Business innovation as the growth option
In today’s search for growth, most organizations realize the importance of developing new business. Without growth, there is very little room for development, and growing through acquisitions is at best imperfect, especially in terms of value creation. The main challenge of today’s enterprise is not whether to focus on both running the current business and developing new business; it is how to combine both. Or in the academic way of formulating this challenge: how to create an ambidextrous organization. Read Scott Anthony’s posts if you don’t agree, he presents the case very concisely in this post.
But just saying it is important does not make it easy. In the past 15 years we have seen a very poor track record of new business creation initiatives such as corporate venturing, developing adjacencies, disrupting the core etc. Do we have management techniques that can help? What about portfolio tools? Can they offer insights?
We see some clear principles for successfully developing new business, and can link them to using the right portfolio techniques. Let’s put these in the context of the three most common management mistakes for new business innovation programs I have encountered.
Mistake #1: Looking for a single fix versus taking a funnel view
In this approach, the company sets up an innovation team with a single focus, one “must-win” option is selected, usually after a lot of study. The underlying reasoning combines a healthy drive not to scatter resources with an overconfidence in “picking winners” (or predicting success, unlikely for any really new businesses).
The main effect to drive management attention to minimize risk (the only option chosen cannot fail) and not necessarily to maximize value creation. More often than not this gradually chases out the innovativeness that is the source of both risk and value, and results in incremental new business. The recommended antidote for this behaviour is to make sure the new business program is seen as an innovation funnel, where multiple options are considered in parallel until most of their uncertainties are resolved. This does require a funding size and strategy that allows the right amount of options to be developed in parallel, and funneled at the right moments.
Mistake #2. Looking for a quick fix instead of a long-term solution
In addition to focus, time pressure is a two-sided sword as well. While a certain sense of urgency benefits progress in terms of decision-making and execution, it does come back at a price. Literally, since the fastest way to growth is to buy it, but that does not mean value is created. It takes time to develop a true understanding of the main business drivers (such as the real customer needs, the winning business models, the right partnerships etc.). Without this proper understanding the real differentiating competences for a sustainable position in the business will be lacking. And as a result, the new business is likely to be a me-too business, with disappointing returns. Especially if time pressure has caused high upfront investments in support of speed.
The antidote I recommend is to build a solid roadmap of underlying technologies and competencies under an innovation portfolio plan. The main strength of the roadmap is that it presents the cascading activities from discovery or acquisition of options, to developing the products, services, and capabilities, to launching and growing them in the right markets. Each option for cutting corners can then be discussed in terms of which value driver will be compromised…
A good roadmap is almost confrontational about lead times for new business. Thereby it reveals the critical path for business value capture, and puts realistic timelines and payback periods in place. If it takes 2 years to develop a technology, 2 more years to launch the first products and then 2-3 years to scale to a serious market share, that means 7 years in total (well beyond the typical 3-5 year plan).
Mistake #3. Focusing on funding instead of staffing
Initially, this post started out as the two main mistakes of new business development. Then when I considered a combination of the funnel or portfolio perspective and the roadmap as providing solid management tools, I realized that was not all. They suggest that given enough time and money, you will be succesful in new business. However, that seems to miss the resource or competence view that is essential for succesful new business development. If the new business portfolio is only linked to the core of the company by sharing a strategy and by funding, it cannot be considered sustainable: anyone that can free up the same funding can implement the same strategy. In order for the new business to be really succesful, it needs to reuse some of the more embedded competences from the running business.
The third management tool is to focus on transferring the right capabilities, and hence resources from the running to the new business. Figuring out what the right resources are and what the right timing is, that drives the resource plan for the new business. This plan needs to link to the competences in the roadmap. and should properly mix internal and external hires. By just making available funding for new businesses, the parent company can easily force new business managers to look outside for all staffing (or worse, to hire insiders from superfluous positions).
A solid long-term resource planning over time in line with the funnel and the roadmap is the recommended cure for the third mistake.
Not common mistakes, but don’t forget…
Of course, these three management tools are not the only ones you need for a good new business development program. The proper business plan, with a clear balance across the portfolio and solid financials matter as well. These tools are usually available in the organization though. We recommend to bring the funnel, the roadmap, and the resource perspective to the management tool set as well. What do you think? Have we covered the main management tool set now?