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The greater the innovation, the higher the uncertainty

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To disrupt or not - thoughts on ambidexterity, blitzscaling and business model innovation

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The greater the innovation, the higher the uncertainty

  1. 1. Antonio Fonduca Follow Venture Catalyst (ex-entrepreneur turned investor, now CVC). Adventurer. Triathlete. Kitesurfer. Curious. Passionate. Crafting outstanding ventures. Nov 4, 2015 · 9 min read To disrupt or not - thoughts on ambidexterity, blitzscaling and business model innovation There is no generally accepted de2nition of innovation. Every industry and every department perceive it di9erently. How do you de2ne innovation? For me innovation is about letting go of the past and your so called “past successes” for the bene9t of the future. It is a mindset and involves cu- riosity – and has to do with your outlook on the world – innovation is about exploring the unknown and daring to challenge the conventional ways of doing things. When speaking of innovations, I think it is useful to be clear about what we are implying. In this regard I am very much fond of the terminology introduced by Clayton Christensen, who makes the following distinctions: Sustaining innovations: innovations that create limited jobs/no growth and make things a little better – hence replicative and re- quiring limited capital EIciency innovations: innovations that eliminate jobs and create no growth – hence doing “more with less” and freeing up capital Market creating innovations: innovations that create jobs and growth – hence using capital Generally when I think of innovations, I have the latter in mind – which involves disruption. Disruption implies the creation of something new – and to quote Schumpeter entails “creative destruction”. Disruptions cer- tainly create new jobs, while also destroying old ones, as a natural part of evolution. Larger types of corporations generally tend to focus on the former two types of innovations. Both are arguably necessary – we naturally wish to sustain our previously gained competitive advantages. Larger corpora- tions also tend to invest in something relatively known (which brings • • •
  2. 2. comfort) rather than venturing into the unknown. Disruptions, on the other hand, challenge our comfort zones. With this in mind, I would recommend maintaining a balanced portfolio of innovation types, while creating customized nurturing environments (ecosystems) for each type. How do you identify, evaluate and prioritize relevant trends and technolo- gies? How do you react to disruptive technologies and business models? First of all, I see my role primarily as 9nding ways to disrupt BK before someone else has the chance to. You could compare this to taking a vac- cine shot if you will. Second, we want to avoid falling into similar traps that other larger cor- porations have historically fallen into – where innovations certainly were being worked on, but where the corporation was not able to switch and overcome their old business logic – hence failing to adapt and capitaliz- ing on new technologies and trends. How do you do this? Well, I think you need to set up diWerent and customized nurturing grounds (ecosystems) for the various types of innovations that you man- age in your portfolio – as they all have diWerent requirements and bene9t from diWerent setups. In this context: the culture, mindset and business logic all play an important role. Therefore, consider to what extent you are creating a supportive and exploratory culture where mistakes are not only allowed but even encouraged (“failed” experiments and lessons learned). This is also the reason I am a great believer in the following de- 9nition of competitive advantage: “the ability to learn faster than your competitors”. More speci9cally: 1. I identify technologies by using a combination of push and pull. On the one hand, you need to inform the world what your mission is – what you are trying to achieve and why. On the other hand, you also need to 9gure out and create systems to scout for interesting people and relevant technologies that 9t your mission – by applying search areas, opportu- nity 9lters and investment theses. 2. I evaluate technologies primarily by strategic 9t, i.e. “what are they selling” vs “what are we interested in buying” and gauging how good the
  3. 3. 9t between the two is. It comes down to creating maximum alignment of interest between the two over the longer term. 3. Finally, I prioritize technologies by processing the pipeline. If you have done a solid job in the previous steps, then this becomes straightforward. Ultimately, I react to disruptive technologies and business models with curiosity, awe and inspiration. Disruption is simple, yet hard to attain. It seems obvious once launched – yet so hard to come up with beforehand. Most disruptions are elegant and mostly come down to re-bundling (bundling and unbundling the past), i.e. connecting the dots in diWerent ways. This type of work typically involves seeing the larger picture – while capitalizing on market dynamics, consumer shifts and technology advance. Some timing and luck are usually also required. To be able to work on these things is truly a blessing in disguise. Innovation needs a structured organization but if it’s too rigid, it can hinder innovation. So how can it be managed without slowing things down? Correct. This is why I believe in the concept of ambidexterity – in combi- nation with a portfolio of diWerent types of innovation, as described earlier. So what do I mean by ambidexterity? Well, similarly to how your right and left hands interact in co-existence, so should your ability to manage your current and future businesses in parallel. In other words, your left and right hands ful9ll complementary roles for the bene9t of your whole – so should your old and future busi- ness models for your organization. This relates to what we touched upon earlier, i.e. the ability to switch and overcome old business logics – along with the ability to disrupt yourself before someone else. This is why you need to create an environment for ambidexterity throughout your organization – something that starts with the Board of Directors selecting the CEO for the long term – who also understands the necessity of ambidexterity and creates an environment that enables it. So yes, on the one hand you need to defend current market share and se- cure steady growth quarter by quarter (your current business). On the other hand you need to dare venturing into the unknown, i.e. testing many experiments and failing plenty – to gain lessons learned and per- haps even stumble upon scenarios where you directly or indirectly would disrupt your old business model logic in the process (your future business).
  4. 4. An immoderate example perhaps in big corporations today, yet some- thing that might be applied sooner or later, is the introduction of a Chief Entrepreneur – as described by Alexander Osterwalder in the Harvard Business Review. According to him, the Chief Entrepreneur oversees the future business (typically 9nanced by the current business), as rigorously as the CEO manages the current business. Both report to the Board of Di- rectors. It will be interesting to see any upcoming early adopters catching onto this type of organizational design. On a similar note, I recall Guy Kawasaki talking about the dynamics be- tween the Apple 2 and Macintosh parts of the organization back in the days. Apparently, the Apple 2 people (who were highly successful at the time and 9nancing the Macintosh people) were not even allowed to enter the Macintosh part of the building – or even 9nd out what the Macintosh people were doing in their labs. This could certainly be regarded extreme behavior, yet it serves to illuminate important aspects of truly ambidex- trous organizations. With this in mind, consider what steps you and your organization are willing to take – to embrace ambidexterity. What are the main criteria for developing an innovative corporate culture? What are the main barriers? Culture is an underlying and recurring theme in my work and I believe it all starts with the vision and idea of the founder – via the Board and CEO all the way through the organization, and most importantly – the people, who choose to join the mission and quest for a brighter future. When an organization has alignment all the way through the ranks – this shines through. You can tell that the people are aligned and dedicated to the mission of the organization. You can feel the culture “in the walls”, en- forced by storytelling, rituals and heroes. The people all understand what you are trying to achieve and why. There is no shilly-shallying. Rest assured – this does not just happen by chance, rather it is something that comes as a result of very dedicated, determined and congruent leader- ship practice. Consider what type of people you are repelling and attracting to your or- ganization. People come and people go – this is quite natural in any orga- nization. The key is to look for who is joining and who is leaving. Consider what qualities you are looking for and understand what people are looking for when considering you as an employer. I would say that it mostly comes down to storytelling, rituals and empowerment.
  5. 5. Let me share an example with you that I discovered recently while listen- ing to an interview between Reid HoWman and Eric Schmidt as part of the ongoing “Blitzscaling” series at Stanford. Eric Schmidt goes to the local Google cafeteria on a Friday afternoon to grab some food after a long day at work. An employee sits nearby and they begin to chat. The employee states that he has thought about a solu- tion to solve general AI but needs 10 000 servers over the weekend to 9x it (this was a big deal at the time). Mr Schmidt ultimately agrees after a few minutes. Note that this decision involved a huge risk to the current business – in order to serve an experiment and potentially bene9t the fu- ture business of Google. Long story short, many years later, the employee has not yet solved the conundrum, yet remains a faithful employee at Google. To me this story is very powerful and illuminates what I mean by culture, storytelling and empowerment. This story is about daring to venture into the unknown and believing in your people. It is about walking the talk and nurturing the correct behavior. As Steve Jobs said, you hire smart people, not to tell them what to do – but rather having them tell you what to do. Therefore, consider to what extent you give your people the right condi- tions to create magic. Are you empowering and equipping your people with the tools required to ful9ll their roles. Are you creating the right en- vironment – as Simon Sinek would argue? Ultimately, it comes down to cultural 9t, i.e. whether you have created alignment between the organi- zational needs and the people who you have attracted and who joined the organization to ful9ll its mission. Product and service innovation are done by nearly every company. Recently, 2rms increasingly try to do business model innovation. What are the three biggest risks of doing business model innovations and what are the success factors in order to overcome these hurdles? I think that most product and service type of innovations generally match the two types of innovations described earlier (“eIciency” and “sustaining” innovations), while business model innovations are gener- ally more inclined towards “market creating” innovations. In terms of managing the risks of business model innovations – to sum up parts of what we have talked about earlier, you need to: 1. Be able to understand and manage ambidexterity
  6. 6. 2. Work with storytelling, rituals, and empowerment 3. Be able to overcome your old business logic while forgetting about past successes With these in place, you create a solid nurturing ground for future busi- ness model innovation. The greater risk would be not daring to do step out of your comfort zone, and change your old business. Instead you play “wait and see” – staying in your comfort zone, relying on old successes and making slight im- provements over time. Suddenly, one day you wake up and realize that someone stepped in and disrupted you, taking your customers away and making you obsolete. There are plenty examples throughout corporate history where this has been the case. Amazon, on the other hand, constitutes a great example of a big corpora- tion with a culture of chartering into unknown territories and challeng- ing your old business logic – while capitalizing on new opportunities (and forgetting about past successes). Amazon Prime is certainly a good example of business model innovation and AWS an example of overcom- ing your old business logic. In this context, I would consider it as good practice to have a dedicated team with the sole role of 9guring out ways to disrupting your current business. Remember ambidexterity – you need the right hand to survive today, and you need the left hand to feed you tomorrow. In other words, both co-exist in an ambidextrous equilibrium. With this in mind – what are you going to do next?

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