Paper on driving_innovation_in_large_corporations

Harnessing the Power of Proven Entrepreneurial Techniques to Drive Innovation in a Large Company By William K. Aulet (MIT Entrepreneurship Center), Ricardo dos Santos (Qualcomm), Stig Poulsen (Danfoss Ventures) and William R. Wagner (Hewlett Packard) March 17, 2010 Innovation is the key to sustainable competitive advantage, and its pursuit is the holy grail of most companies with global ambitions. Innovation comes naturally to most small, entrepreneurial companies because it is vital to their survival and growth. Innovation in large companies presents more significant challenges, since they tend to be more financially driven and less tolerant of risk. In this paper, we look at this issue and how three companies, Danfoss1, Hewlett-Packard2, and Qualcomm3, have stimulated innovation in a relatively short time period by harnessing the power of the business plan competition, a concept that was leveraged from the world of entrepreneurship. The Power of Entrepreneurship The power and impact of entrepreneurship is becoming increasingly evident. In February 2008, a report released by MIT and the Kauffman Foundation4 on the impact of entrepreneurship arising out of MIT alone revealed stunning results. Nearly 26,000 currently existing companies have been founded by MIT alumni. These companies have created approximately 3.3 million jobs and generated approximately $2 trillion dollars in annual revenue. To put this achievement in perspective, as a standalone economy these companies would comprise the world’s 11th largest economy, positioned behind Brazil and ahead of Russia. It is readily apparent that entrepreneurship is a powerful engine that is driving economic growth. The Needs of Corporations Corporations are continually seeking organic growth by building new businesses and reinvigorating existing ones, looking to innovations in products, business models, processes, and customer experiences as the source of growth. Many of them are looking for new practices to spur innovation. Innovation and intrapreneurship (i.e., the entrepreneurial spirit to create new businesses within existing organizations) have become mantras often expressed by top management.5 They look enviously at the often explosive growth created by entrepreneurs and wonder how they can harness this powerful force for their company’s benefit, with the goal of opening new markets, refreshing existing products and being more globally competitive. Inhibitors to Innovation at Large Companies 1 Danfoss is a Danish manufacturer of valves and fluid handling components for HVAC and industrial applications with approximately $5B in annual revenue (www.danfoss.com). 2 Hewlett-Packard Co. is a global provider of IT products and services, with 2008 revenues of $118B (www.hp.com). 3 Qualcomm is a developer of advanced wireless technologies, products and services with 2008 revenues of approximately $11B (www.qualcomm.com). 4 http://www.kauffman.org/newsroom/mit-entrepreneurs.aspx 5 The 12 Different Ways for Companies to Innovate. Mohanbir Sawhney, Robert C. Wolcott and Inigo Arroniz, MIT Sloan Management Review, Spring 2006 Vol. 47 No. 3 1

While companies want to innovate and become more entrepreneurial, they face five major obstacles in attempting to do so: 1. Fear of Cannibalization – As documented by Clayton Christensen6, companies with existing revenue streams are reluctant to risk cannibalizing them by creating new products whose market performance is uncertain. As a result, new ideas are not pursued with the same passion applied by entrepreneurs when starting a new venture. 2. Structural Obstacles to Invention – As highlighted in Howard Anderson’s work in articles such as “Why Big Companies Can’t Invent.”7, the traditional model of research in large companies is failing for structural reasons. Henry Chesbrough agrees and offers other solutions8, but the point remains that with large corporations, structural inhibitors to innovation are commonplace. 3. Desire for Predictable and Consistent Results – Mature companies have investors with large amounts of deployed capital who value and expect predictable, consistent financial results. As could be deduced by logic and evidenced in the experience at 3M Corporation, this expectation conflicts with the inherently unpredictable and disruptive nature of innovation. 9 4. Lack of Training – Traditionally, the employees of large, mature companies are trained and expected to manage existing businesses rather than to create new businesses. They gain proficiency in the practices of gaining market share, adding incremental new product features, and leveraging and optimizing existing competitive advantages. Entrepreneurs, on the other hand, learn to create new markets, to create entirely new products, and to build competitive advantage from a clean canvas. 5. Personal Risk/Reward Profile – In large companies, failure is often not well received. Career advancement most often results from the careful management of successes and avoiding association with conspicuous failures, for which the penalties can be severe. As in scientific laboratories, entrepreneurial ventures use experimentation and failure as an important part of the innovation process. There are large potential financial and personal rewards, and correspondingly high risks, associated with entrepreneurial ventures. In large companies, the potential upside financial benefits are not commensurate with the downside career risk that can accompany failure, a situation that inhibits the pursuit of innovation. This resulting situation creates a dilemma within large companies. The innovation that is necessary for growth is inhibited by the very nature of the enterprise. The question is how to meet this challenge. Described here are three case studies in which major corporations have experimented with repurposing a proven technique from academic and other entrepreneurial environments – the business plan competition – to promote innovation and “entrepreneurial spirit.” Business Plan Competitions – Definition and a Brief History Business plan competitions first started in the early 1980’s with the University of Texas at Austin Business School’s Moot Corp® competition10, built to emulate the existing moot court competition 6 “Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail”, Harvard Business School Press, 1997. 7 Reference MIT Technology Review, May 2004. 8 “Open Innovation”, Harvard Business School Press, 2006. 9 See BusinessWeek, June 11, 2007, “At 3M, A Struggle between Efficiency and Creativity” 10 http://www.mootcorp.org/ 2

of its law school. In 1989, Moot Corp became a national competition, and others began to emerge in business schools around the world. Today, the MIT $100K Entrepreneurship Competition11 is celebrating its 20th year. It has attracted thousands of participants and has resulted in the creation of more than 120 companies. They have over $10B in aggregate market capitalization, have raised over $700 million in venture capital funding, and have created over 2,500 jobs. The business plan competition concept has been embraced outside the halls of academia and has many close cousins run by various private and public organizations.12 Where the business plan competition has been adopted, the benefits are typically threefold: 1. Create New Companies - The competitions can create new ventures as a result of the motivation created through financial or recognition incentives. 2. Foster Enhanced Skill Development – The competitions serve as both motivators and tools to enhance overall business acumen and entrepreneurial behaviors. 3. Build Cross-Functional Teams – The competition can be a platform whereby people with different skills and the common goal of creating a new venture can meet and become partners. The resulting social and professional networks enhance the ability of individuals to realize their goals. Case Studies The following table summarizes the three corporate business plans we will review. Each competition was independently created to uniquely reflect the goals and culture of their respective host companies. Danfossi Hewlett-Packardii Qualcommiii Man on the Moon Flashpoint Venture Fest History • Run annually since 2004 • Run twice since 2006 • Run annually since 2006 • Promote entrepreneurial • Develop business acumen • Develop corporate culture • Develop entrepreneurial skills entrepreneurs Stated • Develop entrepreneurial skills • Develop presentation skills • Promote innovation Objectives • Identify of new business • Identify new business • Business breakthroughs opportunities opportunities • Explore management innovation practices Management • CEO sponsored • Business unit and CTO • CEO sponsored • Managed by corporate sponsored • Managed by dedicated team and Executive venturing staff • Managed by a volunteer staff in R&D Sponsorship • Open to all employees (but • Open to all employees • Open to all employees each applicant must pass a • Team event • Team or individual event competency test) • Three finalists chosen through • Two rounds of down- Design • Team or individual event two rounds using judging selection to 10-15 finalists Summary • Five finalists chosen through panels • Finalists present to two rounds of judging panels • Finalists present to executive executive judges • Finalists present to executive judges judges • Budget $700-900K • Budget $150-200K • Budget $1M Resources • Budget per finalist team $10K- • Coaches from business units • Funding to develop business $100K+ • Web portal with methodology, plan, research, demos, 11 http://mit100k.org/ 12 The best known example may well be the X-Prize competition (www.xprize.org) 3

• Coaches from Danfoss templates, and educational travel, consultancy, IP, etc. Ventures and business units resources ($5-$75K) • Web portal with methodology • Coaching from competition and tools mgt team • Funding to develop business • Mentorship from executives plan, research, demos, travel, • Formal educational consultancy, IP, etc. programs during bootcamp • Mentorship from executives • Web portal with templates and other educational resources • Opportunity to start a new • Opportunity to incubate start up • Opportunity to start a new business business ($200K of startup business • Attend MIT EDPiv funding and three months) • Contextual educational • Educational opportunities • Attend MIT EDP experience, networking & • Executive-level visibility and • Networking and mentorship mentorship Incentives recognition • Executive-level visibility and • Executive-level visibility • New, formal career paths recognition and recognition • Opportunities for continued ownership (no formal career paths to date) • In first five years, 21 proposals • 152 competing teams in year 2 • 200 entries in 2009 (up 50% incubated, integrated, or spun (up 100% y/y ) y/y) out • 23 countries represented in year • Surveys show marked • Approximately 55 participants 2 (up 100%) improvements in in each competition • Year 2 winner beta launched entrepreneurial skills and Results • 10 countries represented totally internally attitude • Enhanced culture of • Surveys show enhanced • 75% of plans are investigated entrepreneurship business acumen and further; ~20% of plans are entrepreneurial skills ultimately implemented Danfoss: Man on the Moon Danfoss has become a mature company operating in mature markets. Entrepreneurship and radical innovation, formerly hallmarks of the company, have been on the wane. In an attempt to change this trend, the company’s CEO sponsored a number of initiatives before the idea of an internal business plan competition emerged. “Man on the Moon”, inspired by MIT’s $50K competition13, was started in 2004 and has since become an annual event. The original objectives of the competition were to stimulate cultural change that embraced entrepreneurial skills and behaviors. It was eventually discovered that great business ideas were emerging from the competition, which now includes radical business innovation as a goal. The competition has created additional deal flow for the corporate venturing unit and has helped to identify employees with entrepreneurial talents for their most promising new ventures. Man on the Moon and related activities are coordinated and sponsored by the Danfoss Ventures department. Danfoss Ventures reports directly to a group of the Danfoss C-level executives and is led by the CEO. 13 Now the $100K Business Plan Competition. 4

The competition is open to all Danfoss employees. Competitors retain the responsibilities of their normal jobs while competing on a spare time basis. The competition seeks proposals of three types: (1) those that create an entirely new line of business; (2) those creating new businesses adjacent to current lines; and (3) improvements to existing business with either a 5-10X improvement in features and performance or cost reductions of >50%. Each year a specific theme is chosen based on challenges the company is expected to face in the coming years. For example, the 2008 competition theme was “Buildings of the future.” The theme in 2004 was “Oil at $100 per barrel.” These themes are only suggestions, and any proposal consistent with company strategy is invited. Employees compete in teams of 4-5 people created during an initial selection period. Functional and personal diversity within the teams is strongly encouraged. Teams apply for participation by submitting a summary of their business proposal and a description of each team member’s skills and anticipated contributions. Based on a one-page summary, about 12 teams are chosen to compete in the first round. During this phase, the focus is on strengthening the ability of the teams to articulate their value proposition through a strong one-minute elevator pitch. A one-day networking, training, and team building event kicks off this first phase. After a six-week development period, a two-page executive summary and a ten-minute pitch are presented to a jury of Danfoss senior executives and external judges, who choose the five teams that advance to the competition’s second phase. During this next six-week phase, the focus shifts to business concept development. The teams work to build a strong business model, incorporating customer insights and commitment, financial forecasts, and a solid understanding of the resources required for execution. Instruction in entrepreneurship and business acumen is provided as the competing teams finalize their entries through a mix of live training classes and online courses, as well as coaching from Danfoss Ventures. The second round culminates in a ten-minute presentation to Danfoss Ventures’ Investment Committee (the CEO, COO, CFO and divisional presidents), which selects two proposals based on the criteria of market potential, market entry strategy, value proposition sustainability, and the quality of the presentation. A winner and runner up are chosen. Both teams are awarded the opportunity to attend the MIT’s one-week Entrepreneurship Development Program at MIT. The participants receive development resources for needed travel, market analysis, demos, patents, and consultants. In the initial stages, the costs for these services average $10-12K per team. In latter stages of development, this can increase to over $100K. Teams are allowed to use internal and external resources. Possibly the most valuable resource arises from leveraging the global resources of the Danfoss Group and its 23K employees. The competition has minimal formal rules to allow for creativity and to encourage initiative. One incentive to participate is increased visibility among company executives. The competition is a valuable career development opportunity. At the conclusion of the competiton, participants can choose to pursue a more entrepreneurial path within Danfoss. Approximately 10% of participants shift their career focus in the company and embark on a new path within venturing or new business creation. For many other participants, the commercialization of their idea is the most important reward. 5

Danfoss Ventures accepts the most promising of the competition’s business proposals for further investigation towards the ultimate goal of launching them as new businesses. Team members have the option of participation in this incubation phase. Each proposal is developed using established corporate venturing processes, which ultimately lead to a decision to either incubate as stand-alone businesses, integrate into existing businesses, spin out, or reject. To date, two ventures have been funded in incubation, three have been funded and formally launched as new businesses inside existing businesses, and on average one proposal is spun out after every other year of the competition. 2004 2005 2006 2007 2008 Teams 3 4 10 13 12 Competitors 9 12 44 58 55 Countries represented 1 2 5 8 10 Hewlett-Packard: Flashpoint HP’s Flashpoint business plan competition began as a grass roots initiative from the inspiration of a member of the company’s new business creation team. Inspired by the MIT $50K competition, he set out to create a 6

corporate business plan competition that could deliver the business and organizational benefits of those commonly held in academic programs. The competitions are run entirely by volunteers under the sponsorship of the Chief Technology Officer and a senior executive responsible for technology and product development. The competition has been held twice. It seeks to teach and promote entrepreneurial behaviors such as passion, resourcefulness, flexibility, and skillful promotion. It also aims to improve overall business acumen and presentation skills, particularly among the scientific and engineering community. The first competition, Flashpoint 2006, offered an opportunity to benefit from that competition experience but made no advance commitment to the incubation of winning proposals. The second competition, Flashpoint 2.0, focused on a specific business area of strategic importance to HP. Teams were challenged to develop business proposals targeting that area of business. $200K in incubation funding was offered as the top prize. This proved to be a far more attractive competition structure, and participation doubled as teams found the lure of seed funding a compelling attraction. HP employees compete in Flashpoint in teams of 3-5 people. After registering, the teams create two-page executive summaries, a simple format that presents a low barrier to entry. Since it is a primary goal of Flashpoint to teach business planning skills, it is important to attract potential competitors who do not already possess those skills. The executive summaries are distributed to an internal network of business planners and managers for judging, using a template that grades on a variety of criteria.14 Each summary is graded by multiple judges, whose scores are averaged to select 10-15 proposals which advance to the next stage of the competition, during which full business plans are developed. A Flashpoint web portal was created, through which employees can access information about the competition as well as a variety of resources on innovation, entrepreneurship, business planning, presentation skills, and company strategy. Competitors who progress to the second (semifinal) round are provided with a coach, typically a business manager with experience in business plan writing. Teams are provided with a business plan template describing each required section of their submission. Business plans must be no longer than ten pages including all text, graphics, and supporting materials. The plan must be accompanied by a brief PowerPoint pitch of no more than seven slides. Three months are allotted for business plan writing. Brevity in the plan and presentation are required as a way to encourage clarity and focus. Teams learn that they must be able to present a compelling picture in just a few minutes, and they are encouraged to develop a strong elevator statement as a means of distilling their messages. Three finalist teams are selected by a panel of judges including company executives, venture capitalists, and business school professors, who meet to review all of the business plans. The judging criteria employed in the semi-final round include the overall quality of the business plan document, business attractiveness, addressability by HP, technical feasibility, and the perceived ability of the team to successfully incubate and launch the proposed business. To address this last criterion, teams are interviewed by at least one of the judges, who then presents her findings to the rest of the panel. The three finalist teams are given one month to hone their plans and presentations 14 Criteria incude the clear identification of a target customer set, a quantified value proposition, preliminary financial assumptions, and clarity of presentation. 7

in advance of the final judging, which takes place at a formal banquet. Each team presents a ten minute pitch, followed by a Q&A session with the judging panel of senior executives who select the winning entry. A variety of incentives is offered to participants. Volunteers receive certificates and trophies acknowledging their service. The banquet event held at the end of the competition offers competitors and participants an opportunity to be recognized by senior executives in a lively social atmosphere. In addition to the incubation funding, members attend MIT’s one-week Entrepreneurship Development Program at MIT. Flashpoint has proven to be a widely popular event that attracts participants from every part of HP’s business and geographic locations. Through the competition’s web portal and the competing team’s own websites, blogs, and wiki pages, all behind HP’s firewall, employees follow the progress of the competitors and access the professional development materials provided. During the final stages of the competition, the Flashpoint webpage is routinely in the top ten internal websites in terms of daily visitors. Team blogs have proven to be an effective way of engaging direct participation by employees as they offer suggestions and volunteer assistance. Surveys show a high level of enthusiasm for the competition and a strong desire to participate in future rounds. Flashpoint 2006 Flashpoint 2.0 Teams 72 152 Competitors 256 488 Countries represented 11 23 Qualcomm: Venture Fest Qualcomm created its internal business plan competition, Qualcomm Venture Fest (QVF), in 2006 to add a formal selection mechanism to its online idea management system, the Qualcomm Innovation Network (QIN). There are four main objectives behind QVF: 1. Develop entrepreneurial leaders (most important) who can articulate ideas into plans, build a coalition of support, and execute expediently and frugally 2. Promote the company’s culture of shared responsibility for innovation 3. Discover potential breakthrough opportunities for the company 4. Experiment with management innovation practices (e.g. collective intelligence, self-forming teams, and internal markets). QVF is managed by a small team of experienced new business development professionals housed in corporate R&D. The QVF management team reports on a dotted-line basis to the company’s CEO, who champions the program. 8

QVF is a yearly competition open to all full-time employees. Each competition has either an internal or external “opportunity identification” theme. For example, QVF’09 had an internal “Fusion” theme, seeking new combinations of existing products and capabilities while QVF’10 has an “Out Sight” theme, seeking external innovations that can be enhanced by Qualcomm. To compete in QVF, an employee submits a short business plan summary into a section of the company’s QIN web tool. The submission period is open for approximately six months. The down-selection process for the 10-15 finalists consists of two rounds of ”collective intelligence” mechanisms lasting four to six weeks.15 When an employee’s business plan summary is selected to be a finalist, he or she must recruit a diverse team of 3–10 volunteers. The teams undergo a three month “Boot Camp” on a spare-time basis. The Boot Camp includes a series of core and elective courses (~40 hours over three months) in corporate entrepreneurship and innovation. The core courses are taught by specialist consultants and university professors. The elective courses are taught by internal subject matter experts in fields such as financial analysis and intellectual property. The teams entering the QVF Boot Camp are provided with a micro-fund, which can be used for internal or external expenses such as demo equipment, market research, and expert consulting. Teams also recruit a VP-level mentor and expert advisors, similar to the process followed by a start-up company. Teams prepare a full business plan for 20-minute presentations, including Q&A, to the judges, who include the CEO, President, CFO, COO and CTO. The judges select the top three prizes among the finalist teams and announce the winners at an all-employee finale event. The key incentive for participants in QVF is the opportunity to work on real business plans. The program offers a uniquely contextual educational, networking, and mentorship opportunity in the key principles of corporate entrepreneurship, including the art of discovering breakthrough concepts, and moving them forward through internal and external networking and early-stage bootstrapping. QVF also offers competitors unique visibility in the company and official recognition for their efforts. Finally, there is a genuine chance that the proposed venture will become a reality in some form, and that selected team members will continue to work on their project after the competition’s conclusion. This has been the case with several QVF concepts. The top three teams are granted a second round of modest seed funding to take them through a more in-depth proof-of-concept or diligence phase. The remaining teams do not have this guarantee of seed funding but many have been successful in securing funding through existing departmental innovation budgets. Executive judges are kept abreast of developments and receive periodic updates so they can determine the ultimate home for the various teams, whether inside an existing business unit or in a temporary incubator like corporate R&D. Expectations are set that not all teams will succeed in securing funding or reaching market launch. Results of the QVF have been promising. Participation has increased 50% y/y. The number of team members in the finalist teams in nearly 100. The QVF Boot Camp is producing high quality business plans and well trained future corporate entrepreneurial leaders. About 75% of the business plans receive funding for proof-of-concept activities. Ultimately, about 20% are implemented as 15 Mechanisms include peer and expert ratings and a decision market game. 9

new businesses with continued involvement from their original champions. Some plans also become incorporated into existing projects or result in the filing of significant IP for future use. The most prominent success to date is the Zeebo wireless gaming console – a disruptive gaming solution targeting emerging markets recently launched in Brazil and Mexico.16 Venture Fest Participation QVF’07 QVF’08 QVF’09 Initial Submissions 82 128 196 Submitters 134 186 338 Countries represented 8 11 16 QVF’07 QVF’08 QVF’09 Finalist Teams 10 14 14 Team Members 68 78 96 Countries represented 1 5 5 Conclusions and Lessons Learned In each of these cases, for a relatively low cost the Corporate Business Plan Competition (CBPC) has a high impact on improving the innovation culture, the skills of the organization and even producing tangible results from new lines of business. Will this happen in every case? The answer is clearly no, and so we look at the characteristics that first make an organization a good candidate for such a competition: 1. Is innovation fundamental to your company’s business strategy? 2. Does the CEO believe this and aggressively push for innovation? 3. Is your company willing to take a long term view of innovation programs? 4. Will a CBPC complement existing innovation programs in your company today? 5. Is your organization willing to make a significant investment in a CBPC program? (>$500K out of pocket plus a material time commitment of senior executives) 6. Will your company take seriously ideas that come out of such a competition? 7. Is there an identified champion who is passionate about running such a CBPC program? If your company fits this profile, then the lessons learned from our case studies would indicate the following are key design points for a successful CBPC: 1. Clear and Aligned Objectives: The objectives of the CBPC need to be clear and directly related to the overall strategy of the company. As such, they should be consistent with the objectives that have been met by successful traditional independent business plan competitions, as well as being an effective catalyst to change corporate culture. As mentioned earlier, traditional business plan competitions offer three main benefits: creation 16 Zeebo (http://zeeboinc.com/) 10

of new companies, fostering of skill development and building of cross-functional teams. Importantly, it will take even longer to create new companies in a corporate setting: perhaps a few years because of the additional challenges in that environment. 2. Strong Support at the Top: In our case studies and other analysis, this is the most critical aspect for success of a CBPC. It is easy to criticize a corporate business plan competition, and it will likely be a target for incremental managers who do not want their homeostasis threatened or resources reallocated from lower risk projects. The only solution is to have active and committed support from the very top. Since there will be failures before successes, CEO advocacy is critical. 3. Sufficient Resources: It is imperative that sufficient resources are committed to the program. The first and most visible will be the incentive for the winners. Is it meaningful to them? Does it show commitment from the company? If not, everyone may be polite but they will notice it, no matter what the decibel level of the cheerleading. In addition, there must be sufficient resources to run the operations of the program for items like the web portal, programs and market research, which requires microfunding. In our cases, we found a budget of at least $500K was necessary to have a positive impact. Finally, is there an agreement or understanding on how other non-monetary company resources will be allowed to be used for the competition? Will the employees be encouraged and given time to do this, even if it takes place after hours? Will other company resources be made available? Will executives willingly and gladly spend meaningful time judging, mentoring or helping the teams? This is necessary to back up the objectives and strong top-level support for the program. 4. Good Plan: A solid plan must be developed that involves careful scheduling to fit with and not disrupt the schedule of the company’s core businesses. In addition, the plan should include a web site for communicating the program broadly, consistently and at low cost. An outreach component of the plan must also be developed to generate the awareness and excitement needed to create deal flow for the program. Of course, the overall plan needs to involve the key stakeholders at the appropriate time and level and have their participation locked in on their schedules. The plan should be updated annually. We have also found it valuable to produce a theme for each year, but it should be a guideline and not a restriction. 5. Avoid Too Much Detail in Plan: Entrepreneurship is a creative problem-solving skill, and if the competition becomes a fill in the blanks exercise without forcing the participants to be creative, the proper skills will not be developed. Initiative and commitment to creatively break through walls should be encouraged. Danfoss has explicitly designed this lack of “too much detail” as one of the explicit guidelines in their competition. 6. Strong Team to Execute: In each instance, the CBPC takes strange, unpredictable and sometimes scary turns and twists. It is therefore essential to have a visible, respected, passionate and committed team to lead the execution. The team will have to make adjustments to navigate through choppy waters, especially in the early years, but in the end it will be great leadership training. 7. Support Tools for Participants: In reviewing the factors for success, having good mentors/coaches was very important, which seemed obvious. It was less obvious that having a high quality web site with information, tools and communications capability was extremely important as well – and potentially even more important. In the case of our three companies, this helped to tie together disparate geographic groups and foster cross- disciplinary teams. It was also important since much of the work had to be done after hours. 11

8. Exit Strategy: There needs to be a clear strategy and concrete plan for what happens when the competition is over, and the exit strategy must be embraced by the executives, the organizers and the participants. Without it, the CBPC will become an event rather than part of an integrated innovation plan. Consequently, its value will be dramatically reduced and its longer-term impact will be disappointing. 9. Willingness to Involve Outside Parties: In our competitions, if expertise was lacking internally and even times when it was present, the willingness to engage outsiders to help in evaluating new ideas was critical. Beyond generating new thinking and discussion -- which is the essence of innovation – this commitment sends a clear message that the company is open to ideas and scrutiny of their efforts by outsiders. Another corporate business plan competition is now planning to take this a step further, opening its CBPC to outside participants. This will be based on the model of the MIT $100K competition, where outsiders can participate as long as there is one central player from the sponsoring organization. With a strong foundation from the other items on this checklist, this development can inject new thinking into the company. CBPC designers should consider incorporating this new feature. 10. Celebrate Wackiness and Even Failure in the Participants: True innovation involves a process of mutation that at first might seem crazy, but it expands the boundaries and ultimately might (or might not) turn into a valuable innovation. Out-of-the-box thinking should be celebrated, and entrants who “fail” should be given credit and encouraged to determine what was learned in the process. Failure to encourage such learning may cut off a valuable line of thinking that could produce breakthrough innovation. History shows us that the much maligned Apple Newton product failure was a seed that ultimately contributed to the DNA of the game-changing iPod and iPhone products. When looking at these three examples and others the authors have reviewed, it is clear that CBPC, as traditional business plan competitions have proven outside the corporate structure, can be a powerful program to promote innovation. It is not, however, a silver bullet in all situations. At best it is a valuable tool in a more comprehensive tool box that corporations should use to achieve their innovation goals. If you choose to use this tool, consider carefully the ten points of guidance we have recommended in this paper and your benefits could be remarkably like they have been for the good venture capitalists who get 5X or more return on their money. However, it is important to note that a venture capitalist approaches this process from a long-term perspective. The innovation process is like a plum tree that at first drops many green, hard, inedible plums to the ground. Unless you are willing to wait, you may miss the tasty, ripe plums that the tree will eventually produce. Implementers of CBPCs must likewise have patience to see the full rewards of their efforts and investment. i http://www.danfoss.com/ ii http://www.hp.com/ iii http://www.qualcomm.com/ iv Entrepreneurship Development Program, MIT-Sloan (http://entrepreneurship.mit.edu/edp.php) 12

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