P28 A Contradiction? Start-ups inside major companies?

  • “Welcome to the Proven, Practical, Profitable Innovation podcast! I am Richard and I thank you very much for taking time out of your busy day to listen to this podcast.
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  • It is well-known that major corporations in the last few decades have struggled with innovation in general and more specifically major, disruptive innovations. Major corporations have tried to remedy this in many ways but one of the most enduring experiments is creating startup like business units inside major corporations. Today’s podcast zeroes in on some of the more promising efforts.
  • Startups inside major corporations
      • America loves the startup spirit where a small business operation is more successful than the major gorillas in the business. I had a front row seat for exactly this experience with Procter & Gamble. P&G and Kraft owned the coffee business. Despite this, they were twice out innovated by small startups. First, was that little coffee house in Seattle that is now the giant Starbucks that innovated both coffee products and the coffee environmental experience. Second, Keurig and Green Mountain coffee pioneered single use, machine made at home coffee. Both of these initiatives were expensive innovation lessons learned by P&G’s Folgers (now owned by Smuckers) and Kraft’s Maxwell House coffee.
      • In the past two years alone companies like Coca-Cola, MetLife, General Electric, IBM, Cisco, Tyco International, and Mondelez International have formed startup like units within the larger company. These experiments do everything from holding innovation contests to having executives evaluate the contests to make their decisions on how to fund specific internal startup ideas. Of note, Procter & Gamble has similar initiatives that are now almost 10 years old. While all of this is interesting and even encouraging when it comes to innovation, it is still too early to point to major successes.
      • Nobody seems to have figured out the magic formula to make these initiatives work. Major companies are trying things like General Electric hiring 500 coaches to train executives in innovation skills like a greater tolerance for risk and the ability to quickly learn from failures. Others send their brand managers to work inside startups to see how that can benefit their company. Others do the reverse, they invite entrepreneurs and startups to come into their company and provide advice and guidance.
    • Here are some examples of major companies experimenting with startup style operations within the company.   The majority of the information in this podcast comes from an excellent story in Fortune magazine.
      • MasterCard: MasterCard is a 50-year-old company that has created dozens of small companies inside their New York City MasterCard labs. While still in its early stages there are some interesting ideas like something they call ShopThis that enables people to buy products from a digital magazine without ever having to leave the magazine.
      • General Electric: they call their experiment FastWorks. Again, it is training in risk taking, continual learning, and developing curiosity that drives asking the right questions. They are creating open spaces to facilitate collaboration and the CEO has actually created a space for people to hang out to facilitate new ways of seeing things. A General Electric veteran commented, “I can say this is the most unbelievable experience, and I’ve been with GE for 20 years.” In the first 15 months GE funded 500 employee proposed projects. When an employee’s pitch is agreed to, they have about 90 days to develop and test their ideas to see if the ideas worth taking to the next step.
      • Here are some examples of how much effort and resources some companies are putting against this idea.
        • General electrics FastWorks – 3500 employees growing to about 35,000 out of about 300,000 total company employees.
        • Tyco growth and innovation system – 200 employees out of 57,000. And internal venture capital group evaluates proposals and invests in the most promising new ideas. Currently 20 internal startups and growing.
        • Coca-Cola lean startup – 1000 employees out of 129,000. A focus on rapid prototyping and learning. So far they’ve invested in about 11 outside startups.
        • Mondelez mobile futures – 25 employees out of 100,000. Australia, Brazil and the United States have developed nine outside startups.
      • Here are some observations based on my experience. These efforts are very well-intentioned. Executives think if we can just be organized and look more like a startup but do it internally then we can fix our innovation problems. As I noted, some companies have been trying efforts like this for more than a decade with only modest success to report. My belief is that when embryonic ideas come out of one of these internal startup like operations, they need to eventually enter the broader company culture. It is at this stage that many promising but not yet fully formed ideas can die. In some cases their deaths are eminently warranted. But in other cases, the company culture that says “that’s not the way we do things” and “we would never do something like that” rise up in drive a spike into the heart of an idea. Again, company culture is ultimately the final arbiter of what a company will do and will not do – it defines what a good idea is and what a bad idea is. Having said all this, I have my fingers crossed that some of the smaller innovative business units will succeed and learnings from this experience can be translated to other companies and situations.
    • Ongoing close.
      • What you can do today with this information.
        • First, if you have a successful small and even medium-size company, you may want to consider establishing a more nimble, innovative internal business unit. I would primarily suggest consideration of this if current innovation efforts are not creating the competitive advantages you need to grow short and long term.
        • Second, if you have a need for a much more robust innovation program and portfolio, these small internal startup approaches should be considered. Moving from consideration to actual implementation should only happen when you’ve learned about your company culture strengths and weaknesses and gone to school on experiments like the ones we’ve covered here – is there anything that they are doing that might fit what we are doing.
        • Third, the spirit of innovation is always open to experimentation as long as the experiments have elements that facilitate rapid learning and making rapid adjustments based on those learnings. Even when there are learning and improvements are these enough……are their successful new products coming out of the process? If not, should you be doing this?
      • If you would like to see the key written points from this podcast, you can find them in my blog – i2ge.com/blog.
      • If you would like to contact me, please email me at richard@i2ge.com.
      • If you would like to create far more robust innovation capabilities within your business, I have a complete portfolio of training programs that we tailor to your unique needs. If you would like to learn more, go to the Innovate2Grow Experts website – i2Ge.com and click on DIY Innovation Training.
      • One of my six books is Proven Practical Innovation That Delivers Results. This very low-cost book is available at Amazon in paperback and has a Kindle book. Is truly packed with lots of practical help.
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    • A preview of some future podcasts.
      • Upcoming podcast focus on specific case studies and powerful innovation insights that are relevant to almost any business and business need.
      • The next podcast looks at a very interesting last ten-year innovation trends. Mostly major companies have been recognizing that they need to get ideas from sources other than just inside the company. This is led to the development of what is variously called open innovation or crowdsourcing innovation. While there are some significant differences between the two, what they share in common is that there is an organization and structure to collect ideas needed for a project from a group of interested and qualified innovators around the world. You will want to be sure to listen to the pros and cons of this particular approach and how this might impact your renovation efforts.
    • Thank you very much for your time and I look forward to reconnecting with you soon. Please have a great day.