The Six Fears that Impede Corporate Innovation

New business innovation isn’t working in most large corporations. This is true even though we have made great progress over the past two decades in understanding the mechanics and dynamics of radical innovation. We have got the methodologies for creating the businesses right, but our organizations still seem to snatch defeat from the jaws of victory.

Why is this? New business creation is thriving in the startup sector, often disrupting incumbents, so the problem is not a lack of opportunity. What is going on? 

I recently spoke with James Euchner, whose recently published book -- Lean Startup in Large Organizations: Overcoming Resistance to Innovation -- addresses such questions. During our conversation, I asked him about the sources of resistance and their connection to Lean Startup. Here is his complete answer:

Any new venture confronts uncertainty: uncertainty in customer demand, uncertainty in the timing of the market, uncertainty about new channels or new business models or emerging technologies. Corporations have gotten better and better at managing these types of risk. The Lean Startup movement has done much to help with this.

It is ironic, but the very methods that have led to success in creating product/market fit have interfered with venture/corporate fit. There are, in fact, six fears that Lean Startup awakens inside the corporation that impede innovation.

The first is the fear of chaos: the concern that the iterative and experimental approaches of the Lean Startup will lead to an unmanaged innovation process. An Innovation Stage-Gate helps to contain the chaos. 

The second is the fear that the innovation process will lead to disruption of ongoing operations. Every corporation has established norms that define “how we do things around here.” New business innovation naturally challenges some of these norms. This disruption needs to be acknowledged and explicitly managed for a new venture to succeed.

The third fear is the fear that the lean innovation process will lead the company into opportunities that the company just can’t exploit. Worse, the new directions may even undermine the identity of the firm. A company needs to innovate within clearly defined opportunity spaces to counter this fear.

The fourth fear is that the new business will succeed by cannibalizing the core: the new business will appear to drive revenue and profit, but only at the expense of the financials of the ongoing business. To counter this fear, companies need to explicitly model not only the economics of the business but the impact of the new company on the core business. Sometimes, cannibalization is necessary to the ultimate growth of the firm.

I believe that the fifth fear is the cause of the failure of more new ventures in corporate settings than any other. This is the fear that the investment in the new business will drain resources from the core. It causes the core business to react in ways that smother the new business. Countering this fear often requires separating the new company from the mother ship, at least during incubation. 

Finally, executives often fear making a career-limiting blunder when investing in a new venture. After all, the new venture, by definition, moves into spaces that are less well-understood by executives in the company. To counter this fear, companies need to develop ambidextrous leaders – those who can both execute and innovate. A key requirement is for the executives to spend time in the new ecosystems. 

What has your experience been with new business innovation? What are your thoughts on Jim Euchner’s suggestions for inoculating companies against these corporate antibodies? 

Common Misconceptions About Building a Supply Chain

I recently had a very informative phone conversation with William T. Walker, CFPIM, CIRM, CSCP, about his most-recent book, Supply Chain Construction: The Basics for Networking the Flow of Material, Information, and Cash. During our conversation, I asked Bill: “What are the most common misconceptions about building a supply chain?” Here is his full response:

At the highest level, there are two broad misconceptions about building a supply chain. First, there are businesses that see no need to build or renovate their supply chain. Let me give a few examples from former work colleagues:

One just left his employer to start a computer consulting company. Why would a service company startup need a supply chain? The answer is that third-party relationships, forecasting, planning, matching customer demand with service supply, cash-to-cash velocity, and delivery lead time are each basic supply chain considerations. 

Another colleague just traveled to Shenzhen, China to observe the pilot run at a new contract manufacturer making a new family of products. The parent company is small, engineering focused, and has a limited understanding of the operations side of the business. Why should they care about a supply chain? Won't the contract manufacturer will take care of it? The answer is that demand planning, inventory investment, process variability, and intellectual property protection each depend upon the relationship between the basic supply chain network design and the product design. 

And a third friend recently moved to Texas to establish a cross-border distribution center for product manufactured in Mexico. This was explained to me as just a simple cost-reduction exercise; how is this so important in a supply chain context? The answer is that landed cost, import/export compliance, risk management, information connectivity, and performance metrics are each basic supply chain operational imperatives. Such demand life-cycle events and supply life-cycle events often collide triggering the need to renovate or build a new supply chain.

My book, Supply Chain Construction: The Basics for Networking the Flow of Material, Information, and Cash, presents the supply chain from three basic perspectives. The network container is first. This is the set of trading partner relationships, information transactions, and cash processes that connect from raw materials to the end customer. The product contents are second. These are the locations of inventory items and SKUs across the network that supports product delivery. The matching of demand and supply is third. This is the consideration of push versus pull, capacity constraints, and/or dynamic pricing to operate flexibly and risk tolerantly under both small order and large order conditions.

A second broad misconception is among business organizations that understand the need for a supply chain but think only in terms of their most immediate suppliers and customers. A competitive supply chain is fully integrated and multi-echelon. The detailed blueprint presented in my book sequences the basics of how to build a competitive end-to-end supply chain. It explains how to budget price/landed cost from raw materials to the end customer. The book explains how to calculate inventory turns upstream and downstream. And it presents the concept of a Value Circle to tie together multi-echelon performance measures.

What do you think of Bill's response?  What other misconceptions in regard to building an effective supply chain do you think are worth noting?