Category Archives: Scale and Execute

Departmental Innovation – Big Change, Tiny Footprint

Posted on by

One of the concerns we have heard time and time again when discussing innovation with established companies is the resistance to change from other areas of the business. Sure, the department or business unit would love to try something different, but they are convinced that doing anything too dramatic would inevitably be crushed by some other power in the same company.

This challenge is hardly anything new, and has been a major change management concern for decades. However, when it come to business model innovation, there is a clever way to contain the magnitude of outward-facing change, while at the same time allowing for substantial change “behind the curtain.”

Departmental innovation usually takes the following form:

  • Provide something new (the “what” – usually a new offering or service)
  • Deliver the offering or service in a new, innovative way (the “how” – ideally with an optimized business model)

It is critical to recognize that BOTH are equally important to ensure full value delivery to the customer / constituent group, and that both will likely need to evolve as validated learning happens. That said, of the two forms, the department has most control over its own business model, with limited external stakeholder interference. So how then can a department contain the amount of change associated with the offering itself?

Simply put, don’t try wide-scale rollout all at once. Instead, leverage the “wedge” principles – find a needy segment with truly underserved opportunity and one that would likely sing your praises should you succeed (see “The Wedge” post here for more details). Let a small success story be your momentum builder, while keeping the amount of stakeholder management very focused on just that initial segment… there is no need to convince everyone across the enterprise all at once that your new innovation is worthwhile. Then, let your first few successes be the mechanism through which you turn the tide of enterprise thinking.

dept-wedge

Bottom line, departments within a large structure DO actually have the ability to innovate, and innovate substantially. But, do it smartly, where the biggest change happens behind the scenes. The “external” footprint starts small and only expands with success as its driver.

Share Button

The Wedge

Posted on by

Assume the following:

  • New innovation idea has been qualified, with clear value and growth hypotheses
  • Target customer segments have been identified
  • The business model has been designed to support the optimal delivery of the idea
  • Innovation accounting principles have been employed to determine the appropriate metrics to track

Now the challenge becomes how to validate the idea (WHAT) and the business model behind it (HOW). Enter the “Wedge” approach to experimentation and deployment…

Wedge

Much as the name implies, a wedge approach to experimentation starts small – you insert the tip of the wedge where it is most likely to have positive effect (e.g. the door jam, or parallel to the seams in a log). In business terms, pick a customer segment that has the most underserved opportunity, and ideally is one that could have ripple effects across other segments when these needs are met. Put another way, pick a high-profile segment where success is very likely to build momentum.

It is rare that an actual wedge reaches its ideal state without a few taps – the experimentation version of the wedge works the same way. Given that this is early stage experimentation, start by validating the fundamentals of the idea – the value and growth hypotheses – with direct segment interaction. Note that traditional metrics (e.g. profitability, growth, retention, etc.) are NOT relevant for this early stage. Assuming both can be validated, then progressively add more detailed idea validation with the target segment, making adjustments at every stage based on validated learning. The key principle to abide by is to front-load the biggest, most uncertain assumptions early in the experimentation process. Using Ries’ Minimum Viable Product (MVP) principles is an excellent way to put this theory into practice (see illustration below).

MVP Illustration

So assuming the commercial viability gets validated, and now the time comes to deploy… what do you do? You keep using the wedge approach! This method is just as relevant for deployment as it is for experimentation.

Share Button

Know What your Customers Want

Posted on by

I sit on the board of an emerging asset manager that has a truly breakthrough innovation in global equities index investing.  The investment strategies have the same risk and liquidity profiles of traditional index funds yet consistently deliver superior risk adjusted returns above the benchmarks.  Our CIO has a stellar reputation, having successfully managed >$75 billion in institutional assets over a thirty year career.  His personal relationships with the heads of largest global pension and sovereign wealth funds also mean we have a target list of accessible prospects.  Despite these advantages, something was constraining AUM from taking off more quickly.

Through trial and error, we learned that our sales motion was not adequately tailored to how our target clients – institutional and non-institutional investors – vet and select new managers.  Following a series of sales calls, we took our learnings and recalibrated the entire sales process to better align with the stage gates commonly used by investment committees in the segments we serve.  Becoming more in tune with what our customers want has begun to pay off – AUM has grown threefold in less than a year.

Share Button