Companies are often victims of their own success. They develop a set of structures and processes that work and generate profits. As the company grows, these structures and processes become ‘set in stone’ and hard to change. Any innovative ideas to meet new and emerging customer needs get lost in these lengthy and laborious processes and approval steps. At the same time, start-ups – who do not suffer the same constraints – are able to quickly launch and take the market share.
Being competitive in a Digital World clearly requires long-established corporates to adopt new ways of working. We have already explored five of the six key barriers and enablers to accelerate Digital Transformation in previous articles. The final area is about how companies need to be organized, in order to succeed in this connected, fast-moving Digital World.
So how can established companies set themselves up to compete with innovative products and offerings, whilst protecting their core business?
Innovation units and incubators
A key consideration is about how Innovation and Digital fits into the overall business. Whilst innovation is key to survival in the long run, for most companies their short-term survival still hinges on an existing ‘core’ business that needs to be protected.
To solve this issue, many companies have set up separate business units, or innovation incubators, to deliver innovative solutions outside the constraints of the core operations of the company. The idea is to protect the core business whilst accelerating innovation without the boundaries and constraints of the “mothership”.
Even the largest digital companies benefit from this approach. Take Google for example. Google X is a subsidiary to its parent Alphabet to invest “some of the company’s resources in hard, long-term problems.”. It operates separate to Google, and develops innovative projects such as energy kites and learning robots.
Spin-Off (or “Spin-In”)
A spin-off will exist for similar reasons as the innovation incubator, but it is usually focused on a specific project and product. This would typically be a ‘big bet’, and an innovative product that is being launched separate to the core business. As such, it has its own business objectives and incentives, designed to function like a start-up, with similar speed and agility without being constrained by the core business.
As told by former Cicso CEO John Chambers: ”The third way we adapt is by using what we call a “spin-in”: We assemble a group of engineers and developers to work on a specific project and move them out of the company, as if they were at a start-up. We have a project like that going on now. It involves 280 employees, and they’re building a multibillion-dollar business for our future. We incentivize them with financial rewards if they hit objectives. That helps them develop a real start-up mentality and gives them a unique ability to recruit new talent. We measure their progress closely; this group is off to a great start. When the project is complete, we’ll move its members back into the main company. These engineers and developers help us bring innovative products to market quickly, but differently from our peers.” (Chambers 2015)
How to make it happen
What do organizations need to do to make such an innovation unit or spin-off successful?
- Solve the right business issues. The innovation unit or spin-off must have a clear mission and purpose, that is clearly defined and well understood by all stakeholders. This mission and purpose need to be aligned to a clear business purpose. It cannot simply be about producing as many Digital solutions and innovations as possible, but it must deliver solutions to the right business issues.
- Alignment to business strategy with clear prioritization and digital governance. As discussed in a previous article, investments need to be aligned to business strategy and prioritized accordingly. This includes a need for ruthlessly evaluating the business case and value of every initiative. Metrics needs to be established and measured regularly. Otherwise, the outputs are simply a gimmick.
- Whilst digital governance is key, this unit must have the ability and authority to move products to market fast, with access to the necessary funds to do so.
- Business and technology. The innovation unit must be staffed with both Technology and Business resources, working closely together. It cannot be a pure technology team and at least as many resources need to be from the Business.
- Clear role: Its role must be clear. Is it separated as a business unit with its own products, or a facilitator working with the business? The former is more typical for early stage digital maturity, and it should with increased maturity move to be more integrated.
- Ability to fail: A key benefit of being in a “start-up mode” is to be able to take greater risks. These risks need to be compensated with solid decision making about when a project should be discontinued. Of course, such risk taking needs to take into consideration the industry and specific safety and other broader implications of the risks.
- Reintegration: With all this in place, it is then absolutely key to have a process and the ability for successful innovations to be folded back into the core business once they have been established. This requires careful planning – and change management – and is critical to sustain business value. In the example of Google X, projects are either discontinued or “graduate” from Google X and become part of the core business, such as for example its Self-driving cars (Waymo) project.
Companies need to adjust their organization structures and make deliberate choices about how digital fits in with the overall business. This includes choices such as Innovation incubators, spin-off and how innovation can be integrated back across the entire business.
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Chambers, John (2015) Cisco’s CEO on Staying Ahead of Technology Shifts. Available at: https://hbr.org/2015/05/ciscos-ceo-on-staying-ahead-of-technology-shifts (accessed August 24, 2018)
Google X – Projects Available at: https://x.company/projects/ (accessed September 10, 2018)