organizations.   What can big organizations learn from start-ups?

• Innovation requires an “open mode” of thinking (see the entertaining talk by John Cleese of Monty Python fame on the “open mode” and creativity at https://www.youtube.com/watch?time_continue=3&v=DMpdPrm6Ul4 and is not susceptible to the “closed mode” of thinking.   This requires a more flexible work environment than the traditional command-and-control one found in big corporations.
• Core business innovation requires cross-functional teams; transformative innovation requires cross-organizational teams.
• Entrepreneurs can help big companies distinguish between vision and tunnel vision.  Tunnel vision means a vision which is encumbered by a too-specific goal or process.

Why would start-ups want to pair up with big companies, then, if the start-ups are the ones who are doing all the teaching?   Well, big companies do have something to contribute to this partnership as well, namely:

• Branding
• Scaling-up solutions
• Developing effective business strategies
• Appropriate discipline in business processes

Let’s return to the basic question of why start-ups are creating the lion’s share of innovation in today’s economy and technological ecosystem.    It is because they are lean, not in the traditional sense of eliminating waste from manufacturing or business processes.   They eliminate waste from the process of innovation itself, by conducting early-stage experiments to learn quickly and iterate towards an emergent solution.   This allows people to work smarter, rather than harder, at the innovation process.    This kind of lean thinking, Michael states, is the bedrock process of the start-up community.

When big companies try to emulate what start-ups are doing with innovation, however, they sometimes stumble because they are trying to adopt these lean methodologies wholesale, rather than adapting them so that they support and engage the enterprise.   However, if adapted properly for the big enterprise, lean startup concepts can actually mitigate risk.

What are some of these lean startup concepts?

• Customer development:   engage customers directly and upfront, validate who customers are and what their problems are
• Validated learning:   create new systems and products by creating hypotheses and then testing them quickly to iterate towards a successful solution.
• Minimum viable product (MVP):   build early versions of the product from the perspective of the absolute minimum needed
• Pivot or persevere:   Change the business or business model to match the market (pivot) or persevere on the assumption that the core hypothesis for the business is still true
• Innovation accounting:   Focus not on accounting in terms of only final output but on measuring what has been learned.

For core technologies and core markets, big companies can stick with traditional product development approaches, but with technologies and markets that are new, the lean startup concepts are the best approach.

For examples, of how big companies have adopted the lean startup concepts listed above, check out chapter 2 of Michael Docherty’s book “Collective Disruption.”   The next chapter of his book dives into the concept of open innovation and what it entails.

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In his book “Collective Disruption:   How Corporations & Startups Can Co-Create Transformative New Businesses,’ Michael Docherty lays out a vision of how established companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the first of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

This post is on the first chapter, “The Era of Disruption,” which lays out the necessity for a more successful strategy for innovation.   The chapter opens the familiar tale of Kodak, which went in the 1970s from controlling a 90% market share of photographic film sales in the United States, to being in bankruptcy in 2012, because of people’s changing photography habits due to mobile phones.   Ironically, Kodak owned significant mobile camera technology but wasn’t able to capitalize on it.   It was a great example to open the chapter, because the Kodak experience is now being replicated by many big companies.

The next obvious question is:   why is this occurring more and more frequently?    Companies have the human capital, physical capital, and intellectual capital with which to innovate and create new products.   Why aren’t they succeeding?    In the past, incremental core business innovation was enough to drive business growth.   But with the advent of the digital revolution, the third industrial revolution (the first two occurred in the 18th century with the advent of steam power, and the end of the 19th century with the advent of electrical power).   The third industrial revolution not only swept in a tsunami of technology products, but more importantly it ushered in a new pace of innovation which is still increasing.

Now companies require core business innovation just to stay in the game, like the Red Queen in the book Alice in the Looking Glass by Lewis Carroll, who admonished Alice:  “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”   Michael uses the term “transformative innovation” to describe innovation opens up new sources of growth, as opposed to core business innovation which has an aim simply the maintenance of current sources of revenue.

Another reason why core innovative innovation is not enough is because consumers have more information at their fingertips because of the Internet, and this has a byproduct the raising of customer expectations.   Consumers are demanding not just a higher quality of the existing products in the marketplace, but are demanding new products and services, thereby shorting product cycles.   I walked into an AT&T store to get a 6S iPhone, and when I mentioned that I was upgrading from a 3S iPhone, the sales clerk looked at me incredulously as if I had stepped out of an episode of the Flintstones!

As external forces make the necessity of innovation ever starker, at the same time big companies had developed internal approaches that made them even less adept at coping with those forces.   Big companies are NOT built to support transformative innovation, but rather optimization of their core business.    They focus on becoming more and more efficient, i.e., doing things right, by creating standards, best practices, guidelines, rules and regulations.   This is a corporate culture with a mindset of risk avoidance.

Delving further into this subject of where innovation fits into the company’s product portfolio, Michael brings up the three-horizon framework  set forth in the book The Alchemy of Growth by Mehrdad Baghai, David White, and Stephen Coley.

1. Horizon 1–Defending and refreshing the core business, which just improves upon existing solutions within the company.
2. Horizon 2–Expanding the core and adding products which are adjacent, that is, which are new to the company but fit in the portfolio of existing solutions.
3. Horizon 3–Transformative growth, which creates options that are new to the market, let alone the company.

Horizon 3 or H3 work entails much more risk, which is why established companies focus on H1 and H2 work almost exclusively, largely for the reason stated above about the company culture being risk averse.    The best strategy, of course, would be a balanced portfolio of initiatives across all three horizons, with one favored strategy being 70% H1 (core), 20% (adjacent), 10% (transformative), which just happens to be the one used by Google.   It’s interesting, however, that in the long run, the distribution of returns is the reverse, where 70% of the total returns over time from innovations come from transformative innovation.

Understanding this three-horizon model is crucial to understanding the reason for Michael Docherty’s strategy for pairing existing companies with start-ups.   Start-ups LIVE in the space created by H3 initiatives, and this is what makes them ideal partners for corporations which live for the most part in the space of H1 and H2 initiatives.

Why not have existing companies move into the space of H3 initiatives rather than using start-ups to fill that niche?    The problem is that these spaces require structures and processes that are contradictory, which creates too much internal tension within the organization.   (Michael cites Google and 3M as exceptions, but they prove the rule, because they ARE exceptions.)

Why not have existing companies simply buy up start-ups once they have created products using transformational innovations?   Michael gives two reasons:

1. Acquiring start-ups in later stages rather than in beginning stages requires paying a premium due to the fact that they have already received significant venture capital.   If you partner with them earlier and supply them with venture capital, you will not have to pay such a premium.
2. Acquiring start-up in a traditional M&A fashion causes you to miss the opportunity to influence start-ups by aligning them towards your company’s strategic goals and growth aspirations.

So having laid out the necessity for transformative innovation, Michael states how his solution, where established companies leverage startups and entrepreneurs as extensions of their organizations, is one which shows real promise in generating new business opportunities.   But before going into this solution, Michael goes into how innovation is created and nurtured by entrepreneurs and start-ups.   That is the subject of the next chapter, and the next post.

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“Collective Disruption:  How Corporations & Startups Can Co-Create Transformative New Businesses” is the title of a book by Michael Docherty, who is going to be one of the keynote speakers at the Leadership Forum 2016 event held by the Chicagoland chapter of the Project Management Institute.

As a project director for the event, I am helping put together this program which will bring over 150 senior executives from established corporations all over the Chicagoland area to discuss the topic “Strategy for Innovation:  the PM Challenge.”   As one suggested strategy for innovation, we are bringing Michael Docherty to talk about his road map for what he calls “Collective Disruption.”   This process is one which partners established companies and start-ups to create an entrepreneurial ecosystem to co-create new market-disrupting businesses.

Over the next 10 blog posts, I will review the chapters of his book to set the stage for the Leadership Forum which is scheduled to take place on May 20th in Chicago, IL.

Why the partnership between established companies and start-ups?   Established companies are strong at marketing and scaling up  innovations once they are created, but coming up with those transformative innovations is not one of their strengths.   On the other hand, start-ups are strong at coming up with transformative innovations, but need capital, marketing expertise, and production know-how in order to take that idea to the marketplace.   So the strengths of one side of the equation can balance the weaknesses of the other.

Why transformative innovations?    Sustaining or core business innovations are aimed at maintaining one’s business, but not transforming and creating entirely new products and services which can potentially disrupt the market.

A word about the title “Collective Disruption”:   the “Collective” part obviously refers to the innovation ecosystem referred to above which is created by the partnership between established companies and start-ups.   However, the disruption part refers to innovation which can eventually redefine the industry, the most obvious example of which is the iPhone.

And what about the title of the Leadership Forum itself?   Of course, the “Strategy for Innovation” is what Michael Docherty will talk about.   Why is this “the PM Challenge”?   The challenge part comes from the fact that getting established companies and start-ups to cooperate seems like a great idea theoretically, but when it comes to actually implementing it there is the unescapable fact that these entities have cultures that are like oil and water.   How do you get them to communicate with each other?

My answer is:  soap!    A soap molecule has one end that can communicate with oil molecules and one end that can communicate with water molecules.   With the mediation of soap, oil and water can communicate with each other, and the results, well, they come out in the wash, to extend the metaphor a little bit longer.

We are PMI are suggesting that project managers can be the ones that help established companies communicate with start-ups because more and more of them are fluent in the project management language used by enterprises, the traditional or so-called “waterfall” style of project management, and that used by entrepreneurs, the so-called “agile” style of project management.

This topic is so important, in fact, that the Chair of the Board of PMI Global, Antonio Nieto-Rodriguez, will be coming to the event as another keynote speaker to address it.

So starting tomorrow, I will start with Chapter 1 of Michael Docherty’s book, entitled “The Era of Disruption.”

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