Your Central Innovation Group

As you can see from the area inside the dashed line in Figure 5.1, your central innovation group is the driver of your end-to-end innovation process. In a large company, this is often a well-funded, global team led by the chief innovation officer, chief digital officer, or head of new ventures. In a midsized company, this may fall under your chief strategy officer or head of corporate development. In the smallest company, this “group” might be how your CEO spends his or her Saturday mornings.

Your central innovation group is charged with empowering every employee to think creatively about how to make your company better. For example, The Weather Channel is constantly testing out new capabilities in its flagship app to increase user engagement and drive click-throughs for IBM’s advertising partners. GM is constantly squeezing more fuel efficiency, acceleration, and reliability from their existing vehicle designs. Hitachi is dual-sourcing key components in their equipment to de-risk manufacturing execution and improve margins.

Ideas like these should be streaming in from the front lines of your company daily. They are critical to sustaining the competitiveness of your current business and delivering the profits and talent required to fuel your Big I initiatives.

Expanding Your Innovation Funnel

Think through how to solicit innovative ideas in a way that fits the style and tempo of your organization. You need to implement a formal program, not an ad hoc contest or campaign.

As you will see in Chapter 10, our research shows that large companies are better at this than small ones. Our survey results show that 81% of large companies have a formal innovation program in place, versus just 55% of smaller companies. Steal a page from industry leaders such as Pfizer, General Mills, and Adobe to design a program that works for your company.

Pfizer’s program, called Dare to Try, is sponsored by its CEO, Ian Read. That top-down commitment makes idea generation a priority for every employee. Dare to Try encourages employees to think big about new product and service offerings. Employees are given access to facilitation, design, and prototyping resources to shape their ideas into investable opportunities.

General Mills uses what it calls “lemonade stands” in its program, which provides market acceleration for new offers through an expedited test-market process. Early exposure to real customers helps kill bad ideas fast, so that substantial marketing can be concentrated on products with market-moving potential. General Mills has seen its average product-development cycle time cut in half.

Adobe’s Kickbox program allows employees to run their own experiments and take ideas from concept to reality. Every employee is given an Adobe Kickbox kit with a prepaid credit card, innovation framework, and direct access to senior management. Prioritizing the specific focus areas is left up to the front-line employees closest to the market.

An internal program at a major industrial company generated 187 ideas from 114 individual participants within a single business unit. Twenty-nine of those innovation ideas got to the planning stage, with 12 receiving seed funding. The breadth of that business unit’s innovation funnel provided a remarkable diversity of actionable ideas for potential investment.

These examples demonstrate the broad range of systematic innovation programs that can improve the quantity and quality of ideas entering your innovation funnel. Pick the attributes that will work best within your organization, launch your own program, and unlock the idea generation potential of your team, division, or company. Once you get started, reinforce your company-wide innovation culture by acting on ideas, not just identifying them.

Step 1: Charter

A charter structures each Little I opportunity around a one-page innovation contract. The innovation contract should include five sections: expected business impact, critical learning objectives, key success metrics, committed talent and capital, and important milestone dates. That’s it.

The innovation contract defines the “what” but leaves the “how” open-ended to allow for maximum flexibility and pace. Entrepreneurial leaders do not want to be told how to achieve their goals, so let them figure out the details along the way.

Step 2: Resource

The people best positioned to rethink your current business are the employees closest to the processes and experiences that most need improvement. This means backing up your innovation contracts with some difficult resourcing decisions.

You see, the people who are on the bench and easiest to deploy for a new Little I team are seldom the ones you need. Free up your best and brightest for Little I duty, even if that means additional work from having to backfill them temporarily.

Use your Little I initiatives as an audition of sorts. Identify hidden entrepreneurial leaders and latent technical, financial, process redesign, change management, and project coordination talent.

The right Little I team members work late on exciting ideas, unlock energy in other employees with their vision, and align internal and external resources to get their concept implemented. They are scrappy. They really do more with less.

Step 3: Implement

To implement Little I ideas, maintain a bias for yes. Anyone can find holes in the thinking of scrappy Little I teams. Don’t expect them to have an answer for every question or corner-case scenario that you can dream up.

Stay focused on the goal of generating rapid, parallel improvements from the Little I part of the innovation portfolio. Install a monthly checkpoint to ensure your team is on track with the goals laid out in its innovation contract. Adjust the scope, resourcing, and execution as needed to maximize the probability of success.

Step 4: Learn

Every Little I innovation contract will include explicit learning goals. While your initiative leaders should be single-mindedly focused on achieving their objectives, your Little I portfolio serves a broader purpose: building the organizational capacity to turn the tables on your industry’s digital disruptors.

This step is the company equivalent of doing yoga to get more flexible. Past success often limits future flexibility. Humans are naturally afraid to mess up what is already working. They are more comfortable doing nothing than trying something new and having it fail.

Including learning goals in every Little I initiative makes it impossible for a team to completely fail. Every team can get partial credit for adding to your company’s innovation IQ. Share the lessons learned from every Little I team broadly in order to improve the odds of future teams having success.

With a steady stream of Little I ideas helping your company play the current game better, you have earned the right to change the game. That requires you to embrace the power of and.

Why Big I Initiatives Need Protection

Big I pushes the boundaries with clean-sheet offers, experiences, and business models. It requires investments in unfamiliar technologies, talent, and partnerships. It demands significant human and financial capital up front, with the potential for a substantial but uncertain return later.

As a result, the seasoned operators running your core business are the least likely to support it. At best, they will fight hard to avoid “their” headcount and budget being reallocated to the Big I initiative. One of our partners has a saying: “Cash cows like to drink their own milk.” Graphic, we know, but anyone who has spent time inside a medium- to large-sized company understands the analogy.

At worst, insecure leaders in your core business may actively undermine the Big I initiative to preserve their standing in the company. They will hate to see the limelight shift to someone charged with building the future.

What Decisions Can Your VIB Make?

To overcome these organizational antibodies, decision-making, funding, resourcing, coaching, tracking, and portfolio management for your Big I initiatives must be removed from your line-of-business organizational structure. Those responsibilities should be shifted to your new VIB.

The VIB structure replicates the decision-making process of the best VC firms. A diverse group of leaders without core business responsibility makes decisions on which Big I initiatives to undertake, how much human and financial capital to allocate to each, and which venture general manager should lead a given initiative.

On an ongoing basis, your VIB provides air cover to undertake disruptive innovation unfettered by your core business. This could mean allowing a Big I initiative to run in stealth mode until that initiative has made a real breakthrough. It could also mean allowing a Big I initiative to compete directly with your existing businesses.

This smart cannibalization is critical to avoiding the real Kodak moment: that is, the point in Kodak’s history at which Steven Sasson invented the world’s first self-contained digital camera and the company chose not to aggressively commercialize it for fear of hurting its lucrative film business.

Netflix is the example you should follow. Netflix’s original business model entailed sending millions of customers DVDs in the mail. To achieve this feat, Netflix built advanced robotic automation into its distribution centers. Soon thereafter, a step-change in the capacity of home Internet service enabled streaming and put Netflix’s growing franchise at risk.

Reed Hastings went all in on smart cannibalization. He created an entirely new division of Netflix for streaming that could compete head-on with its current core business. That courageous decision has made Netflix one of the few companies to outcompete Amazon in one of its priority markets.

Who Should Lead Your VIB?

So, who should lead your VIB? Cisco provides a good model. During its most successful period of Big I innovation, Cisco’s version of the VIB was called the Emerging Solutions Council. It was led by three extraordinarily talented executives: Chris White, Marthin De Beer, and Bill Ruh.

At the time, Chris White was the head of a dedicated salesforce focused on Cisco’s Big I initiatives. Marthin De Beer was the executive in charge of Cisco’s in-house incubator—the Emerging Technology Group—in which Big I innovations such as TelePresence, Smart Grid, and Digital Media Systems were developed into businesses. Bill Ruh led Cisco’s advanced services business and brought the perspective of how visionary customers were actually putting Big I solutions to work. (Yes, this is the same Bill Ruh who went on to become CEO of GE Digital and invent the Industrial Internet.)

White, De Beer, and Ruh made a formidable team. Together they made decisions that would rival those of many top Silicon Valley venture capitalists and protected Cisco’s Big I initiatives from the organizational antibodies that would seek to kill them. If you do not have similar venture-minded leaders available, augment your VIB with outside advisors who can provide a market-in perspective and balance the gravitational pull of your core business.

How Do I Know Our VIB Is Working?

VIBs should be rewarded for beating the odds of failure for disruptive innovation. It is a sobering fact that only 1% of the startups founded in the United States ever make it to $10 million in revenue. Even the best external incubators, such as Y Combinator, get less than 25% of their Big I startups beyond the validation phase to actually scaling up.

The only way for your VIB to consistently beat those long odds is to fully leverage the crown jewels that confer an incumbent’s advantage on your Big I initiatives. This is where your VIB must diverge from an external VC firm.

Now that you have a protective decision-making and management structure in place, let’s focus on the new process you need to execute: the Big I relay race.

Step 1: Ideate

The Big I ideas that make it through your innovation funnel are almost always too high level to be investable opportunities. Refining them to an actionable level of detail is the focus of Step 1. Your relay race team should examine the Big I idea through three lenses: external disruptors, future user experiences, and business model innovation.

For the external disruptor lens, appoint a small team to role play the executive leadership in each of your most-feared competitors or potential new entrants. Have each team build a pro forma crown jewels inventory for its assigned competitor. Now the hard part—develop a high-level strategy for how each competitor could pursue your Big I idea. Use this as input to shape your own Big I plan in a way that outflanks your competition.

In future user experiences, envision how your disruptive innovation could solve the most important customer pain points in your target market. For example, a future banking user experience may not include a branch or even cash and be based solely on cryptocurrencies. Again, adjust your Big I plan to front-load delivery of these breakthrough user experiences.

In business model innovation, identify how your Big I idea could reshape your industry’s value chain and economic model. Analyze the baseline economic model of your markets to isolate how and where profits are made today. Identify potential business model shifts that could weaken your competitors, ward off digital disruptors, and favor your company. Build these conclusions into your Big I plan to make sure that your relay race team is actively thinking about how to put the most money into your company’s pocket.

Step 2: Validate

Now the real work begins. It is time to direct, de-risk, design, and down-select. For “direct”: identify a venture general manager to lead your Big I relay team. We will describe the venture general manager role in detail when we get to Chapter 8. For now, just think “intrapreneur” in residence. Surround this venture general manager with a small Big I founding team whose members are pulled from design, engineering, product management, services, operations, and business development.

For “de-risk,” build a reverse P&L—a powerful tool for surfacing the underlying assumptions and risks of your Big I venture. Start with a standard pro forma P&L that assumes your Big I business achieves success over the coming three to five years. Work backward in each area of the P&L to surface the key assumptions around the operating metrics your business needs to demonstrate to deliver the planned financial outcome. See Figure 5.3 for an example of the sensitivity analysis output from a reverse P&L exercise for a breakthrough hand-held medical imaging device.

For “design,” conceptualize how your Big I idea is going to work in the real world. Your relay race team should leverage a diverse mix of strategy, user experience, technology, and data science skills to build V0.1 (version 1) of the final innovation. That V0.1 could be a hardware or software mock-up, simulation, video, or basic prototype. In fact, your team should develop five to eight options, if possible, to ensure it is pushing the envelope far enough.

For “down-select,” execute your version of the popular TV show Shark Tank. It is pitch day. Individual members of your relay race team will present conceptual designs and prototypes to your VIB. By the end of that day, your VIB will have decided on one or two final designs to take forward to step 3.

Step 3: Pilot

They say that no battle plan survives contact with the enemy. Well, no conceptual design survives contact with the market. There is no substitute for launching a rough but useful version of your disruptive innovation with a small number of visionary customers.

Back in Chapter 2 we highlighted how existing customer relationships are a prime source of your incumbent’s advantage. Now is the time to pull in a few favors and ask your best customers to try out an innovation at its formative stage. If the Big I idea is targeted at a new market segment, then use your brand reach and partner network to tap into these new customers.

These customers will find big holes in your thinking and execution. Don’t be offended or defensive. That data is invaluable if you are to beat the long odds that Big I disruption entails. The earlier you know where your concept is wrong, the easier and cheaper it is to fix it.

Sometimes, using an alternative brand can provide a low-risk piloting opportunity. When Walmart acquired Asda in the United Kingdom, it was able to incubate a disruptive solution for automated click-and-collect stores in Europe. Walmart worked out the kinks there before launching a refined offering in the United States.

Step 4: Scale

It is put-up or shut-up time. Your VIB is going to need to make a go/no-go decision about rolling out your Big I disruption based on incomplete information. This is exactly the situation that the best Silicon Valley venture capitalists face every Monday at their weekly partner meeting.

Your VIB is going to commit substantial human and financial capital on the back of a preproduction solution and some preliminary customer validation. If that worries you, you should not be a member of a VIB.

This is no time for half measures. Either fully fund the Big I relay team with the resources it has requested for scaling up, or shut it down and move on to the next opportunity in your innovation funnel. Too many established companies dilute their scale-up dollars across too many Big I ideas. Don’t. Just don’t.

Play the game as Steve Jobs did at Apple when he held back the iPad to put all of the company’s weight behind launching the iPhone. Act with conviction. All of those Little I incremental innovation successes have bought you the right to make a big play. Don’t shortchange yourself and steal defeat from the jaws of victory.

You are now ready to differentiate Big I versus Little I, nurture your company-wide innovative culture, act fast on your best Little I ideas, unlock the power of and, launch your VIB, and run the Big I relay race. That can seem like a lot. Mastercard provides an example showing how to put this methodology into practice.

Company Readiness Self-Assessment

To complete the company readiness self-assessment, read the grid in Figure 5.4 carefully, then place your company in one of the columns for each row.

Try to think of specific examples from your experience about how your company executes on Big I and Little I opportunities today. There are no right or wrong answers, just your honest assessment of how well developed your company’s capabilities are relative to the benchmarks in each of the cells.

Career Readiness Self-Assessment

Now switch your focus to your own career. Read the grid in Figure 5.5 carefully to understand what each gradient of capability means within each of the six assessment areas.

Pick the cell in each row that best fits your current career progress toward becoming a powerful Big I and Little I leader. Put your completed Figure 5.5 grid somewhere safe. You will be coming back to it when you get to Chapter 11, which covers how to disrupt yourself for long-term career success.

Rule 2 Readiness Summary

Now that you’ve completed your company and career self-assessments for Rule 2, you can fill in your readiness summary in Figure 5.6. As with Rule 1, if you are doing the self-assessments online at www.goliathsrevenge.com, this readiness summary will be produced for you automatically.

With your self-assessments complete, let’s move on to Rule 3: Use your data as currency. This rule covers how analytics, data science, and machine learning can accelerate both Big I and Little I innovations.