Did you like this article? Please share it.
Building on the excubation conversation we started in this blog series, and having introduced first two rules of the approach, we dive here into the next two rules: rule #3, “Facilitate Innovation Flow”, and rule #4, “Manage the Digital Innovation Portfolio”.
Rule #3: Facilitate Innovation Flow
For a corporate entrepreneurship approach to be successful, the innovation flow and the innovation development process need to be thoroughly facilitated. It occurs just too often that corporate entrepreneurship programs define the starting point and end point of an innovation process, but are not clear and disciplined enough on the process, go/no-go milestones, activities and deliverables in-between. Thus, the third excubation rule “Facilitate Innovation Flow” addresses this issue and defines best practices for running the innovation process within a corporate innovation company*, sufficiently facilitated by the execution organization*.
The objective of this rule is to generate a competitive advantage via providing ideal conditions for the start-up to move faster and more effectively than others. The key questions to be addressed at this stage by both the execution and innovation company are:
- How can innovation teams be supported most effectively to enable quick development and validation of their business models?
- How can mentoring be defined along all stages of the innovation process?
- What tracking mechanisms can be established for fast decision making, access to core business strengths, networks, and sales / delivery resources?
- How can time-to-market be reduced and the competitiveness of innovation development be maximized?
Facilitation is needed on two levels
Effective facilitation of the innovation flow happens on two levels – macro-level (basic support) and micro-level (specific execution support). The macro-level is all about accelerating access to resources which the innovation company needs to be successful, such as access to materials, experts, technologies, customers and intellectual property, functional support such as HR, finance, legal support, free budget, and mentoring from senior players in the enterprise.
A pragmatic way to establish this is to assign individual people within the execution company’s HR, finance, legal departments to quickly support the new ventures. Based on this, a growing support system within the execution company will emerge, knowing and understanding the new venture activities of the innovation company and facilitating the innovation flow in an optimum way.
Support on the micro-level, in turn, focuses on an output-oriented process for developing individual innovations and business models. This is significantly different from existing product development processes within corporates and follows a few key paradigms.
- Fail fast, fail cheap
- Fake it before you make it
- Go for what’s good enough
- Two steps forward – one back
- Start qualitative, end quantitative.
These paradigms are at first sight straightforward, but are actually hard to implement in a corporate setup.
Rule #4: Manage the Digital Innovation Portfolio
Being successful with digital corporate innovation requires a well thought-through approach to managing a digital innovation portfolio. It consists of the right type, number and magnitude of innovations. Experience shows that managing a portfolio of 10-15 digital innovation businesses, each having the potential to contribute a single digit percentage to corporate revenue, is a reasonable task: this is a good number. However, it is important to underline that it is not enough to limit portfolio management to the innovation itself. To get digital innovation portfolios right, it is necessary to attract and retain talent, i.e. to incubate, acquire or invest not just in new ideas, but primarily in entrepreneurial talent and digital capabilities.
Getting the right portfolio composition makes the difference
The innovation portfolio should comprise three portfolio components, each with a suggested budget allocation: own innovations, developed in a start-up-like approach (50% of the budget); acquisitions of external start-ups that fit the digital innovation approach (20%); and co-investments in existing start-up companies (30%). The innovation portfolio needs to represent an effective mix of core-related, adjacent and transformational innovations and the respective talent behind them. To define those ideal proportions, a clear scoping in line with the enterprise’s business and digital strategy is essential. It helps to avoid unfocused activity.
Measuring the success of the innovation portfolio should follow a pragmatic, yet structured approach along a set of simple performance indicators and criteria, such as:
- Input: financial investment and time effort in relation to ideas developed
- Throughput: number and quality of ideas run through the portfolio
- Output: number / share of innovations eventually hitting the market
- Leadership: intensity of management attention and entrepreneurial freedom given
- Competence: share of employees and intrapreneurs being trained as innovators
- Entrepreneurial climate: extent to which entrepreneurial behavior is encouraged
- Balance: relation of different types, risk profiles and time horizons of innovations.
Selection and preparation of ideas and talent
It’s critical to evaluate project and business ideas along a crisp set of clearly defined criteria before including them in your innovation portfolio. Similarly, it is also crucial to select the right talent and team along with the idea, since only the combination of both will deliver success. Typical criteria for an idea with substantial value creation potential that should be considered when filling the portfolio funnel are novelty of the idea, uniqueness of the value proposition, sustainability of the potential business, timing, business potential and scalability, as well as strategic fit with the core business strategy and valuation potential five to ten years after initial investment.
Equally, if not more, important than selecting the right idea is selecting the right team for which a set of criteria should be applied, based on longer term experience with founder teams. Such criteria include, to name a few: vision, ambition, passion for being and acting like an entrepreneur, availability of skills and experiences, ability to focus on value creation and benefits for customers, not only technology, as well as flexibility and self-reflation to assume feedback and pivot the business model if needed, and, last but not least, chemistry and an effective working mode between the founding team members.
For more in-depth insight on the 3rd and 4th rules of excubation read here. Stay tuned for Dr. Anding's final blog post about excubation rules 5 to 7.
Dr. Markus Anding is co-founder and Managing Director at Excubate Corporate Startups, a firm focused on helping large corporations innovate like start-ups. Together with his team, Markus builds corporate start-ups and respective incubation environments for companies across industries and helps them implement the excubation approach. Markus has an academic background in information systems and combines long term practical experience as an entrepreneur and as a Principal at Bain & Company. He also acts as Managing Director for the Munich Center for Internet Research.