The roadmap to smart scaling: How to avoid the pitfalls of new corporate ventures
In 2021, IfM Education and Consulting Services (IfM ECS) will be collaborating with Lean Scaleup to support corporate innovation in a new peer group.
Peer group leads Rob Munro, Industrial Associate, IfM ECS, and Frank Mattes, Director of innovation-3 and Lean Scaleup, discuss some of the approaches they teach and how companies can use ecosystem thinking to successfully start and scale up new corporate ventures.
How can companies in the current business environment choose the growth 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. Outside the company walls, it looks even starker. Most firms are just 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. By adding tools at the front end of innovation development, such as ecosystem mapping and strategic roadmapping, new venture ideas can be stimulated on demand.
Two systems under one roof
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, fierce competitition among 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 in emerging business opportunities which are completely new or adjacent to today’s core business. This is the innovation space which 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, an ‘agility DNA’ is required which acknowledges the inherent uncertainty and systematically reduces it to manage risks.
The missing gearbox
Here comes the challenge: innovation concepts are generated in the innovation space with its agility DNA. Deploying new technology at scale or creating a new, sizable business needs the predictability DNA. In other words, scaling up means transitioning from one business system to another.
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 scaling up a new venture, a gearbox between those two engines needs to be installed to make the transition successful.
Scaling up ventures
These problems are quite common. From 2017, our peer group of more than 30 leading companies shared practices and common themes emerged to enable a framework to solve the Scaling-Up problem.
This framework is called Lean Scaleup™. The companies that have co-created it and use it come 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’, built on the principles of Lean Scaleup.
The three pillars of the framework are:
- Methodology: how to decide if it is worth it and ready to be scaled, how to transition from validation to scaling up, and how to manage scaling up.
- Leadership: how to set the tone and how to get the organization to think outside the box and prepare for the tough decisions.
- Culture and collaboration: how to embed scaling up in planning systems and how to structure the agreement between core and scaleup and enable collaboration as a driver for culture transformation.
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?
Companies sit within a business ecosystem with a wide network of firms and organisations that can or could 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.
Strategic roadmapping is a strategic planning technique that is integral to creating and delivering strategy and innovation in organisations. The graphical and 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.
These approaches together form a toolbox for corporate innovators to develop ‘on demand’ viable new venture ideas and then process them through the Lean Scaleup framework.
Join the Peer Group in 2021
IfM Education and Consulting Services and Lean Scale-up will be collaborating to run the next peer group starting in early 2021. If you are a corporate innovation leader from a large company and would like to discuss participation, please visit the LeanScaleup website to find out more and register.