Why are transformational innovations so difficult for large and successful incumbent firms? Transformational and disruptive innovation?

Transcription

1 Why are transformational innovations so difficult for large and successful incumbent firms? Transformational and disruptive innovation? Peter Koen All Rights Reserved Brown, B. and Anthony, S. How P&G Tripled Its Innovation Success Rate, Harvard Business Review, June 2011 Koen, P.A., Bertels, H. and Elsum, I.R., The Three Faces of Business Model Innovation: Challenges for Established Firms, Research - Technology Management, 55, 3; 52-59, May June Sustaining Innovations Transformational Innovations 3 4

2 Disruptive Innovations Great companies have difficulty with transformational innovations

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4 Why is it so difficult? Koen, P.A., Bertels, H. and Elsum, I.R., The Three Faces of Business Model Innovation: Challenges for Established Firms, Research - Technology Management, 55, 3; 52-59, May June Bertels, H., Koen, P.A., and Elsum, I. Business Models Outside The Core: Lessons Learned From Success And Failure, Draft at Research-Technology Management. 90 Sales P&G Income 80 Large companies are not innovative Billions Compounded Annual 5 year Sales Growth = 2.9%

5 OK large companies are innovative BUT not in developing new business models Be sure to ask about the side effects Why are new business models so difficult for large companies? 3

6 Business Model Rigidity Leaders will make significant investments in transformational innovation, but will force the solution into the sustaining business model Gavetti, Giovanni, Strategy Formulation and Inertia, HBS School Case , January 10, Business Model Rigidity Kodak invests $5 billion in digital over the next 10 years (40-50% of R&D budget)

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8 The Church of New Finance Common methods of financial analysis systematically bias against high risk innovation Adopted from a Clay Christensen presentation 3

9 Apply the same FEI management methods we use in sustaining to transformational innovations Strategy and Scope Market and Customer Competitor Analysis Traditional FEI for sustaining innovation projects Project Plan Financials Business Plan Market Test No business plan survives the first contact with the customers Some facts from start-ups Adopted from Blank and Dorf, The Startup Owner s Manual, KS Ranch,

10 Most start-ups fail And the ones that succeed change their original business model 66% of the time Quoted from Ash Maurya 90% of transformational innovation projects change their business models 4 times before they get it right Adopted from Mark Johnson, author of Seizing the White Space, HBR, Sustaining businesses execute a business model, transformational innovations search for one Adopted from a Steve Blank presentation

11 The true product of the transformational innovation effort is the business model NOT the solution For managing transformational innovations in large corporations Business Model Lean Start-Up Very early customer/user visits Embrace the lean start-up approach Minimum Viable Product

12 Uses the business model as a converging tool for brainstorming for transformational business hypothesis 2. Early and abundant customer visits We often wait too long to talk with customers 3. VERY EARLY, fast low fidelity prototyping Adopted from Blank and Dorf, The Startup Owner s Manual, KS Ranch, 2012

13 Show this Don t wait for this Words blah, blah, blah. Sketch..worth a 1000 words Prototype..worth a 1000 pictures From a presentation made from David Kelly of IDEO

14 4. Rapid Learning Business Model Customer Visits Prototype Business Model Customer Visits Experiences with large corporations Prototype Business Model Customer Visits Prototype Experience Implementing lean start-up in 3 large companies 2 are in the top 10 innovators in the world Teaching lean start-up as part of a 14 week executive program to 21 companies Teaching lean start-up to a freshman class of 504 students on entrepreneurship teams - 32/125 were accepted on kickstarter 5 Lessons Learned

15 57 All of the companies struggled with getting to the right problem Many innovations fail not because of a fatal flaw in the innovation itself, but because the company fails to understand the problem they are solving Newton: Enamored by technology. PC in your pocket. Not what functions are needed by mobile user Segway: A transportation device for everyone NOT for someone. Not determining which users have a problem requiring the attributes of a Segway

16 Getting to the right problem from the point of view from the insights and needs of the customer POV 2 Google IDEO point of view

17 Confuse solution attributes with the solution Solution Attributes Map Importance Coffee Taste Ready to drink Bland 1 min Rich Flavor Notes 5sec 3 Time to clean > 10 min < 1 min Easy to use Complicated Seamless 67

18 Osterwalder s Business Model Canvas does not work in the FEI for transformational innovations To use as a brainstorming tool each item on the canvas MUST be distinct and explicit 71 72

19 FEI Canvas Developed specifically for large companies 4 FEI teams focus on the wrong customers

20 77 78 Most envision the prototype as a fully featured solution 5

21 The initial prototype is often much more minimum than you think and in conclusion Transformational innovations require a new business model Lean start-up should be used to manage transformational innovations in large corporations 84

22 5 Implementation Lessons Learned Focus on the problem your are solving Reframe it as a POV Don t confuse the solution with the solution attributes Use the FEI canvas for transformational innovations Sustaining Transformational

23 Focus on lead users and early adopters NOT routine users Embrace very early prototyping as a collaborative and communication tool Slides can be found at: