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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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