In Big Companies, Lean Is Only One Piece of the Puzzle

In Big Companies, Lean Is Only One Piece of the Puzzle:

from HBR.org by James Allworth and Maxwell Wessel



In 2010, one of us was sitting in a room at the Harvard Business School with Eric Ries and a number of budding entrepreneurs. They were pitching their ideas and plans to Eric and their peers; once the pitch was complete, the group would then brainstorm. One of these young entrepreneurs in particular stood out. He was not your standard internet entrepreneur — the student presenting was pitching a project to increase sub-Saharan farm income, by helping farmers shift from traditional crops to rubber trees. He had developed an extensive plan, and had the promise of grant money behind him. The problem with the effort, of course, was that building both the necessary African infrastructure and the logistics network needed to transport the non-indigenous crops was going to be a very expensive proposition indeed.
Eric sat patiently and listened, jotting down a handful of notes. After some reflection, he jumped in with a set of questions. Each question focused on an underlying assumption of the business plan. Because the model relied on providing long-term loans, Eric asked questions about repayment and cultural bias. He asked how significant the education costs would be to sign up additional farmers. He asked exactly how big the income increases would be for the farmers who opted into the program. The student presenter acknowledged the risks and simply stated, "Well, we won't know any of that for a long time... rubber trees take years to mature."
Silence.
Eric looked back at the student and said, "Couldn't you take some of that grant money and haul in some mature trees to test your assumptions?" It wasn't profitable, or scalable, but it was a brilliant way to learn what the business would really need. To us, there are few better examples at demonstrating the power of the Lean Startup. It's not about price, or code, or agile development. Instead, "Lean" is a mindset that can be applied in any situation — even those that are extremely capital intensive — to test as efficiently as possible, and iterate accordingly.
For that reason, the "Lean" mentality is one of the most powerful tools in the innovator's arsenal — in startups and mature corporations alike. But like disruption before it, the zeitgeist around lean has in some ways grown apart from the power and purpose of the idea. The language has been widely adopted, and that includes some folks who haven't yet had the chance to read Ries' work or digest the ideas behind it. That has resulted in some misconceptions that can be counterproductive in the quest for innovation.
Perhaps the greatest of these misconceptions: The notion that, particularly in big organizations, the lean methodology alone will be enough to allow innovation to flourish. The more time we have spent around corporate intrapreneurs, the more we've come to realize that this can be a trap; and of all the corporate intrapreneurs that we've had the pleasure of learning from, one more than any other really drove this point home to us: George Kliavkoff.
George is one of the most thoughtful people you will ever meet. He is currently creating new businesses inside the Hearst Corporation, where he's been driving the development of Manilla.com for almost 2 years. Previously, he launched Hulu.com from inside of NBC, and was on the founding team of MLB Advanced Media, the five billion dollar digital media company collectively owned by the Major League Baseball team owners. If anyone knows how to succeed in intrapreneurship, it's George. He has caught lightning in a bottle... three times.
If you ever ask George about the seemingly insurmountable task of building a growth business inside of a multinational conglomerate, he always responds with the same three requirements; each extremely foundational in nature. Namely, George stresses the importance of:

• An executive mandate;
• A creative structure; and
• Patient capital.

In a good start-up, these characteristics are not hard to find. A good management team will be dedicated to creating product market fit, otherwise the business will flounder. Investors are involved for the long haul, understanding that startup managers will have to experiment and fail along the way to a successful IPO. And the natural independence of start-ups allows leaders to strike deals and hire talent that might otherwise be impossible in the context of a large company.
But to simply assume that these are present inside a large organization would be a mistake. Anyone who has operated inside a big corporate will tell you that for any project, you might have an executive mandate... or you might not. Even with such a mandate, it's tough to drag the people you want away from their existing (and safe, and profitable) projects to work on a new venture. And, as for funding, it can be just as hard to get a check for ten thousand dollars as it is to get a check for one hundred thousand dollars. No longer is the organization relying on gut instinct and a shared sense of purpose around delivering product value; instead, most large organizations rely on process controls to standardize operations.
And so many would-be corporate innovators find themselves lacking the mandate, the capital, and the organizational structure to run iterative tests to validate their ideas in an uncertain world — the very core of "lean". This, in turn, derails them in one of two ways: they have to commit wholeheartedly to "fat" innovation — promising their senior executives a pathway forward and a certain amount of revenue, before they have tested their hypotheses, in exchange for funding. Alternatively, they attempt to innovate in a lean fashion, but they are slowed immensely by numerous requests for budget, little tolerance for failure, and a general disregard for "experimentation."
This is where a startup's lack of profitable operations would have worked to their advantage. By not having achieved product-market fit anywhere, and never having developed strong processes to ensure standardized operations, a startup in many senses resembles a speedboat. Though the CEO may be driving, anyone sitting on the bow can get a direct line to the captain to suggest a change of direction. The boat can turn on a dime. Larger companies, on the other hand, are more like tankers. If you happen to be a crewman on the average tanker with a great idea for a change of direction, the odds of getting your captain to change course are substantially less likely. It doesn't matter if you have come up with the perfect course, using a precision GPS (like the "Lean" framework); the ship is being driven by the instruments and individuals on the bridge. That is where the budget is determined, and the processes decided upon. Between your idea and the helm, there are legal departments, finance departments, marketing departments, other business units, channel partners, and sometimes even your customers. They can — and will — all get in the way of your ability to experiment and adapt.
And that is why, in the world of corporate innovation, a rag-tag group of innovators can only get so far on learning alone. Without the right foundation in place, lean can almost be a trap for intrapreneurs: underlying it is the assumption that if you can successfully develop something that someone, somewhere wants and is willing to (profitably) pay for, you'll ultimately be successful.
The realities of operating in large companies mean that this is far from always true.
So, before you commit yourself to the path of iteration, you need to work on creating a foundation for innovation.
But you how do you get there? You can't just ask for it. You've got to work to build it. What follows are some of the ways in which you can build that basis for you and your team to innovate inside the confines of a more mature organization — to secure an executive mandate, to give yourself the space to be structurally creative in your intrapreneurial endeavor, and to ensure that your capital is patient.
Develop a shared innovation philosophy. Some incremental innovation simply doesn't require change to the status quo. As Clay Christensen often points out, successful companies are designed to capitalize on sustaining innovations that jibe with their existing business models. However, in order to get the mandate from the top to break away from the normal process for incremental innovation, you need to establish why you're doing things so differently.
That involves educating executives as to why the innovation you're pursuing is different. You need to give them the language to discuss what you're pursuing and the theory to help them understand why you'll need your unique process to get there. For instance, Google thinks about disruption and the timeline related to investments in disruptive innovation very differently than they think about incremental product innovation. Eric Schmidt, Google's chairman, has even gone on record to suggest that maintaining this perspective on innovation is what keeps Google growing.
A shared innovation philosophy can power the communication between you and your managers — it will help you position the need for a different process, what your project will demand, and secure that executive mandate to pursue the different sort of innovation you're after.
Go high enough. One of the most common mistakes potential innovators make inside large corporations is failing to look high enough for internal support in their pursuit of new businesses. We've seen this problem across a range of businesses: a business development group at a large biotech firm; inside a digital group at a large grocer; within a new product development group at one of the United State's largest pharmacies; and in many instances inside technology companies.
Regardless of sector, the bigger your idea, the higher you need to go to get buy in. A mid-level manager can't possibly approve the new pricing schemes and legal structures often required to pursue business model or disruptive innovation. And though they can say yes to your working on a project, they can't promise you that you won't end up spinning your wheels pointlessly for a year. Before asking for sign off on your project, first, ask yourself: what does your new organization need to look like to be successful? Could it need a new sales channel? What about a novel technology partnership? A different sort of pricing scheme? Only after you've answered questions like these, can you figure out who you really need to get on board for your project.
Whatever you do, do not fall into the trap of believing that your relative position in the organization should determine who it is you need to get to sign off. Unless you sit towards the top of your organization, your own manager will rarely be senior enough. And if you don't go high enough, you'll never ensure you get the creative structure needed to innovate.
Maximize autonomy. If you get the right people on board and appropriately represent why you will need a different process and a different structure than the rest of the organization, the last step is getting that patient capital. To do this, you'll need to create as much autonomy as you can as soon as you all come to an agreement on some sort of definition of success. Without autonomy to spend your funds, experiment, and ultimately grow a business in the right way, neither a mandate nor creative structure will get you very far.
If you are adhering to the lean methodology, this is particularly relevant: because innovating in this way will result in you trying and failing and learning for some time in pursuit of your goal. Unless you're keen to being sucked back into the mothership and suffocated at the first mention of uncertainty or failure, you need to ensure your project is as autonomous as possible — from the beginning. More than just funding for product experimentation, you should ensure you have the freedom to experiment with different paths to commercialization, non-traditional partnerships, and procurement from different supply channels. Getting this autonomy might require you to be creative — for example, giving your group a corporate identity distinct from your parent, so there's less chance that your probable failures will be associated with your risk-averse parent corporation.
No one wants to go down in history like the team at PARC. They developed much of the underlying technology for the personal computer, and then were subjected to perhaps the cruelest form of torture an intrepreneur can suffer: they had to watch their work wither inside the poor, forced, commercialization process of their company. Eventually, though, they were vindicated — when an entrepreneurial outsider came along, and used their work as the basis from which to create what is now one of the most valuable companies in the world.
It's not a fate that you would wish on your most dogged competitor. So, before you use lean to build the next product that could go on to change the world, make sure you've established a solid foundation for intrapreneurial success inside your own company.