Tldr: Many innovation initiatives in established organizations fail. It requires Entrepreneurial Management to cope with the high uncertainty in the innovation space. This type of Management needs to be implemented holistically in order to unleash the corporate innovation chains.

I’ve seen many innovation attempts or initiatives fail in corporate innovation settings. Some of them are reported about, but the majority of them actually never makes it to the public, because they are sucked up by the established organization. Indeed, a recent study on the performance of corporate innovation labs revealed, that only 30% of innovation labs are accomplishing their objective to innovate. Many intrapreneurs and managers are frustrated and get burned out in companies that don’t manage Corporate Innovation right. But is there a right way to manage corporate innovation?

 

Are Corporate Innovation Attempts trying to square the circle?

Many people that have been involved in corporate innovation initiatives are frustrated, which often results in a general rejection of corporate innovation as a source of development and growth for a company. Although it is understandable from this point of view (considering the individual experiences) to take such a perspective, it is also not a safe bet for a company to build up all innovation activities outside of the company. It is indeed essential nowadays to accumulate the capabilities for corporate innovation within every enterprise. But are we now trying to square the circle again with this? Amazon for example is able to continuously innovate new products and business models from within the organization.

 

Entrepreneurial Management can Unleash the Chains of Corporate Innovation

The basic difference between innovating and the ongoing operations is that former is driven under circumstances of high uncertainty, whereas the latter is characterized through a high certainty. Many corporate innovation attempts within mature organizations are trying to apply the innovation processes for incremental developments of their established product lines on new businesses. The creation of a new business is a venture that takes place under high uncertainty. This uncertainty is characterized through Known-Unknowns and Unknown-Unkowns, which is unpredictable uncertainty because of ambiguity. Thus, a venture cannot be pushed forward through the methods and tools that are developed for situations under certainty. That’s why we need to distinguish between two different types of management. One that is management under high certainty and the other that is management under high uncertainty.

Under high certainty, a manager’s job is to exploit a repeatable and scalable business model > Traditional Management

Under high uncertainty, an entrepreneurial managers job is to explore a repeatable and scalable business model > Entrepreneurial Management

Applying Traditional Management beliefs and techniques under circumstances of high uncertainty leads to a low innovation performance and the creation of entrepreneurial waste – which is analysis paralysis and innovating without a market need. It’s is not an either/or question, but a question of the right timing. A successful business requires entrepreneurial management to explore a business model and traditional management techniques to exploit it. The main challenge is when to apply which type of management.

The ideal moment to switch gears is, when a venture has reached product market fit. Which is, that the product and its business model are creating repeatable and scalable revenues. There is a big reduction in uncertainty at this point. The attractiveness of the business model and the focal product are validated with reaching product market fit and it’s now possible to exploit the developed business model and to focus stronger on gains in efficiency.

The increasing speed of technology development, of technology adoption and of the disruption of competitive advantages leads to shorter lifecycles of ideas, products, business models, companies and industries. These shorter lifecycles lead to an increased importance of Entrepreneurial Management, since the number of periods of low uncertainty shrinks rapidly.

 

Entrepreneurial Management differs strongly from Traditional Management

Entrepreneurial Management differs strongly from Traditional Management in multiple ways. Various principles guide the actions, when searching for a repeatable and scalable business model as an entrepreneur.

Under circumstances of uncertainty, the only way to move a venture forward is through rapid experimentation. Intense planning doesn’t work under these circumstances and can lead to high entrepreneurial waste. The problem is, that executives of in Traditional Management mode value precise planning more than learning through experimentation. This is a major issue. Uncertain environments require pivots, abortions and the acceptance of failure. The video shows how much SpaceX is embracing failure. They are not even afraid of communicating various ways of "How not to land an orbital rocket booster"

Every venturing unit should iterate daily/weekly based on the generated insights of the conducted experiments. This includes the possibility and acceptance to fail with an initiative. Entrepreneurs make their decisions autonomous, based on their own set of rules. They pitch for support from shareholders and partners, but are solely responsible for the product and business development. New developments from a traditional management perspective are only initiated, in case of a positive business case. Costs for product development, operations and marketing activities are carefully planned. In situations of high uncertainty creating business cases as objective is ignoring, that the gross of the business model is full of risky assumptions. Business Case based planning can furthermore lead to scope creep that increases the likelihood of failure. Entrepreneurs act on the principle of affordable losses. The teams are aiming to get the most out of an affordable loss. The usage of the money is optimized through a conscious data-driven decision making. Entrepreneurs avoid decisions based on opinion and intuition. That only works in situations of low uncertainty. Instead, they build their decisions based on facts and data out of experiments.

It is very clear, that these principles of Entrepreneurial Management can only be successful, if they are implanted into the various organizational dimensions of an innovating entity. As organizational dimensions, I see e.g. Vision, Strategy, Structure, Culture, Process, Accountability, etc. 

Successful (continuous) innovators like Amazon, Netflix, Google are applying entrepreneurial management throughout their whole company and don’t just rely on some fancy offices in a major startup city. They have Entrepreneurial Management literally in their DNA.

 

Different perspectives of how Entrepreneurial Management works in an established company

There are many perspective of what makes Entrepreneurial Management successful in companies. To perform like more like a Startup, various authors ascribe it to different organizational dimensions, that a leader should create to foster innovation. You here these positions in many discussions and debates. I’ve lined out some examples of those:

Vision

• “Real innovative companies are purpose driven”
•   “Successful companies start with the why”

Strategy

• “Agility requires a problem focus rather than a product focus”
• “You need a roadmap of questions/experiments, rather than a feature roadmap”

Culture

• “Key to perform more like a startup is culture”
• “Culture that allows/celebrates failure”
• “Information transparency is key to innovation”

People

• “You need to have the right people to perform like a startup”
• “You need creative people”
• “People need to be driven”
• “You need an interdisciplinary/diversified team”

Leadership

• “You need innovation leaders, that empower teams”
• “Innovation leaders need to lead through visioning”
• “Micro-Managing is poison for innovation”
• “Leaders need to unblock the teams”

Processes

• “Agile processes are central for acting like a startup”
• “Just do it, is the central mantra”
• “High legal and security standards block innovation”

Systems

• “We need to track the progress on a venture”
• “Easy to use tools are important to act like a startup”
• “We need to make use of Open-Source Software”

Financing

• “Mature companies don’t provide budget like a VC.”
• “Internal startups need to get access the external market of capital”

Accountability

• “It is the wrong incentive structure, that stops mature companies from innovating like a startup”
• “Intrapreneurs need to get shares in the new product/business”
• “Intrapreneurs need to be incentivized for their actions and learnings, not the launch of a product”

Structure

• “Startups need to act autonomous”
• “ You need a separate company to make it work”

 

Although these are just some examples, I think you came across most of them already on Linkedin, Medium or through other channels. Many of them are highlighted in dozens of articles.

 

Implementing in parts leads to Many conflicts

There is a huge problem for companies, since it’s not only one of the points that are essential to make innovation work, but all of them. It’s not enough to put a team into a fancy place with a great team culture, but everything around the team stays the same.

My observation of Entrepreneurial Management in practice is, that much of the failure of corporate innovation is a direct result of improper (partly) implementation of Entrepreneurial Management. Executives often only implement parts of the whole game. This reduces dramatically the effectiveness of the intrapreneurial teams and creates a lot of waste. The whole is in this case more than the sum of its parts.

Implementing entrepreneurial management only partly leads to major conflicts in the organizational setup. For example, if executives aim to create autonomous teams, but miss out to empower these teams for autonomous decision making to persevere, pivot, double-down or abort a venture, then these teams can’t act like entrepreneurs and are not able to innovate at the same speed. It is clear, that in these situations creating radically new and disruptive stuff is difficult for the team to achieve.

Based on the conflicts in managing innovation, companies cannot properly innovate and innovating teams are confronted with a challenge that they are not able to solve. It becomes a vicious cycle, where the company loses its greatest talent because of the inability to manage uncertainty and thus innovation in the right way.

 

Corporate Innovation requires a FIT between organizational elements

One of the oldest ideas in Strategic Management is the idea of FIT. As part of the contingency theory, its basic punchline is that the setup of a company should always FIT its environment. Companies that don’t match the needs of the environment are doomed to fail. Furthermore, the internal setup of the company, also need to be aligned to each other to address the challenges. That is why the different principles of Entrepreneurial Management (e.g. Experimentation, customer-centricity, adaptability etc.) need to be implemented throughout the different organizational dimension and not only partially.

The FIT between the different elements of an organization are the source of effective innovating.

Aiming for fit will help you to identify the weak spots of your current setup and thus allows you to improve your innovation performance significantly.

 

Increasing returns of disruptive innovations through coherent Entrepreneurial Management

I advocate, that the coherent implementation of Entrepreneurial Management in an innovating unit and its relations, will lead to a strong improvement in the potential to foster disruptive innovations. With a greater coherence in Entrepreneurial Management, the potential to create disruptive innovations will increase exponentially. You have increasing returns out of every step that you are doing in the direction of Entrepreneurial Management. In the beginning, increasing your coherence will only slightly effect the organization's potential to create disruptive innovations. At some point these 'investments' into Entrepreneurial Management coherence will pay off.

Especially, if you want to create disruptive innovations not only by chance, it is important to systematically increase the coherence of your Entrepreneurial Management within your corporation. Increasing the FIT through a holistic implementation of the Entrepreneurial Management principles throughout the organization will go in hand with a reduction of conflicts.

The stronger you engage in creating coherence in your organizational setup, the lower the number of conflicts between the elements of your organization. The conflicts in your organizational setup prohibit you from innovating effectively. Every organizational conflict that you eliminate e.g. the one with autonomous teams without empowerment will increase the coherence of your management. 

Solving the conflicts leads to a greater Entrepreneurial Management coherence and at the end to a greater potential to create disruptive innovations.

 

Beware of the danger zone of Entrepreneurial Management

The danger zone exists in every setup that aims to create innovations. It is the the zone, where the returns of creating coherence in the organization are still very low. Every new action doesn't lead to the expected increase in innovation capability. This is where many executives and managers become nervous and fall back into learned habits and patterns. The danger zone is a trap, where executives and management can easily tap into. To systematically innovate from the inside of an established business, it is  essential to move through the danger zone. It requires vision, belief and persistence of managers and executives to continue on the chosen path. Innovation leaders and executives should be continuously aware of their current progress. This reduces the risks of making the wrong decisions and falling into the trap.

 

Run our assessment to improve your current setup

It requires a conscious management of this change to avoid failing in the danger zone.  We have developed a self-assessment for internal accelerators (e.g. innovation units, labs, incubators) who are aiming to perform like a startup through Entrepreneurial Management. It guides entities through the morphing into a fast and agile innovation machine. The assessment is leveraging more than 10 years of experience in intrapreneurial settings and many scientific insights. With the help of the assessment, you’ll be able to:

• Compare and learn from Leaders
• Identify Rooms of Improvement
• Understand Conflicts in your current Setup

Contact us, if you want to perform like Startup.

 

About Lutz

Dr. Lutz Göcke is the founder of the innovation consultancy Swan Ventures which offers services and SaaS-tools that help you climb the Venture Pyramid with speed and at low cost. Lutz is a Serial-Intrapreneur, Startup-Mentor and a Lecturer on Entrepreneurship, Innovation and Strategic Management.