What Silicon Valley can teach Canadian businesses about ‘lean innovation’

What Silicon Valley can teach Canadian businesses about ‘lean innovation’

Mitchell Osak | 13/06/06 | Last Updated: 13/06/05 3:42 PM ET
It is commonly accepted that launching a new business or product is very challenging — so challenging, in fact, that roughly 75% of new product innovations fail to meet expectations.  Obviously, the chances of success will depend a lot on product and marketing decisions as well as customer interest.  Less attention, however, is paid to the process of commercialization or shepherding a new idea from concept to customer. Having a poor commercialization approach is guaranteed to increase failure rates, waste capital and stress the organization.  One way to improve your odds is to bring inside the “lean” start-up structure and lessons of Silicon Valley.

The typical approach to launching innovations or new businesses is to commercialize it using existing structures, processes and capabilities.  Though an internal focus can be appealing, this method has some major drawbacks.  For example, most firms and people display a bias towards the short-term and proven.  Higher risk innovation initiatives will always compete for resources, focus and capital with existing operations. When the going gets tough, innovation is often the first area to be cut. Moreover, though many companies pay lip service to breakthrough innovation, their culture, structure and management systems are often too rigid and siloed to deliver anything but modest improvements. But there is a better way.Our experience and research with large organizations and high-flying start-ups show revamping the commercialization strategy can improve business performance and reduce risk.  Benefits include:  faster time to market; a tighter compliance between new products and customer needs; and, more efficient use of capital.  We call this improved model “lean innovation”. Below are four of its key features:

Intrapreneurialism

At the core of innovative companies is a diverse team of high performing individuals.  These people will be inherently entrepreneurial and customer-focused with strong learning competencies. Lean innovation seeks to find them in key functional areas, refocus their roles, foster collaboration and establish proper team and individual incentives.  Leaders, however, should be wary of creating renegades. Along with maintaining their intrapreneurial spirit, the team must continue supporting existing corporate values and goals.

Start up structures

There is an axiom that structure follows strategy. To foster lean innovation, firms should structure their teams like a venture capital-backed startup. In this model, teams have significant autonomy to target unmet customer needs and get-to-market fast (and if necessary pivot to a new offering or business).  To ensure proper governance and guidance, the team should be accountable to an internal board, which should include expert external advisors.  The board would provide a strong organizational mandate plus exemption from speed-killing (most, but not all) corporate practices and norms.

Despite being anchored in the mother organization, internal startups should relentlessly look outward.  This is not just about getting more market and customer exposure.  It is also about finding and leveraging external partners that can improve time to market, share risk and provide key learnings. Lean innovation is not about creating spinoffs or “skunk works” projects;  a prudent amount of internal collaboration is needed to take advantage of scale economies and other intellectual property.

Hypothesis-driven

Management typically looks at innovation strategy the same way they deal with traditional initiatives — inside-out, based on a formal business plan, metrics and implementation roadmap.  Conversely, lean innovation starts with a new product or business model hypothesis and goes directly to the customer, seeking to quickly validate the innovation’s appeal, demand and assumptions.  In many cases, the firm may want to co-create or co-market the new product with the customer.   In addition to traditional metrics like ROI or payback, Lean innovators focus on longer term measures such as lifetime customer value and viral appeal.

Agile practices

Optimizing the commercialization effort requires more than a startup structure and mentality. Like agile development principles, the team’s practices and policies need to support the goals of speed, pragmatism and learning.  As an example, product development should be undertaken in parallel with customer research (as opposed to serially).  Prototypes need to be developed quickly and deployed immediately into customer’s hands early to gain feedback and market experience.   Innovation teams should have the ability to tap external funding sources  (as opposed to waiting for budget cycles) in order to ‘fund on the fly’ and cement strategic alliances. Finally,external partnerships should be sought out to bring in new insights, add complementary functionality and increase market coverage.

Within large organizations, new business or innovation units can improve performance if they meld the best of start up learnings and organizational discipline.  Of course, this will not be easy from a cultural or management systems perspective.  However, those of our clients who have pulled this off have significantly boosted their innovation success rates while delivering better financial results and higher levels of customer satisfaction.

Mitchell Osak is managing director of Quanta Consulting Inc.  Quanta has delivered a variety of strategy and organizational transformation consulting and educational solutions to global Fortune 1,000 organizations.  Mitchell can be reached at mosak@quantaconsulting.com