Inside Excubate: Excubate and IoT One enter into a partnership to unlock digital innovation potential

Excubate Corporate Startups and IoT One enter into a partnership to help companies unlock their digital innovation potential

Cologne/Shanghai Nov. 18th 2019

Excubate Corporate Startups and IoT ONE have entered into an agreement aimed to jointly develop projects and programs that help companies to better recognize and leverage their digital innovation potential, especially in the field of Industrial Internet of Things (IIoT).

 

Also, both companies will establish mutual presence in the respective markets with IoT One being able to serve clients in Europe through Excubate’s local presence and Excubate serving clients in Asia through IoT One.

 

The two parties will focus on joint management consulting and solution projects aimed at leveraging state-of-the-art digitalization, innovation and IIoT capabilities to improve their clients’ strategic and competitive positioning within their respective industries. Among other topics, these projects may include setting the IIoT innovation agenda, building new IIoT-based business models, spinning out innovation teams and startups from corporations, or restructuring organizational setup of the core business.

This partnership will create value for clients through a unique combination of Excubate’s innovation and business building capability for established industries as well as IoT One’s expertise with IIoT-based value delivery, primarily in Asia. Specific service offerings and project types will include, for example, the Corporate Startup Campus: A 12-week program to develop and prototype IIoT business models together with our clients.

 

Especially clients with international footprints across Europe and Asia will benefit from our mutual ability to serve them internationally.

 

The agreement is focused on the European and Asian markets and covers all major industry segments, including machine manufacturing, financial services, automotive, healthcare, and energy.

 

The agreement was signed by Markus Anding, Co-Founder and Managing Director of Excubate Corporate Startups; Tammo Ganders, Co-Founder and Managing Director of Excubate Corporate Startups; Erik Walenza, CEO of IoT ONE and Michael Maeder, Director of IoT ONE.

About Excubate

Excubate is a company focussed on management consulting and company building. Together with our clients we design and shape digital transformation and innovation of business models by combining the best of corporate and start-up approaches. From strategy to implementation, Excubate is the expert partner.

More information at https://www.excubate.de

About IoT ONE

IoT ONE provides structured insight and advisory to help companies manage the threats and opportunities brought by the Internet of Things. We provide RESEARCH to ENABLE you to BUILD innovative solutions to win in the digital economy. We also provide a Smart Factory for the demonstration of IIoT solutions, and the hosting of Industrial IoT events to drive awareness and facilitate business. Our approach involves 100% focus on IIoT technologies, use cases, and business models. By providing proprietary insight based on bottom-up research and our strong partner ecosystem, we deliver rapid and tangible results that support strategy execution.

 

More information at https://www.iotone.com/

How Traditional Companies get Digital Innovation right

Key messages

  • Your value chain is not enough: Disruptive innovation can hit established companies from far beyond their own industry
  • Now or never: The upcoming downturn may further widen your innovation gap vs. startups – if innovation is put on the backburner in these game-changing times
  • It’s not that hard: Ingredients for success are all there, they just need to be worked with in a different way
  • Divide and conquer: Excubating the new from the old enables both to thrive
  • No unicorns, no bunnies: Sober innovation portfolio management trumps big bets and actionism
  • The entrepreneur is the pioneer is the orchestrator: CxOs need to adopt a Chief Entrepreneurial Officer mentality and become “leaders of the future”, playing three dedicated roles

The existential question: Digital Disruption – Friend or Foe?

Every traditional company (and as such, their management team) is currently facing an existential question: How to address digitalization and disruption and not only survive the respective challenges, but also take advantage of the massive opportunities coming along with them?

 

It’s easy to get scared in the face of what’s coming, especially out of the startup world. This is particularly challenging for companies in low-tech industries (e.g. food, textiles, services…) that, by nature, exist in a bigger distance to digital technologies. Let’s take an example from the food industry: Tyson vs. Beyond Meat.

Tyson is a big meat producer in the U.S., with revenues of around $40B and a $24B market capitalization. Tyson has been recently taken on by Beyond Meat – a (still) startup providing meat-like, vegan food products to people who love meat, but also want to eat vegetarian. With only about $80M revenues in 2018 (0.2% of Tyson), Beyond Meat already commands a $13B market cap (50% of Tyson), which highlights the belief of the market in the future potential vs. established players like Tyson. Despite the recent triple-digit revenue growth, Beyond Meat will remain tiny compared to Tyson, at least for a while. Tyson also had invested into Beyond Meat, but sold its stake and is now establishing an own plant-based meat line Raised and Rooted, results to be seen.

The economic downturn will likely widen the gap, as more and more traditional industry players miss the innovation boat

Whether digital disruption becomes one’s friend or foe depends on what established companies make of it – and how they handle situations of ambiguity, such as an upcoming economic downturn.

 

In the traditional view, industry players were all in the same boat: An economic downturn forces one to reduce innovation spending? All industry competitors follow suit, reducing their spending too. In sum, little damage was done to their long-term market positioning.

 

Now, there are two new players in the boat, to whom this rule does not apply: Heavily financed startups (see Beyond Meat) and state-backed companies dedicated to taking on an existing market. For these players there is no downturn – and with incumbent companies standing back, they can aggressively grab market shares (think about the German solar industry pattern).

 

Based on insights from a recent Excubate study on “Innovating through the downturn”, only a few established companies have a clear plan for how to handle innovation activities. While almost 50% take an undifferentiated cost cutting approach and just stop spending (“The Cost Saver”), others (35%) are more opportunistic and selectively increase innovation spending, while hoping to pick the relevant innovation opportunities (“The Opportunist”). Other companies either don’t change anything during a downturn (“The Stoic”) or are very unclear about investing/not investing (“The Volatile”).

 

More concerning, however, is how companies go about selecting their innovation investment: For the most part they don’t have a clear strategy for where to put their focus: Short vs. long-term benefits, close vs. far from core business, financial vs. non-financial impact. The number of companies struggling with this decision-making process is staggering – according to our research, 74% of companies don’t have a clear understanding of what they are optimizing for when spending on innovation during a downturn.

In light of these dynamics, it is very likely that the classic cost-reduction approach will hurt companies much more than it had done in past downturns and may even pose an existential risk to some players if they just sit and watch stoically how their business model gets disrupted. Traditional industries are particularly endangered, as their management often reverts to behaviors that worked in the past and fails to see how the underlying competitive dynamics have changed.

 

To take on this challenge and make digital disruption a friend rather than a foe, three questions are important for traditional industry players to get right: What, How, and Who to innovate.

The What: Look in the right place – beyond your own industry

Looking at traditional approaches to innovation, all seems very simple: Run a few design thinking workshops to understand your immediate customers better, scope out a few incremental or disruptive ideas, prioritize and validate, maybe even implement some of them.

 

Considering a traditional industry, for example the packaging industry, the immediate market trends for each player in the value chain and the respective jobs-to-be-done for packaging manufacturers are actually well understood. For example, the internationalization of product manufacturers and more complex distribution channels lead to requirements like prevention of counterfeiting and real-time traceability. Most companies have strategy and business development departments tackling these topics and implement solutions – with varying results.

This traditional approach, however, is not effective at addressing real disruption risks.

Disruption often comes from unexpected angles, that – by nature of looking into a single industry – are rarely on the radar of strategy or business development teams who are too focused on their own market and close adjacencies. It is often innovation in a separate industry, however, that brings beneficial, detrimental, and often unintended side-effects.

A few interesting examples from non-adjacent industries impacting the packaging industry include 3D pill printing, real-time pizza delivery and home-grown food:

 

  • $18B global medical blister market: Pharma companies experiment with 3D pill printing; with patients filling their prescription right at their homes, much fewer blisters and other pill packaging is needed
  • $2.3B global market for pizza boxes: U.S. startup Zume now bakes pizza while it is being delivered to customers, serving them directly off the truck on a reusable tray – no box needed
    • $83B global food packaging market: Startups provide help and guidance with growing own food, using app support

Thus, it is an imperative to look beyond immediate industry adjacencies and closely monitor what is happening in other industries to identify potential disruptions from various sides – and benefit from respective business opportunities. Other examples like the automotive industry, where ownership of the customer inside the car is taken over by, e.g. Apple Carplay, further highlight that merely looking up and down the value chain will strongly limit the perspective on disruption threats and opportunities, leaving companies vulnerable.

 

The How: Use what you have in a different way – Excubation

Once disruption occurs, traditional companies often react with paralysis, and then panic, mostly reverting to traditional innovation behaviors. When telco SMS revenues were disrupted by WhatsApp in 2009, the approach was to copy it and try to build a better one. This, however, resulted in an overengineered solution, taking 2 years and endless funding only to end up not having a chance against the disruptor who had gathered 500M users by then.

 

While, in the traditional, non-digital space, the incumbent would have had the chance to mobilize and outmaneuver a disruptor with its sheer resources in the scaling phase, digital innovations enjoy substantially faster global scaling, leaving little chance for followers to catch up.

 

The good news for traditional industries is that they do possess most ingredients for successful digital innovation, some in vast excess, compared to startups: Smart people, good ideas, access to customers, financial and technological resources, patents, etc.

It is merely the approach to using and combining these resources that must be fundamentally revised.

 

Despite all the behaviors engrained in traditional corporate culture and massive organizational inertia, companies must adopt the startup-way of doing things, as only that will eventually ensure sufficient speed, focus and nimbleness. And despite all reassurance of corporate management, that this isn’t possible: It is possible. Almost more importantly, the existing resources (unfair advantages over startups) need to be leveraged thoughtfully and effectively to create a strong competitive advantage.

 

There are three levels on which digital innovation needs to be approached differently: Company level, innovation portfolio level, and individual innovation level – all of which we want to briefly touch upon and provide a quick intro to.

Digital innovation on company level: The Excubation model

The Excubation model enables a new way of innovating by separating innovation from the core business, while retaining selective linkage to the core to ensure best possible access to the right resources. An innovation unit will be tasked with identifying, building and scaling digital innovations and business models. It is critical to smartly separate the innovation unit from the core, such that fast and autonomous innovation can happen while customers, technology, and supporting resources of the core business can be accessed swiftly.

 

This not only requires a thoughtful setup of the innovation unit, but also enablement from within the core, e.g. in educating employees, setting respective incentives and fueling the innovation unit with people, ideas and resources.

Key activities in the innovation unit include managing the innovation portfolio, facilitating the innovation flow, developing the respective innovation methodologies and processes as well as attracting and retaining internal and external innovation talent.

 

A more thorough introduction to the Excubation model is provided here:

Excubate - Corporate Innovation needs a major makeover

Digital innovation on the portfolio level: No unicorns, no bunnies

Managing a reasonable innovation portfolio is a key enabler for digital innovation success. Yet there are still many companies either trying to find the unicorn innovation to save their business for the next 20 years, or running after a large number of small innovations (bunnies) that individually don’t have much to contribute, but trigger much management effort and disperse the focus.

The innovation funnel and respective evaluation and decision criteria should be designed such that a portfolio of 10-15 digital innovations is being managed at any time, each innovation with the potential to contribute tangible business volume, but not too big to make the company fully dependent on it. A funnel logic like the one depicted below typically works very well.

While digital innovations shouldn’t be measured based on quarterly financial results, a minimum financial perspective must be reflected among the funnel criteria at all stages. It still happens too often that companies explicitly neglect financial KPIs and focus mostly on building digital capabilities and practicing new working modes. These – no doubt – are also key innovation objectives from a corporate perspective, but don’t necessarily put sufficient momentum on individual innovations to force success vis-à-vis disruptive startups.

Individual digital innovation level: Startup-like, clear focus, hybrid approach

How an individual innovation is tackled and developed is the make-or-break factor for success vs. disruptive startups. And it is currently the main reason for failure in corporate innovation. Too little focus (“each person runs 5 projects”), too high aspirations (“build the endgame solution right away, not an MVP”), too much management intervention and politics (“who will own it once it’s done?”) and too little actual leverage of corporate resources (e.g. customer access) put corporate innovation in a tough spot, compared to greenfield startups.

While many companies have logically understood how innovation should be approached, practically it is still rarely done in a way that can compete with startups and their ruthless, survival-driven and uncompromising way.

 

Best practice corporate innovation methodologies like the Corporate Startup Campus are designed not only to resemble startup innovation, but also to leverage corporate resources, know-how, and customer access in a way that startups can’t and, thus, exploit this edge over even the most aggressive startups.

 

The corporate startup campus builds upon three cornerstones: Team, location, and working mode. If followed through stringently, these enable the most effective creation, validation and scaling of a digital corporate innovation.

Why is this hard? The campus approach forces companies to prioritize more ruthlessly and really focus resources on one topic vs. trying to have key people stretch across many projects in parallel. It requires the best (not the most available) people to be put in charge and grow into a startup-like team. If successful, the team may never return to their former line jobs and instead continue running the corporate startup, which is exactly what the company should make them do. However, this conflicts with the agenda of their (former) line managers who lose valuable resources – just another corporate dilemma that requires smart thinking about management incentivization.

 

For further reference, we provide a full introduction to the corporate startup campus here:

Excubate Corporate Startup Campus

As much as a cross-functional team configuration is an imperative for a corporate startup campus, it requires a catalyst to weld them together as an effective team and fill any capability or capacity gaps that may still be open. The Hybrid Coach was designed by Excubate to do exactly that: Play a multi-faceted entrepreneur-type role to coach and support an initially disjunct group of high-potential employees into a high-performing and self-sustained corporate startup team.

 

The Hybrid Coach

The Who: Take on a Chief Entrepreneurial Officer mentality

To enable digital innovation success in a corporate, five constituents need to work together and play dedicated, intertwined roles.

The innovation unit (1) sets overall direction, manages the innovation portfolio as well as the innovation funnel and provides resources and methodology guidance to the individual innovation teams. It also “defends” the innovation success against the core business, should it ever have to.

 

The core innovation project team (2) does the heavy lifting of driving an individual innovation forward and ensures its market success. It will work autonomously enough to make fast progress but will pull resources from the core business when they are needed for success.

 

Closely working with the core innovation team is the Hybrid Coach (3), ensuring ruthless focus on the innovation goal and supporting the team on a daily basis with methodologies, external input and challenging of the achieved results.

 

The core business (4) is playing another crucial role without which the innovation team will not have a chance to outperform a greenfield startup: It provides access to corporate resources, primarily customers, technologies, know-how and external partners that are vital for the innovation. At the same time, it must shield the startup team from unnecessary processes and bureaucracy.

 

Finally, the most important role is the “Chief Entrepreneurial Officer” (5). Supporting the whole innovation construct from the top, only the “CEO” can make sure there is sufficient management attention and priority throughout the hierarchies as well as dedicated innovation resources. Also, the “CEO” needs to protect the innovation unit and individual innovations against external threats like an economic downturn, that only too easily could put a halt to them.

 

The management or leadership role is one of the most crucial roles and will have to change most significantly in the future. Recent Excubate research on future leadership capabilities has shaped three archetypical roles, a future leader needs to play to enable digital innovation success of their organizations and teams:

 

  • The Innovative Entrepreneur: Visionary, learner, innovator
  • The Agile Orchestrator: Catalyst, orchestrator, coach
  • The Digital Pioneer: Technology expert, data manager, challenger

 

For a more thorough view on the future leader, read our Excubate perspective here (in German):

One important trait of a current leader must be the willingness and ability to learn – mostly also from more junior people in their organization. We have summarized our perspective on the Apprentice Leader here:

 

The Apprentice Leader

Following these guidance points on the what, how and who to innovate, traditional companies have a fair chance to succeed in building digital innovations not only the way greenfield startups are able to do it, but with an even higher chance of long-term success.The difficulty lies within the traditional (leadership) culture of established companies that are not adopting these behaviors very readily and are often stuck in traditional behaviors and incentive structures.

 

Excubate is an expert for corporate innovation and our team helps build corporate innovation units and individual corporate startups as well as address required cultural change throughout corporate hierarchies. We are excited to discuss your innovation and digital leadership challenge – reach out to us at www.excubate.de.

Platform economy meets B2B reality

Why your platform strategy may fail

Summary

Blindly following the platform paradigm may not work as well in the B2B space.

In B2B, additional quality & reliability requirements need to be addressed and the potential moves of industry competitors need to clearly inform your strategy. Just building the next platform business and expecting competitors to jump on it is a risky move and may leave you with a “ghost town” type platform.

Taking a strongly entrepreneurial perspective, building an end-to-end solution with clear value creation and only then extending to a broader platform model may be a promising move that many startups take and that corporates should follow.

The current academic, expert and consultant guidance on why and how platform business models should be pursued is well understood and often discussed. But in B2B, the discussion often misses out on competitive dynamics as a key driver for success and we believe a more differentiated perspective needs to be taken.

Where the discussion is at: You need to become a platform!

There is a lot of well thought through research on platform economics and platform business models that intellectually makes a lot of sense (e.g. the thorough analysis of Parker/van Alstyne/Choudary in “Platform Revolution”) and reinforce the importance of becoming a platform. Also, there are many successful and often cited examples, especially in B2C. Many experts conclude that every “pipeline” business (aka everything older than 5-10 years and however successful), must now become a platform business or otherwise not only lose connection to their customers but miss out on every opportunity for profitable growth and scaling and thus vanish soon.

 

But as with topics like blockchain, overstretching the platform lingo may have negative effects on the idea itself if suddenly everything is or needs to become a platform – strangely validating the self-fulfilling prophecy that no non-platform business model will prevail. Successful traditional business models are now labelled “platform businesses”, yet may have only little to do with the basic economic idea behind it. A report from the World Economic Forum “Unlocking B2B platform value” even puts companies like AUDI, Monsanto, e.on, Siemens or DHL into the platform business model category. Sometimes even the actual economic logic of a platform is mixed up with a purely technological platform perspective – an Infrastructure-as-a-Service platform is not a platform business model. And more than 25k people on LinkedIn have “platform business” in their job title, many following platforms as a form of millenarianism of economics, i.e. final deliverance from all current economic problems. That may be a romantic, but not fully realistic view.

What the discussion is missing out on: Competitive dynamics

As in B2C, the B2B space is following the notion of becoming a platform business and many paradigms are adopted 1:1 from B2C. However, designing the right platform model and making a margin with it is substantially more difficult in B2B as there are different and additional requirements. Just focusing on network effects as the main driver of value may fall short of B2B reality.

 

All (B2C and B2B) platforms benefit from general platform success factors like clearly defined and high-volume value units (e.g. room bookings), smart curation mechanisms (e.g. five stars for good behavior), multisided network effects (i.e. more is more) and customer retention levers (e.g. blocking of multi-homing) to name just a few. However, B2B platforms, especially those that offer services, not one-off product sales, may struggle fulfilling a few important requirements:

 

  • Quality assurance, already from the first transaction – puts higher pressure on the curation mechanisms
  • Reliability and longer-term availability of services – puts higher pressure on the stability of individual providers
  • Efficiency from stability rather than constant switching – puts higher pressure on defining the right value unit

 

A major pitfall of platform models is the difficulty to ensure quality of components (and their providers) and respective solutions. Recent B2C platform challenges of AirBnB and Uber could be addressed, for example, with respective review-mechanisms. In a B2B scenario, where the relevant service may be critical for business continuity and carry substantial risk for the customer, this is different. Imagine a predictive service offering, composed of multiple components sourced from different providers on a platform that doesn’t deliver because the analysis app from provider A doesn’t work with the data from provider B.

Moves of your competitors should inform your own: How to play to win

There are essentially three archetypical positions players can take in platform-based B2B value creation that define their competitive potential and positioning:

 

  • Component provider: A specific value adding element that needs to be combined with others to actually deliver value (e.g. payment component)
  • End-to-end solution provider: A stable, value delivering solution that integrates (own or third party) components to address a specific customer need (e.g. a predictive analytics solution including sensors, transport, data, analytics and payment)
  • (actual) Platform: A market orchestrator hosting 3rd party components to flexibly and frequently combine into end-to-end solutions and provide to customers (e.g. an IIoT platform for the machinery industry)

 

There are nine potential outcomes when a company chooses its positioning while the competition does the same. Some of these are favorable outcomes, some less so. If all players jump on the platform bandwagon (field 9), nobody will eventually have partners on their platform and all find themselves in a deadlock. If a company chooses to provide components only, it may end up depending on other’s platforms (field 7), and so on.

Not every company can, nor should become a platform. In the IIoT space for example, there are now more than 150 platforms already, according to a recent OliverWyman study (IIoT Platforms: Source of Profit or Inflated Hype?). Most of them are not adding real value yet (aka a field 6 or 9 situation).

It is important for B2B players to first and foremost optimize for customer value creation, which is best created by a stable and reliable end-to-end solution. Even the often cited platform success models Amazon and Facebook started out as an end-to-end solutions for online book selling or social networking before they became a market place or advertising platform. In B2B IIoT terms this could be a predictive service offering focusing on a specific client use case and provided with high service quality and strong value focus. Going for fields 2, 5 or 8 will be the best shot at that, regardless of what the competition will go for. To maximize the platform option value, a field 3 scenario could be prepared in parallel, leveraging an own strong end-to-end solution as a kick-starter and attracting additional component providers.

How does it play out in B2B reality: The GE/Predix vs. Konux example – a “Field 8” situation

It appears like the classic corporate vs. startup stand-off: An industry giant trying to position itself as a large-scale platform player vs. a focused startup with just one specific value proposition. While not disecting the typical corporate issues GE ran into while trying to make GE Digital, and its IIoT platform Predix succesful (this would rather be an Excubation discussion), it is interesting to highlight the platform-specific differences to Konux.

 

Predix, which has recently been spun off from GE’s struggling digital unit in an attempt to give it more freedom and growth potential, has been following the classical IIoT platform vision early on (see also Navigan research from Sep 2018): Take a substantial investment from GE and build a holistic third party developer platform to combine and provide end-to-end IIoT solutions and dominate the market. A premature marketing push created high expectations while the platform, lacking sufficient breadth of its offering, could not sufficiently deliver. Platform success factors like high customer switching cost turned out risky for customers, fearing they could not migrate their data to another platform. Eventually, many apps on the platform came from GE itself.

 

Konux, on the other side, started with one very specific use case (AI based improvement of equipment availability), delivered end-to-end (including sensors up to analytics tools) to one industry (railway) and even one specific type of equipment (switches). Konux has been very successfully deploying this system at large railway companies and gained substantial trust from investors, who by now invested more than $50M (as per Crunchbase 02/19). Based on initial success, Konux will be able to extend its solution to further use cases (e.g. tool machinery) and eventually even a platform business model.

 

This is a field 8 situation with Predix providing a broad platform that is struggling to succeed while being outperformed by an end-to-end solution provider – in the specific use case area that both are eventually competing in. Extrapolating this situation to all use cases covered by Predix, it may not win (sufficient trust) in any.

Key message: Take a differentiated, competitive and value-oriented perspective when implementing a platform strategy

  • If everyone is a platform, no one is a platform.
  • A platform strategy only pays off if the context of competition and the quality and stability needs of the customer are considered and actually met. Announcing a platform before it actually creates value is dangerous.
  • There is value in providing end-to-end solutions that solve real customer problems over building the next best platform model in last-minute-panic. If you have a strong end-to-end capability, relax and build upon that.
  • If quality matters, a pipeline model may have an edge over a platform and should be the starting point to eventually develop into a platform (the 2>5>6 strategy)

 

We have been working together with our clients in the financial services, healthcare, machinery and technology industries to ideate, design, validate and implement B2B platform businesses as well as non-platform end-to-end solutions. If you are working on your own platform strategy, we’d love to invest some time to help you get the best out of it. Start a conversation at innovate@excubate.de and www.excubate.de.

Overcoming Corporate Innovation Barriers and Saving on costly Startup Investments – with Excubation

Summary

  • Nine main barriers seem to hinder Corporate Innovation, all are self-inflicted
  • Traditional corporate innovation approaches (incubation and acceleration) fail to fully address them and show limited empirical success
  • Corporates react by closing or repurposing corporate incubators and rely more on later stage startup investments or external company builders, paying substantial mark-ups
  • The Excubation approach addresses corporate innovation barriers more holistically and can be a way for corporates to innovate and build themselves, relying less on cash-intense startup-investments or external company building

Introduction: Innovation is easy, innovation is hard

  • Second maybe only to the term digitalization, innovation is one of the most glamorous labels that companies and individuals want to be associated with these days. And it is easy to do: Some innovation workshops, some time & budget allocation for creative internal teams to work on business ideas, a public commitment to leveraging current technology, say: blockchain, for every imaginable task and a fancy incubator far away from the core business are common in most companies now.

     

    Worldwide, companies are building innovation centers, yet only few actually transform ideas into real products/services in a foreseeable timeframe. For example, in fall 2018 Siemens just announced another innovation mammoth to be built in Berlin with a €600 million funding – by 2030.

     

    Succeeding with innovation and capturing real value from new business is hard and successful approaches have indeed been rare. Many corporate incubators like Wayra of Telefonica, Allianz X, Coca Cola Founders Initiative, or Plug & Play of Springer are being “repositioned” to focus less on early stage incubation but later stage investment – or closed down altogether. Success still suffers from many primarily internal organizational and cultural barriers, kept up by the corporate immune system, despite all efforts to separate from it.

Why corporate innovation fails: Nine Barriers

  • “Corporates just can’t innovate” is too easy a paradigm and leads to the wrong conclusions along with often too much cash-out for startup-investments. It is important to understand the key barriers more specifically and find ways to address them with an advanced incubation approach. Plenty of research has been conducted on that topic: 20+ market reports, surveys and interviews by research institutes and established consulting firms such as PwC (Reinventing Innovation), Staufen (Industrie-Monitor) and BCG (Most Innovative Companies studies) show a pattern and recurring set of barriers. These also align with empirical experience at Excubate from a multitude of innovation projects at large and mid-size corporates across industries.

     

    Nine barriers consistently appear to have the highest negative impact on a firm’s innovation capability, based on number of mentions in an Excubate meta-study:

    1. Lack of time for Innovation projects
    2. Too many ongoing projects in other departments
    3. No alignment of company strategy and innovation strategy
    4. Lack of innovation capabilities among staff
    5. Insufficient adoption of innovation culture with regard to failure of projects
    6. Inefficient process management of innovation projects
    7. Absence of a clear innovation Road Map
    8. Lack of financial resources
    9. Missing commitment to take risks with regard to innovation projects

Now looking at why traditional approaches of corporate incubators and accelerators seemed to have failed: Some of these barriers have not been sufficiently overcome.

Corporate incubation barriers lead to increase in startup investments

The three most pronounced explanations for the failure of many corporate incubation programs are insufficient support/mentoring, faulty startup evaluation methodology and the fact that startup support programs are not necessarily run by companies and mentors with enough entrepreneurial experience and grit. Linking these insights to the more general corporate innovation barriers mentioned above, there seems to be a lack of strategy, skill and rigor in organizing and executing innovation projects – on all levels.

 

As a result, corporates are moving away from building new businesses themselves towards investing into established companies and later-stage startups that have already overcome those initial hurdles, or by acquiring ready-made businesses from external company builders.

 

While the reasons for corporate management to go for investment rather than incubation make sense in the light of the identified barriers, this move is not entirely rational. Investment in external startups, naturally, comes with a substantial mark-up and skyrocketing valuations. For example, SaaS, Deeptech and Marketplace startups are valued in the range of 8-9 times revenue with Fintech startup multiples reach as high as 14-17 and medtech even beyond 20 (source: avoltapartners tech transaction multiples 2018). So, essentially, corporates are buying highly valued options for future revenues, which not necessarily fully fit with their actual innovation objective. They easily end up paying 200% of the value for 60% of what they actually want to innovate. Any approach that helps Corporates pay 120% for 90% of what they need would be vastly superior – and financially much more rational. It would, however, require overcoming the main corporate innovation barriers.

Excubation approach to overcome corporate innovation barriers

  • Excubation, as outlined in the Excubate innovation blog at Swiss Innovation Factory Park Innovaare, is the smart separation of corporate exploitation and exploration endeavors, where new ventures are given access to existing corporate assets (client base, technology, patents, etc.), while also being allowed to bypass the typical limitations of the corporate conventions and processes. The “smartness” of this approach lies in ensuring a cohesive, tight exchange between the in- and out-flow of innovation and a tailoring of the corporate support to the needs of the individual venture business model. It explicitly challenges the classical cookie-cutter approach of doing it all in-house or all external.

     

    Excubation encompasses seven rules as the main pillars of the model:

    • Rule 1: Separate innovation from Execution (Separate both activities to ensure that neither one is too strongly influenced by the other)
    • Rule 2: Attract entrepreneurial talent (Incentivise and promote innovation to attract and retain employees with entrepreneurial talent)
    • Rule 3: Facilitate innovation flow (Establish an agile and efficient innovation process; and closely connect the innovation teams to resources)
    • Rule 4: Manage innovation portfolio (Focus the innovation portfolio on internal as well as external sources of innovation)
    • Rule 5: Inspire employees (Introduce your employees to a culture of innovation to discover and foster entrepreneurial talent)
    • Rule 6: Educate employees (Provide your employees with a toolset for innovation, but more importantly, give them the opportunity to apply it)
    • Rule 7: Support idea flow (Promote sourcing and ideation of future business models within the company & ensure transfer of ideas to the Innovation Units)

     

    Mapping these seven rules against the identified innovation barriers shows how the Excubate approach can help to overcome them. A scaling model helps classify whether a rule has a strong, weak or no effect on a barrier, based on Excubate project and client experience. The number of rules that had the ability to positively impact a barrier is used as an indicator for how well Excubation can address that barrier.

     

    The actual impact of each rule on each barrier has been reviewed in larger detail but should not be outlined here in favor of a summary of the insights in the table below.

The table shows that the Excubation approach has an impact on each of the barriers. All excubation rules have a similar importance and those corporates fare best that implement them most thoroughly and repeatably.

 

The novelty of the Excubation concept, the respective nuts and bolts of its implementation and the – as in any case – required senior management backing are still hurdles for a broader empirical study of the benefits. Still, given the lack of impact of current corporate innovation approaches and soon to come tighter cash management policies of corporates (latest in the next recession) we expect to see more companies deploy Excubation and build Excubator units to drive corporate innovation.

 

For a more in-depth conversation, reach out to Excubate at innovate@excubate.de.

Excubate® Corporate Startup Campus

The effective way of business building

Over the past years, every corporate decision maker witnessed technological change based on a single mega trend: Digitalization. While digitalization is still far from being fully mastered, other mega trends are already on the horizon which will change, disrupt or eradicate businesses completely. Kodak’s failure to react to advancements in digital photography and its subsequent decline serves as a warning example to most managers. Nowadays, more and more C-Level executives are aware of this danger and know that innovation is key for sustainable success. As a result, corporates are juggling numerous innovation initiatives however, too few deliver measurable results.

 

Lacking focus and business relevance, these projects create distraction and hinder execution of the most promising business opportunities. Major technologic breakthroughs will enable rapid enhancements in AI, VR, IoT, E-mobility and Blockchain (to name a few). Combined with socio-economic trends like urbanization, connectivity and personalization, new business models will surface and radically change the competitive landscape of current players. For example, online retail giant Amazon is on its way to become one of the most influential TV show and movie producer and Uber & Lyft changed the way we use public transportation in most markets they are in. It is obviously not a coincidence that the most disruptive technologies are brought up by start-ups, which makes it even more important for corporates to stay at the forefoot of action when it comes to innovation. The current mantra must be “innovate or die”, which is not exaggerated, given that 75% of the current fortune 500 companies are likely to be replaced by 2027 (as per Innosight, Richard N. Forster, see here).

 

At Excubate, we have developed a result and business driven program to tackle this task together with our corporate partners, which brings together the best of the startup and corporate worlds, enabling our corporate clients to stay ahead of the innovation race: The Corporate Startup Campus.

Bringing an innovative business model to life – in 12 weeks

We believe in the successful combination of corporate capabilities (like know-how, experience and sufficient resources) and startup capabilities (like creativity, methodology and pragmatism). The Corporate Startup Campus is designed to meet the corporate’s need for structure and process without losing the flexibility and speed of a small team with a shared mission. At the core of the whole program is a highly efficient, cross-functional team which combines not only all necessary business functions but also all relevant project responsibilities and ownership. Through state of the art innovation management and agile methodologies brought in by an Excubate Hybrid Coach (see here) the Corporate Startup Campus team is fully equipped to move at high speed and maximum efficiency. The combination of entrepreneurial, corporate and consulting experience, deep methodological know-how and a creative mindset, enables the hybrid coach to act as a catalyst for innovation. Our program involves 4-6 corporate employees who will work collaboratively for 3 days a week for 12 weeks in a row and is complemented by external people (e.g. an experienced developer) as needed, in case the required skillsets are not available internally. As a result, we typically produce a validated and “ready to scale” (digital) business model or product. Such projects can act as a lighthouse for internal cultural change towards a more agile and innovative organization. By adapting the campus framework slightly, it is also possible to use the process for efficiency projects such as internal digitalization or optimization, too. Finally, the Corporate Startup Campus serves as knowledge transfer vehicle regarding innovation management and agile methods for the participants of the program.

Four cornerstones of a successful Corporate Startup Campus

The Excubate Corporate Startup Campus is a 12-week structured program, aiming to develop a ready-to-scale, proven business model. It can be applied to matured ideas that are still vague in terms of customer value, scope and business case as well as very early on in the process where the idea still needs to be shaped. We identified four major factors which enable corporate innovation approaches like the Corporate Startup Campus. In the following we will take a closer look at the right starting point, an effective team setup, the appropriate working mode and methods as well as the importance of a results-driven approach.

1. Start off with an established idea or conduct structured ideation workshops

Obviously, the starting point is crucial as it defines the extent and methodologies for a corporate innovation program. In some cases, our partners approach us with an existing idea to be transformed into a viable business model. Other companies have a working idea management framework, which makes it usually possible to identify the most promising ideas without too much effort. Strategic fit, size of the market opportunity & grade of innovation are factors which can determine whether an idea is worth to be proceeded through a Corporate Startup Campus or not. In organizations in which creative and innovative ideas are not managed consistently, we typically start by conducting ideation workshops.

 

During those highly-structured, outcome oriented working sessions, we help to work out and prioritize business ideas to provide the right starting point for a corporate innovation project. The underlying assessment framework includes company specific items like strategy and portfolio fit as well as external, market defining factors like technology drivers, behavioral trends and market environment. To ensure that the development of a viable new business opportunity is possible within 12 weeks, each idea must meet three entry criteria: Sufficient idea maturity and focus, limited dependencies to other projects and relevant business impact.

2. Bring in a highly motivated, cross-functional team

Startup Campus success is – like any startup success – highly dependent on the team. More than in line activities, Corporate Startup Campus teams will have to take on increased responsibility and ownership for their field of expertise. As this happens at a high pace, not everyone feels comfortable working this way. Typically, about 5-15% of employees in big organizations possess an entrepreneurial passion and respective capabilities, therefore a thorough, selective team recruitment is important. Thereby the focus is on finding the best fitting and most motivated people, not on finding employees who have free capacities. Although internal recruitment is challenging due to e.g. line responsibilities, it will come with upsides. The internal team will bring in deep industry knowledge and a well-established network with support functions which will help to gain speed easily. Furthermore, the project will demonstrate that “innovation from inside” is possible and desired which leads to higher internal credibility of innovation efforts. Candidates should be comfortable acting in uncertainty, taking ownership and risk, have creative minds and should be hands-on. To ensure project success, we will assist and guide our clients to find the best internal team possible.

 

The best performing teams find an effective way of working despite or maybe because of their opposing personalities. To enable empathy for each other, the Myers-Briggs-Type-Indicator has proven to be an effective tool. By understanding and addressing differences in personal and professional traits, teamwork gets smoother and more pragmatic. It also helps the hybrid coach find the right way to solve conflicts which will inevitably occur. The campus team should also bring all major capabilities (Sales, Marketing, Development, Finance, …) to cover all roles a startup typically has to cover (CFO, CIO, …). In case of insufficient internal team staffing, Excubate can fill in additional team members in an interim management role if needed. Additionally, external experts (e.g. Design, Growth Hacking, Legal…) will be pulled in to ensure high quality results. The Corporate Startup Campus will expand the team’s skills and capabilities which makes it a perfect opportunity for high potential employees and their professional career development plan, thus, also a great HR tool. Practicing decision making, delegation and hands-on mentality while being guided by an experienced hybrid coach will have a positive effect on the development of high potential employees.

3. Use agile methods as pragmatic enablers, not as paradigms

To deliver a viable business model in 12 weeks, the campus team makes use of a proven working mode that is mainly defined by agile and startup methods, team focus and sponsor involvement.

 

Following one of the most basic concepts of Scrum, we work in 3 sprints, focused on different development stages of the new business. In a nutshell, we understand the customer and market first, validate our ideas second and develop/test the real product at last.

To ensure customer centricity, we work with a wide range of agile tools and templates like personas, the value proposition canvas or customer journeys. Customer interviews and surveys help validate or falsify our idea related hypotheses. Having agile principles at the core of the campus program, learning is key throughout the whole process. Interviews, preto- and prototypes, fake door tests and MVP (Minimum Viable Product) tests help to gain insights into potential customer segments. This way the team is able to refine the product idea and the business model constantly.

 

During the program, the team meets during 3 subsequent days per week with full focus on the project. Unrelated meetings, calls or all other usual disturbances must be shifted to the remaining two days of the week. To avoid disturbance, it usually makes sense to choose an offsite location, which offers enough space for creative work and is sufficiently far from the everyday office location.

 

During the sprint reviews, the team shows current findings, asks for sponsor guidance proactively and obtains approval for further steps that they cannot decide themselves. It is important that the group of sponsors (typically a small group of senior management) embraces the agile working mode. This means holding off on giving the typical (micro-) management style guidance and showing trust in the team’s entrepreneurial decisions. Subsequently, the team will continue to tackle challenges at high speed and autonomy during the following sprints. However, despite working agile, a new business model won’t come to life just by sticking to a Scrum textbook. Therefore, the hybrid coach constantly sets next steps based on the projects’ advancements individually, applying pragmatism and business sense.

4. Focus on results, not on “output”

  1. The Corporate Startup Campus aims to create viable business models. Unlike other innovation programs, which sometimes stop at theoretical business concepts printed and paperwork, we focus on three deliverables: The actual creation of a new and sustainable business model (ideally culminating in a new legal entity), a Minimum Viable Product (MVP) and a proof of concept. This sometimes even entails a first set of willing-to-pay customers within the 12th campus week, which makes it easy to convince the sponsors of the business models potential during the final review.In an agile world, “results eat words”. This principle serves as our guiding light in almost every situation during a campus project. Consequently, after coming up with new ideas, the next step is finding ways to prove the ideas’ validity. This important lesson is one of the first lessons learned during each campus, as an interview with a potential customer always brings enlightenment regarding a potential product or business model. In general, the first idea will be pivoted multiple times until it fits with customer needs.

The abovementioned agile testing options are the basis for data and results-driven decision making. These high paced decision cycles are antithetic to the corporate approach with rather indolent decision making, based on overanalyzing for the desire of certainty. Thus, the campus team needs to stop thinking in a corporate way and embrace a results-focused, startup-like mind-set to succeed. Higher autonomy towards decision making comes with greater responsibility. The team needs to ensure – guided by the hybrid coach – that they reach the projects` key deliverables.

Our job doesn’t stop there

Towards the end of each Corporate Startup Campus, similar questions arise among the sponsors and team members. Follow-on options, future team staffing, preservation of the newly acquired innovative culture and skills and the transition of the Corporate Startup Campus into a repeatable model are topics we discuss after a campus project with the respective stakeholders.

 

Corporates need to prepare for the scaling phase after the campus program. To ensure that campus’ efforts and results aren’t lost, we will give guidance on pros and cons of various follow-on options. Depending on strategic focus, integration into an existing business unit, creation of a new business unit or formation of an independent spin-off are options to consider.

 

For the business to succeed, it is vital to have complete management commitment early on, including the assignment and incentivation of a future business owner and follow-on team staffing. Including key campus members in the scaling process is crucial to avoid hand-over and knowledge setback. Leveraging our experience in setting up corporate innovation environments, we provide clear guidance on how to proceed in the most effective way.

 

Additionally, the management could use the campus results as a proof point for cultural change and the corporate’s innovation potential. Active and open communication (e.g. open-door session for all employees or all-hand presentations and/or continuous coverage through blog articles) throughout and after the Corporate Startup Campus helps to trigger and maintain a new, innovative culture.

 

A sustainable shift in company culture will be reached by not only running the campus once, but conducting subsequent campus projects, making it a common way to innovate for all business units. The Excubate approach supports this shift with a train-the-trainer program, in which a dedicated employee (the future campus coach) takes part as a campus team member at first, acts as co-coach during a second campus and gets expert support during a third self-managed campus. All following campus projects can be then led by the new, internal hybrid coach.

 

For Excubate, the Corporate Startup Campus means creating sustainable business models and moving towards a truly innovative and results-oriented company culture. Rather than investing in projects that will not make it to market or fail late at high costs, corporates should leverage their employees’ innovation potential and dedication in a thought-through process. As this is far from being easy, our experts guide the team to reach innovation excellence. Fast paced business model innovation is a topic for your corporate? We’d be delighted to start a conversation with you: innovate@excubate.de

Startup Due Diligence: Nailing a moving target

Key takeaways:

  • Traditional M&A DD approaches are too analysis-focused and stiff
  • Outcome options are much broader (acquisition, cooperation, partnering)
  • Decisions need a combination of data-driven and gut-driven input
  • Team is just as important as figures
  • You need to be attractive for the startup too – and make them trust that you will deliver
  • Have a contingency plan in place to not lose ground when M&A fails
  • Finally: Don’t take “nailing” the startup too literally – it needs to keep moving

What’s the deal?

In the dynamic world of digitalization, startups are scaling faster than ever and adapt even more quickly and agile to a fast-changing environment than corporates. Scaling globally within a few months is a clear desire of most startups and many – e.g. the communication tool Slack – show that it’s possible. This tempo pumps up the pressure for existing companies to not only innovate and scale new business themselves at higher speed, but also to consider partnering with and acquiring these fast-moving startups. The challenge, however, is not only their impressive multitude across all stages of development (up to 50 million new firms are founded globally each year, most of them vanish, of course). On top, these companies are changing and moving so quickly, that a newly identified startup may have doubled its size and changed its business model already 3 months later.

 

Still, and despite all the notions of agility and fast decision making, a clearly structured Due Diligence (DD) process is needed to find the right partner in the abundance of startups. However, in the dynamic startup environment, a classical DD approach may come to its limits due to its somewhat rigid and heavily fact-driven approach. Usually, a dedicated team follows a highly standardized process to evaluate a small number or even only one target. DD projects are opportunity-driven, following a “sniper approach,” as the corporate often already knows which company they want to acquire and there are not many options in any given market anyway. The Startup DD,  in contrast, requires more of a “shotgun” approach at first to make sure no valid opportunity is missed out on. Further, the methodology needs to be agile, as startups in a fast-developing market are moving constantly and change happens within days.

 

In the startup space, it is also more difficult to collect relevant information than in a classical DD: either the needed input is not available or the startup’s management team does not have the time to provide or even create it, considering that reporting mechanisms, internal controlling, process and KPI frameworks may not have been established yet. Compounding the difficulty, the data is likely to be changing rapidly, anyway.

Timing is an essential driver for “fit”

The timing of the M&A is critical: Early-stage startups are more likely to rely on financial support, and being acquired may alleviate immediate financial needs. Logically, once the startup becomes larger, it either reaches a more stable scale and does not necessarily rely on an acquisition to keep growing, or the acquisition price increases substantially. Buying the company with only 75% certainty therefore may pay off more than waiting for another half a year to reach 95% certainty, as the acquisition price goes off the charts and other corporates jumped on the bandwagon.

 

The corporate should be very clear about the benefits the acquisition can provide to itself as well as the startup, e.g. providing access to more R&D or sales and marketing resources that accelerate the startup’s growth. The acquisition may give the startup a financial boost, optimized costs and/or increased revenues via new technologies or features built into own products; therefore, the timing of the acquisition should match the startup’s development stage – which, again, is tricky, given the fast development pace. Finally, scaling up from a prototype-stage with little volume to the corporate production volume of tens, often hundreds of thousands of units, is the toughest part and often the breaking point. Think of a car manufacturer with millions of units each year into whose production process a startup product needs to be embedded. In the DD phase, this aspect should be examined very closely.

Analysis is king, but agility is King Kong

Classic DDs follow a rather deterministic, structured and at times „technocratic“ approach, which is – rightly so – strongly data-driven to arrive at a specific valuation for the desired target. Yet, given the unpredictability of the moving target, acquiring a startup may need an entrepreneurial decision – and hence a leap of faith – on the corporate side. A too analysis-driven approach may provide a false feeling of predictability that in fact isn’t really there and may put the corporate into analysis paralysis.

 

The Excubate methodology builds upon a thorough understanding of the corporate and the startup worlds along with their respective business models to balance the characteristics of a dynamic environment with a data- and fact-based reliable model.

 

To provide an objective and pragmatic comparison of different startups, we map the entrepreneurial objectives of the corporate with regards to where they want to play (products, customers, markets) and how they want to win (processes, decision logic, incentives, capabilities, organization) with the startups’ ability to complement or counteract these. Based on this, we build an assertion logic that clearly outlines what the corporate is looking for. We typically derive a specific assertion tree similar to  the example below.

For each hypothesis, criteria are defined that need to be fulfilled to prove the hypothesis. Based on this, the criteria are weighted on a scale from 0 – 3 (0 = “just informative”, 1 = “less important”, 3 = “very important”). This helps identify key criteria and potential show-stoppers.

 

Based on this catalogue, each startup is evaluated along the criteria on a scale from 0 – 100% for the level at which they deliver on the criteria. To assess this objectively while staying pragmatic, the evaluation needs to be as data-driven as possible, but at the same time as entrepreneurial as needed. This is an iterative approach to evaluate the startup fit and both, the criteria weighting and the startup evaluation, need to be challenged and adapted constantly with every new learning. This way, we can “force-rank” all relevant startups against each other and a ranking can be maintained throughout the Startup DD project, based on the current status of analysis.

Excubate approach

Studies have shown that more than half of all M&A deals fail. Key reasons may be that the valuation has been too high in relation to the value created, the acquisition’s synergies had not been carved out enough or a cultural misfit led to failure. This problem can be illustrated by the well-known cases of failed large mergers, and it is becoming increasingly prevalent among the mergers between corporates and startups. To avoid this, we typically follow 3 steps to complete a successful startup DD.

1) Get clarity on the corporate’s strategic and tactical goals (1 – 2 weeks)

The Startup DD starts in a very early phase when there are still many uncertainties: What are the corporate’s strategic goals with a new type of business and technology? Which type of collaboration is the best solution? An acquisition is a tactic to execute the corporate’s strategy for a business vertical, and not a strategy in itself. This means, prior to the process of the startup evaluation, all other alternatives should have been considered, i.e. cooperation, licensing, building in-house, partnering or co-investing. Also, in many cases, the objectives of a corporate are not fully clear in the first place, especially in the field of digitalization and new business development. So even this first phase may end up as a learning experience for the corporate.

 

The corporate may be kick-starting a certain business, trying to secure a basic technology or patent for further innovations or just trying to prevent disruptive competition. Software maker Atlassian, for example, recently acquired Trello, a startup re-inventing Kanban-based project management and attacking the corporate’s JIRA from below. Atlassian acquires two startups per year, not only to leverage their technology, but to bring their startup culture to the company – therefore one of the prerequisites is that the founders stay in the startups after the acquisition.

 

Based on the defined strategy and tactical objectives, the specific assets, processes and capabilities, the corporate can and wants to inject need for clarity. Will the corporate bring in customer access, sales/service power, technology, brand? And how should these be combined with a startup in a partnership or acquisition?

 

Important cornerstones need to be pre-defined to keep the number of potential startups manageable, e.g. their industry focus, minimum revenue, footprint or ownership model. Furthermore, it is helpful to think about the company size upfront: Should the startup be already established and generate revenue or should it still be in an early phase to leverage the corporate’s development capacities? These cornerstones are the blueprint for the detailed criteria catalogue described above.

 

Besides the internal perspective on the strategy, the market environment is equally important to understand – and naturally also a very dynamic one if we talk about the startup space and rapidly developing markets (think of markets to trade 3D printing capacities, that are just emerging today). Interviews with experts are crucial to derive strategic perspectives and conclusions beyond what is available in research reports.

2) Identify and evaluate relevant startups (4 – 6 weeks)

Based on pre-defined cornerstones, a long list of potential startups is created. Researching market studies is a good starting point to get an overview of relevant players. National and international startup data bases, such as Spotfolio and Crunchbase, help to collect further relevant information and KPIs. Existing contacts, the personal startup and founder network should be leveraged to complete the picture. The goal should be to find as many relevant startups as possible to have a wide choice (that then should be narrowed down quickly and rigorously) – the number of interesting companies, however, highly varies with the entry barriers of the respective industry.

 

Along with the iterative development of the criteria catalogue – and therefore the definition of key criteria and show-stoppers – the long list can be shortened down piece by piece. We recommend to get in touch informally with the most interesting startups as soon as possible, by visiting startup conferences, panel discussions or directly setting up phone calls. In these first discussions, usually reasons for immediate rejection show up, e.g. that the management team is unable or unwilling to enter discussions, new show-stoppers are discovered or the startup simply is not ready yet to discuss potential collaboration models. After each interview, the criteria catalogue is updated, and the evaluation logic is refined, cutting down the list to 5 – 8 potential acquisition targets.

There is an important learning for the corporate here, which is that it needs to be sufficiently attractive to the startup as well. We see it all too often that startups, while seeing tremendous value in cooperating with corporates, refrain from even entering discussions because the respective corporate has a history of proposing and promising, but then not delivering. Having a reputation of actually moving quickly and pragmatically helps a corporate tremendously in gaining credibility with startups.

 

With the remaining startups, workshops are conducted to get information that cannot be collected through desk research, e.g. their F&E focus and budget, growth strategy, soft factors like company culture, and sensitive KPIs. Focus should be on the high-ranked criteria, e.g. relevant technology features or the maturity and scalability of the sales process, to create a sufficient assessment. Discussions on first potential collaboration models show with which constellation the corporate’s assets can be leveraged most effectively. After the first round of workshops it is usually quite clear which ones are the top 3–4 companies to start a more detailed discussion on a potential joint growth strategy.

 

Those discussions may also lead to a change of the strategic direction, e.g. if the corporate detects unforeseen synergies between two startups and decides to acquire both. Another outcome may be that starting with a partnership and acquiring later is the better choice, based on the startup’s potential in relation to its state of development and therefore the risk that the corporate is willing – or not willing – to take.

 

To get an external perspective on each company, which is the most important aspect of the customer-centric startup world and its methodologies, it is an imperative to conduct customer interviews. In a 15–30 minute, rather hands-on and pragmatic call, we discuss aspects like sales process, customer satisfaction, product and service request handling to cross-check the information provided by the startup. Furthermore, scanning relevant online forums and portals to analyze reviews and customer feedback completes the external perspective.

 

At this point we typically arrive at the prime candidate that has shown interest in an acquisition and opens its books for further and final investigation. The deep dive business model DD needs to be conducted, i.e. developing a scenario plan for value creation (case calculation).

 

Besides that, a financial DD and a legal DD will of course be completed as well. Both, however, should exhibit a similarly pragmatic approach as the process thus far. Otherwise there will still be a substantial risk of stalling. This may mean that both parties involved on the financial and legal side run a simplified and shortened process, ensuring that “bet-the-farm”-risks are minimized and major show-stoppers identified. It would also pay off to allocate more progressive finance and legal experts to these DDs than it would typically be the case in traditional M&A.

3) Execute acquisition and link up the startup with the corporate ecosystem

This is of course the trickiest step. And there are plenty of well-known insights around mid- to long-term incentivation of the startup tea­­­m to stay with the company (earn out) as well as a thought-through communication approaches for both the corporate and the startup to avoid culture clash. We don’t want to further elaborate on these here, but focus on finding an actually working approach for integrating processes and organizations, as we perceive these to be the tough part and actual enabler of culture integration and ultimately success of the whole endeavor.

 

To make the acquisition actually work on that operational level, an appropriate (not too little, not too much) integration needs to happen. Based on the insights from earlier DD phases, the areas and processes to integrate vs. to leave alone need to be specified and scoped out. For example, if it’s crucial to have an integrated go-to-market to leverage the corporate sales power and customer access for the startups products, an integrated sales process and team needs to be designed. R&D and production could and maybe even should remain fully separate for optimal performance. If the startup product, however, needs to be integrated into the corporate supply chain and scaled up to thousands of units, this integration needs to be put in focus.

 

Since the cooperation/ M&A of a startup is rarely just a financial investment approach, but has a strategic objective, we always suggest that our corporate clients have a contingency plan in place for the not unlikely case of the acquisition not working out. A failed M&A approach could easily eat up months of valuable time to build a new capability or business and put the corporate in the back seat on the market. The alternative should always be building the business internally with sufficient funding and firepower, that would otherwise have gone into the acquisition.

Startup Cooperations: The way corporates enter the right partnerships and waste less time on legal paperwork

Startup cooperation is the new oil (for corporate innovation)

In the past, corporates tried to diversify their portfolio by investing into or outright acquiring startups or building their own incubators. Often, these measures help with marketing, but are not unlikely to fail on delivering on larger objectives. Not only are startups usually not interested in pure capital investments, because they don’t want the corporate to steer their business, but also there is no realistic chance for a sustainable collaboration as long as the investments are not sufficiently in line with the corporate’s strategy.

 

Collaborating with startups should be more than just a marketing “shtick” – corporates even depend on startups to leverage technology know-how and a certain entrepreneurial approach that is not the corporate’s core business and way of working. E.g. a corporate trying to establish a substantial IoT business may need to cooperate with an already established startup, e.g. a predictive maintenance expert, to build its IoT business.

 

A well-known example for startup cooperations is the BMW Startup Garage. BMW routinely scouts startups with innovative technologies, products or services that can be integrated into BMW products and therefore add value to the corporate’s core business. Instead of investing into the startup and acquiring a share, BMW buys products and services from them and delivers a revenue stream to the startup.

 

As a second step, when the business relation is established, BMW may consider buying a stake in the company. Cooperation means building a balanced and sustainable partnership between the corporate and the startup.

 

But finding the right startups to cooperate is hard, because there are too many and not enough at the same time. We suggest to follow a funnel approach with four clearly structured steps to identify and evaluate the right startups that actually fit with the corporate’s strategic focus. This fit is what we consider the crucial part that needs far more thoughtfulness than corporates have historically shown.

Step 1: Align with strategy

Cooperation with startups isn’t done for cooperation’s sake. It needs to follow purpose and focus – and needs to be aligned with the strategic focus areas the corporate has defined – on a specific level. For example, if a corporate decides to move into the IoT space and has set focus on e.g. predictive maintenance, startups with expertise in sensor technology or advanced analytics are highly interesting for a cooperation and need to be channeled into the funnel. A corporate will likely have multiple of these focus areas in parallel, which is why the funnel will be sliced horizontally and needs to be managed in parallel.

Step 2: Identify the right startups

To identify potential cooperation partners, criteria should be defined to create a longlist of relevant startups, which should include the strength of their technology, their business model, their sales muscle and their management team. A topic-oriented overview of local and global market players needs to be developed and the funnel should be filled broadly and then narrowed down quickly. National and international startup databases should help find relevant companies. Leveraging personal startup and founder networks helps to quickly identify additional relevant companies. The longlist should be shortened to a list of about 10 startups to enter more specific discussions with.

Step 3: Scope the cooperation opportunity

To scope a potential cooperation model, we look at three things:

a) Overlap and complementarity of critical success factors of both businesses (e.g.: How much is owning tech IP a deciding factor?)

b) Synergy and support potentials of the business model canvas elements of both businesses (e.g.: How much do we use the same channels to address customers, maybe even competitively?)

c) Ability to align critical processes across the businesses (e.g.: How could and should the sales process be interlinked to deliver on scope synergies?)

a) Critical success factors

understanding the critical success factors of both businesses and how they play out with or against each other, is an important first step. We look at 15 different success factors, structured into categories management capabilities, operating capabilities and proprietary assets. In which ones is the startup strong and where can it be supported by the corporate’s expertise? What do we need to leverage (e.g. customer access, brand, IP) and where do we need to leave the startup alone (e.g. HR, regulations)?

We need to understand in detail how the building blocks of the two companies match and where they complement each other. This evaluation is the base to define which type of cooperation is the best option.

b) Synergy and support potential

In a second step, we typically work with the Excubate Corporate Startup Canvas to compare the two business models and identify synergy and conflict potential within each of the 12 canvas elements. Is the startup approach cannibalizing or complementing the corporate’s business model? How do value propositions compare, how do customer segments overlap, specifically? This results in a thorough analysis of similarities, synergies and conflicts that is highly valuable when designing the cooperation model with a startup or comparing options across multiple potential startup partners.

Step b) is obviously not fully free from overlaps with a), which we see as a benefit. We are challenging the discussion from a 2nd perspective (specifically looking at synergies and conflicts) and, thus, refine the view developed in a) to ensure a most thorough analysis.

c) Align critical processes

The third step is to identify options to link the core processes of both parties. For example, if the startup should be utilized as a “sales engine”, the different sales processes need to be analyzed in detail to fully describe how they can be aligned and in which step of the sales process the startup should be integrated. This analysis helps derive potential process dependencies or bottlenecks. Typically, the most important processes to consider are development, sales and customer service, and it’s key to focus on these and not boil the ocean by looking at all processes. The biggest levers are rarely internal processes like finance and HR, but sometimes it may even be those, e.g. when recruiting and building a team is critically important.

Step 4: Enter the cooperation and survive the honeymoon phase

When a potential cooperation model is identified and scoped out in detail, legal alignments should be made and contracts need to be set up. The objectives and deliverables for both sides should be clearly defined.

 

However, companies often end up creating an extensive legal paper and stretching this phase over an extended period, thus – in fact – often killing the cooperation before it started. Our above approach and analysis ensures a more trust-based approach that clearly outlines the win-win abilities of both parties in a very transparent and business-oriented way and makes extensive legal agreements less important. Both parties should trust in this cooperation and keep the contracting process lean, knowing the nuts and bolts of the cooperation upfront. We are convinced that if the first three steps followed a clear approach based on a thorough analysis, a fertile ground is created for a partnership on eye level with mutual goals and incentives. And wasting time and money on complex legal issues is minimized in the first place.

 

The “honeymoon phase” (i.e. the first six months of the cooperation) should be clearly defined and well managed to avoid that the cooperation fizzles out before it even started to gain traction. The onboarding process needs to be structured, a meeting and interaction countdown should be followed and roles be defined to start working the cooperation.

 

Building a strong startup cooperation muscle is getting more important for corporates to ensure their ability to innovate effectively and sustainably. Building this muscle is, however, far from trivial and can result in substantial loss of value, credibility and reputation if not done right. Building on experience and a thought-through methodology will help maximize the benefits of startup cooperations.

 

For more information, experience and an individual approach for your startup cooperation efforts, talk to Excubate: innovate@excubate.de

The digital operating model: How corporates can make digitalization happen (1/4)

The need for a digital operating model

Digitalization is not a strategy, because strategy involves a choice. And, thus, the choice around digitalization is rather in the how than in the why or what. Still, the discussion about why and what to do in digital transformation turns into quite a buzzword bingo these days, as we see from current debates in media, at conferences and in the experiences of our clients. This  creates more confusion than clarity and easily overwhelms with the breadth of issues and options for how to handle digitalization. The executive team of a corporate is often challenged to give direction, and an approach of test-and-learn could easily be misinterpreted as a lack of leadership. When turning to experts, companies are confronted with heterogeneous approaches on digital transformation. Some see the need for a new CRM as most pressing (which they can provide, obviously), others start by digitizing project management (a small lever, overall), others sell their digitalization assessment tool only to jump to the surprising conclusion that their services are needed to catch up with the competition. To stress their own relevance, IT experts often anticipate the unconditional dominance of technology at the heart of the organization and any digitalization effort. All these different agendas, technology myths and too much focus on the strategic aspects of digitalization actually dilute this topic.

 

Thus, we suggest to take this debate to a next level of specificity: Let’s park the vague discussions whether to digitize or not, stop focusing on the why or the what and rather to talk about the how.

What is a Digital Operating Model?

The operating model connects strategy with the daily business operations. It effectively describes how the strategy is implemented and the business is run. Without it, people would either not know what to do to achieve the strategic mission or – in the better case – would do things in an inconsistent and non-repeatable way. There are various approaches to describing an operating model, more or less structured and stringently defined. In our daily practice we have found five components that consistently affect how well a strategy is implemented via an effective operating model – ordered by logical dependency: Processes, Decision making logic, Capabilities, Incentives and Organization (PDCIO – or DIPOC, for the sake of pronouncability). When a trend as radical as digitalization is reshaping every aspect of the modern enterprise, a firm cannot get around substantially adapting those five pillars. Thus, a digital operating model is the post-transformation operating model, which has undergone a digital redesign of its processes, decision making logic, capabilities, incentives and organizational structure. A digital operating model is mandatory to realize digitalization goals such as internal process efficiencies, higher innovation effectiveness or better customer experience.

 

We have often seen companies set ambitious digital strategic targets, but fail to adapt their operating model respectively. This blocks the strategic vision from reaching the employees, because the latter cannot connect with the strategy and resources are not adapted accordingly to support the strategy.

 

We don’t believe that digital transformation can be achieved just by hiring a CDO or launching an app. Neither can the operating model be redesigned based on vague suggestions like “use big data”, “be customer-centric” or “work agile and lean”. Not only today’s CEOs should stop focusing on just digitizing the corporate project management in order to keep their position, but also tomorrow’s CEOs should do so in order to actually prove their execution capabilities. Instead, it is time to mobilize resources to design, establish and implement an efficient and holistic digital operating model. For this, they need to get specific on what has to be transformed how. In this thought piece, we provide a perspective on this transformation and define the components in question while giving hands-on advice on how to adapt the operating model.

The digital operating model: How corporates can make digitalization happen (2/4)

The need for a digital operating model

The operating model needs to be put into the overall strategic context of the firm. Starting with a clearly framed digital ambition, a digital strategy defines the where to play and how to win the game. The where to play defines which (digital) products and services should be offered to which customers and – as an extension to the classical version – which people the company wants to be an attractive employer for. All this needs to be transformed as part of a digital strategy. Where to play involves clear choices on what elements a firm needs to transform or re-focus to realize the strategy: customers, services/products, people and processes. The how to win defines which specific approach should be taken to achieve success vs. the competition and is in line with the operating model elements.

Processes, decisions, capabilities, incentives and organization constitute the operating model, bridging the digital strategy with the dgay-to-day-operations. Given this constellation, it is a logical consequence that the design of the operating model is deeply linked with the digital strategy. This might be why many experts advise their clients to select just one specific type of operating model according to their strategic goals such as the customer centric model, the data powered model, or the open & liquid model (as seen at e.g. Accenture, Deloitte, Ernst & Young, World Economic Forum). However, this approach falls a bit short in our view.  In our experience, it is not about choosing one operating model approach, but rather about evolving the operating model in line with the short and the long-term milestones. Instead of aiming at following just one digitalization goal such as customer centricity or data-enabled business model, companies actually should strive for all of these goals over time – in different stages over a certain time horizon, depending on a company’s individual digital maturity state, market situation and resources. This allows for tailoring the digital operating model individually to the firm’s situation, while following digital innovation blueprint principles. The visual below shows the relationship between digital strategy and the corresponding digital operating model, its suggested evolution over multiple stages or periods and some examples of digital strategy and operating model adustments we regularly see in companies.

Processes, decisions, capabilities, incentives and organization constitute the operating model, bridging the digital strategy with the dgay-to-day-operations. Given this constellation, it is a logical consequence that the design of the operating model is deeply linked with the digital strategy. This might be why many experts advise their clients to select just one specific type of operating model according to their strategic goals such as the customer centric model, the data powered model, or the open & liquid model (as seen at e.g. Accenture, Deloitte, Ernst & Young, World Economic Forum). However, this approach falls a bit short in our view.  In our experience, it is not about choosing one operating model approach, but rather about evolving the operating model in line with the short and the long-term milestones. Instead of aiming at following just one digitalization goal such as customer centricity or data-enabled business model, companies actually should strive for all of these goals over time – in different stages over a certain time horizon, depending on a company’s individual digital maturity state, market situation and resources. This allows for tailoring the digital operating model individually to the firm’s situation, while following digital innovation blueprint principles. The visual below shows the relationship between digital strategy and the corresponding digital operating model, its suggested evolution over multiple stages or periods and some examples of digital strategy and operating model adustments we regularly see in companies.

The link between digital strategy and operating model evolves over time and occurs in a multi-stage process. The first strategic milestone is typically to deliver digital products, as we observe in many companies now working to become more digital. The operating model has to align with this target by aligning the respective DIPOC elements, e.g. the digital innovation or product development process that now needs to embed digital elements. Decision makers need to follow a new decision making logic, now involving more functions much earlier in the process (e.g. digital marketing already when designing the product). Knowledge capabilities have to be built, etc. In the second phase, companies typically shift from product-centricity to strengthening customer-centricity. This shift leads to further changes in the operating model, e.g. adapting and customizing the customer journey (processes and decision making). Once this is achieved, the strategy moves on to full-scope data analytics utilization. Thus, the operating model has to take care of implementing data collection capabilities and a further revised and more data-based decision making logic. This continuous alignment between digital strategy and operating model continues until some level of a digitalization vision is achieved – and beyond, as the business will further evolve.

The digital operating model: How corporates can make digitalization happen (3/4)

Elements of the digital operating model: DIPOC

The digital operating model consist of five elements that logically build upon one another: Processes, decisions, capabilities, incentives and organizational structure, which we call DIPOC (for practical reasons). Processes are the overarching element of the operating model, connecting the what and the how in the strategy pyramid elements. Processes have to be transformed in line with customers, products, and people. New processes require a refinement of the decision making logic to account for other parties taking new decisions in different succession over a different time-span. To run adjusted processes and new ways of decision making, the right capabilities need to be attained and deployed – by mobilizing existing ones, building new ones and disposing of obsolete ones. Consequently, the incentive structures have to be adapted to fit the new processes, drive the decision makers to make optimal decisions and sufficiently incentivice required digital capabilities. Finally, the elements and reporting lines of the organizational structure have to be adjusted to reflect the changes made to the operating model.

Processes

As processes describe how an organization works, digital processes need to capture how an organization works in the digital world. Embedding digital capabilities and technologies into process steps (and deploying a CRM system, for example) is one (rather straightforward) way to adjust processes and had been done already before it was labelled “digitalization”. The more challenging, but also more impactful way is to adjust processes such that their ouputs deliver on the digital promise of the strategy. Primarily, these will likely be digital or hybrid products and digital business models.

 

As part of the digital operating model, the key 3-4 processes that are crucial for digital impact need to be tackled first. Typically, these are product development and creative processes, customer interaction processes, sales and marketing processes as well as data gathering and analytics processes. When laying down new processes (and, for that matter, understanding the current ones), finding the right balance between documentation and flexibility is key – we advise doing as little documentation effort as possible, as much as necessary.

 

Taking product development as an example, the process has traditionally followed a waterfall model of innovation. Starting with a scope and resource estimation, this process followed a list of tasks that the development team completes sequentially. Product development needs to be reenvisioned as it will increasingly be supported by technologies and will result in products with digital compontents. The new product development process incorporates crossfunctional input from various departments, e.g. Marketing and Sales already in the ideation process to achieve a customer-centric perspective. Agile development methodologies and direct customer feedback from the beginning allow ongoing refinement of scope in continuous learning from the customer. The overall premise of a digital and agile approach will need to come to life in this future product development process, resulting in a substantial change with more feedback loops, trial-and-error elements and more pragmatic involvement of different participants at different stages.

 

As an example, LEGO, the Danish toymaker, has successfully transformed both its business model and its operating model (MIT 2016, Transforming the LEGO Group for the Digital Economy). At first, LEGO failed when diversifying itself into the digital space. The management got distracted from its core physical products, which it realized and bridged the gap between digital media and the physical LEGO brick by adapting its operating model. Through an advanced hybrid product development process, redesigning software and hardware, LEGO launched the game “Life in George”, where users could construct physical LEGO bricks which were scanned into the game. After the success of this hybrid product, LEGO further developed its product development process by applying crowdsourced designs through communities of fans online and became the Apple of toys.  LEGO showed early on how to adapt the operating model through a step-by-step change of key business processes.

Decision making logic

Once it is clear which digitally enabled processes need to run in the company in which way, accompanying key decisions for these processes must be specified. In many cases, this calls for a much clearer specification than in the the past, when nobody could say with certainty who is actually involved in deciding, e.g. the pricing for a new product. The decision making logic is critical, as it defines which stakeholders will be involved in which decisions in which way – as a contributor, a final decision maker or as the one who needs to execute. More often than not, companies fail to make this clear enough, leaving their teams with figuring things out on the fly. This could lead to inconsistencies, yield loss and, ultimately, a perception of chaos.

 

The decision making logic changes significantly with the move towards a digital operating model, because there are new types of decisions that need to be made (e.g. which digital features to build into previously purely physical products), there are new sources of information available (e.g advanced insights based on real time customer data from product use), there are substantially shortened time horizons (e.g. software development cycles of a few days vs. hardware development cycles of months and the interlinkage thereof) and new configurations of decision makers and new roles, such as the Chief Digital Officer.

 

Looking at these impacts driven by digitalization and the increasing need for more agility, companies typically follow a few paradigms when designing the future decision making logic in a digital space, such as:

  • Leverage (more and better) data: The decision logic should follow data driven insights instead of internal politics and (just) managerial instincts, e.g. real-time data on which product functionality is used most by a certain customer group would help decide the functions to be included in the next version
  • Make decisions where they belong: Empower people close to the business (decisions as “low” in the organizations as possible, as “high” as necessary), e.g. product owners should decide on scope of product functionality, not the management board
  • Ensure speed & consistency: Leverage direct communication and decision making tools to make decisions on the spot as opposed to long-planned meetings, e.g. tools like Slack or MS Teams

 

A digital operating model should make it easier to make critical decisions quickly and effectively. There are established decision making frameworks that can also be applied for a digital operating model. We suggest, among others, the RACI model. The following example shows how part of a future product development process could be run and how we believe key stakeholders could be involved. This, of course, will always need to be specifically designed for each company.

Capabilities

Capabilities ultimately bring an organization to life and are vital to have processes and decisions work out the way they are designed as per the above. Digitalization drives the need for a whole new set of capabilities, some more technology-focused such as programming and digital marketing capabilities, some more soft such as agile team management. Capabilities are also probably the hardest to change and build in a sustainable manner. Future processes and decision making logic should guide the future setup of capabilities and define which capabilities are and will be needed. Based on that, capability gaps and redundancies can be identified. Ultimaltely, building the right set of capabilities should follow a specific approach to ensure they fit with the process and decision requirements.

1. Craft the capability target picture

Based on the digital strategy, the processes and the decision logic, a holistic set of capabilities needs to be defined, encompassing topics like digital marketing, advanced analytics, app development, agile project management, etc. (we typically work with a set of 30-40 capabilities). Put into a capability framework, the target picture will give clear guidance on which capabilities are needed in which quality and quantity to enable the digital operating model, stringently aligned with the strategy.

2. Understand the capability as-is situation and spot gaps and redundancies

Often eye-opening, mapping the current state of digital capabilities (along the abovementioned framework) and comparing it with the target picture reveals substantial need for action. A heat map shows where quality and quantity are in line with the target picture vs. where biggest needs are. Often, these are – amongst others – in the areas of digital development, where neither enough, nor good enough people are on board to build the products and prototypes needed in the future. Also, the analysis may show capabilities (like outdated IT development capabilities) that are not needed in the future and may need to be reduced in capacity.

3. Build a realistic plan for action

In line with the staged development of the digital operating model and linked with the digital strategy, a step-by-step hiring and training plan needs to be set and acted upon. Comparing with how companies have built capabilities in the past, building a new set of digital capabilities typically requires a substantially adjusted hiring approach, using different channels (such as social media) and different messaging (e.g. designed for the generation Y). As with any outsourcing question, the criticality and availability of talent for each capability needs to be assessed and an internal/external sourcing decision needs to be made. Often, critical capabilities may not be available for hiring (e.g. agile coaches are currently sought after and many prefer to work in a freelance mode).

 

The following visual shows an example heatmap of existing and lacking digital capabilities that are necessary to transform the operating model. Red would typically be used to indicate a more urgend need for action.

Incentives

The right capabilities are of little relevance without adequate incentives to put them to action and create the right culture. Many leaders talk about innovation culture as a mythical, intangible concept. In reality, having rooms with business model canvases, bean bags and sticky notes does not yet create an innovation culture. Company culture is created by tangible and targeted (not necessarily monetary) incentives to recognize, reward, celebrate and challenge the team and their activities on a daily basis. We perceive incentives and reward mechanisms as key drivers of execution, despite the general notion of “we love to change the world”, which is often used to describe incentivation of tech founders in the Silicon Valley.

What to incentivice on?

Contrary to the team- and company-based incentives currently en vogue, we believe individual performance-linked bonuses to be a stronger motivator in high performing organizations.  When incentives are solely set for revenue growth of core products (on corporate or individual level) or bottom-line impact, likely few to no employees will initiate internal innovation projects or dedicate time to building digital capabilities. Thus, bonuses should be strongly connected to success with innovation efforts, innovation team performance and capability build-up. These, admittedly, are not always easy to measure and would require a thoughtful leader to assess individual contributions, e.g. How well did a leader provide freedom to innovate, to work in an agile way? How effectively did team members build up digital development capabilities (quality/quantity)?

How to incentivice?

With our clients, we usually work out individual incentivation schemes, composed of fixed and variable compensation elements, the latter ideally represented by equity/phantom shares. Tending towards an equity/phantom share model is very effective to foster entrepreneurial motivation and is often applied in experimental and innovative corporates. It is, however, not yet mainstream. We typically see a spectrum on which companies position their model between the classic fixed+bonus structure and a fully equity-based model. What we generally do not see work well are models in which employes only enjoy the upsides without experiencing the risks that are inherent to the startup environment.

Organization

Contrary to common corporate intuition, adapting the actual organizational structure should follow, not precede changes to the previously discussed digital operating model elements. Too often we see new organizational units being set up and staffed before a clear picture has been developed for which processes and decisions are to be run how. Once these are clarified, the roadmap for new or different roles, boards, organizational units emerges.

 

These roles will have to be represented by new or re-aligned organizational units with defined reporting lines into the current org structure.

Organizational changes can be more or less substantial, at the minimum defining new committees, e.g. a digital steering committee, composed of the heads of marketing, sales, digital factory, business units, etc., headed by the CDO. They meet regularly to take an integrated, holistic perspective on digital activities across the business, give direction and make key decisions. A digital operating committee on the other hand should translate the strategies of the digital steering committee into specific activities and, e.g. take ownership of business innovation projects. In contrast to the digital steering committee, they meet on a more frequent basis with 4-5 full-time members that report to the board and the steering committee.

 

At the maximum, we see companies establish whole new units to drive digital transformation and innovation, many following the Excubation approach: Set up an innovation company that will be tasked with building and managing the portfolio of new digital business models and smartly separated from the core business. A model, that has already been implemented by IBM many years ago with their “Emerging Business Opportunities” (EBO) unit that was successful in developing IBMs service and open source business, for example.