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Taking innovation to the next level

Explore and exploit, or expire

Written by Wilson Casado FAIM
6 minute read
Group of employees working

Corporate innovation often fails due to conflicting factors that prevent the implementation of new ideas and strategies within traditional organisational structures.

Let’s bring ambidexterity to the table.

There is a famous saying that we live in a world where change is the only constant. There is also large evidence that organisations that do not effectively embrace change take the risk of vanishing.

It does not matter how large and established your organisation is.

Look at the case of Lucent Technologies, my employer during the early 2000s when the company was among the top 10 largest organisations in the world. The Lucent brand was abolished by its acquirer in 2016.

Lucent is not alone. Several iconic companies also succumbed, arguably due to their inability to respond fast enough to disruptions caused by market changes and new incumbents, including Blockbuster, Polaroid, Toys “R” Us, Compaq, General Motors, Kodak and Pan Am.

It is not correct to say that these companies were not innovators, in fact, Kodak invented digital cameras, only to kill them shortly after. This raises the question of why corporate innovation often fails, as it does.

Ambidextrous organisations

The reality is that successful organisations master their operations, they are efficient reliable machines and hence they need to eliminate risks. These organisations are equipped with business and performance management models that reward zero failures and short-term results and as such they are driven by the operations mindset.

Innovation, however, requires experimentation and risk-taking, embracing failure and being agile is vital. Innovative teams are driven by the venture mindset.

Ambidextrous organisations can nurture both the operations and venture mindset, they can run today’s business demands efficiently, but at the same time respond to the changes in the environment where they operate.

Professor Charles O’Reilly, a bestseller author in this area, refers to operations mindset and venture mindset as exploitation and exploration, respectively.

From observing what was common amongst companies that have disrupted their own industries, O’Reilly lists the four ingredients for successful ambidexterity:

1) Clear strategic intent that justifies the need for exploitation and exploration

2) Commitment to fund new venture and protect it from those who will kill it

3) Separation of the exploratory unit from the exploitative business

4) Common identity across the explore and exploit units.

Clear strategic intent

The question for your executive team and board members is: Do you believe that your organisation can be significantly disrupted, even face the risk of extinction, in the next 20 or 30 years? And most importantly, do you care?

The last bit of my question has a bit of cynicism toward those who are mostly interested in short-term outcomes.

At the end of the day, it is true that incentives that reward immediate results focused on the core businesses are more common than not.

I argue though, that caring will have an immediate impact also in short-term goals.

Caring about the possibility of disruption is not just about long-term survival, it is about unlocking new opportunities now, positioning the company to lead in emerging markets, creating new revenue streams and attracting scarce top talent who are drawn to innovative, forward-looking organisations.

Managing Partner of Visagio, Wilson Casado FAIM

What top talented employees want most includes having a meaningful job, determining when and where they work, being measured on the value they deliver as opposed to the volume they deliver, and being given the space and trust they need to do their very best work.

These employees are essential to the company’s ability to deliver short-term business outcomes, and yet arguably, only innovative, forward-looking organisations will be able to attract and retain them.

Caring about the discipline to deliver today’s business outcomes as well as caring about future disruption of your company are commitments to sustainability and growth, your strategic intent needs to be unequivocally clear about it.

Who wants to kill ventures?

Committing funding to new ventures is widely common, also common though is the hidden ability of executives to kill those ventures at early signs of unexpected results.

The reality is that the development of new ventures requires a different mindset. These ventures will pivot several times while finding the ideal market fit, and before any sight of success emerges, the venture teams will live several near-death moments.

First and foremost, executives are tasked with the responsibility of ensuring the overall health and success of the organisation. In this pursuit, they often must make tough decisions about resource allocation.

Ventures, especially in their initial stages, can be resource-intensive and will likely not show immediate returns. Executives, in their duty to maintain financial stability, might prioritise projects with predictable outcomes.

Another factor contributing to many executives wanting to kill ventures is risk aversion.

Corporate environments, especially in larger organisations, tend to be more risk-averse due to the perception of the impact of failures on the company's reputation, stock prices, and investor confidence. New ventures are inherently risky and experimental and might be perceived as threats to stability.

It is important to note that not all executives want to kill ventures.

Many recognise the need for innovation and growth, and they actively champion new ideas. In fact, some organisations establish separate innovation units or investment arms precisely to nurture and protect new ventures from the pressures of the mainstream corporate environment.

The aim to terminate corporate ventures isn't always driven by a lack of vision or malicious intent, it may arise from legitimate concerns about resource allocation, risk management, and alignment within the organisation.

Balancing these concerns with the need for innovation and growth remains a challenge that requires careful strategic planning and effective communication.

Separation of innovation units and investment arms

Separated innovation units or investment arms can nurture and protect new ventures from the pressures of the mainstream environment.

The separation of corporate operations from innovation units and investment arms represents a strategic approach aimed at fostering creativity, agility, and long-term growth within an organisation.

This dichotomy recognises that the demands of managing day-to-day corporate activities differ significantly from those involved in nurturing innovation and exploring new opportunities.

The structure is designed to ensure that core functions, such as production, sales, and customer service, which require stability and efficiency, do not conflict with the experimentation and risk-taking activities of innovation units.

This approach also acknowledges the distinct skill sets and mindsets required for each area. Separation also allows the creation of different career paths and remuneration strategies aligned with diverse expectations.

Venture mindset employees, (aka intrapreneurs) who have an exploratory mindset, tolerance for ambiguity and willingness to embrace failure as a part of the learning process, are more likely to be motivated by lower fixed salaries and a higher take on the successes of the ventures.

The separation of corporate operations from innovation units and investment arms recognises the diverse needs for stability and innovation within an organisation.

Common identity

The identity of the corporate organisation is many times its superpower.

While the characteristics of separated corporate operations, innovation units and investment arms may seem distinct, their synergy is crucial for a holistic and sustainable organisational structure.

Effective communication channels and collaboration points must be established to allow for the seamless flow of information and ideas between these identities, as well as the continuous support of the shareholders.

The balance between operational stability, innovation, and strategic investment forms a powerful framework that enables a company to thrive in both the present and the rapidly evolving future.

Do you remember the TDK cassette tapes? Responding ‘yes’ reveals an age that you may prefer to keep private! Those tapes were part of our stories and contained all our beloved music.

While TDK had completely withdrawn from the production of compact cassettes, it has continued to thrive in the world of electronic components and remains a successful multi-billion-dollar company.

TDK has not only been very successful in its internal R&D and traditional innovation efforts but has also embraced open innovation on all its modern takes.

TDK Ventures, a wholly owned subsidiary of TDK Corporation, is the company’s Corporate Venture Capital arm.

This operates as an independent high-performing VC firm based at the heart of the Silicon Valley, many miles away from its HQ in Japan, while also keeping a strong identity with the parent group, investing in startups in materials science, energy/ power and related areas typically underrepresented in venture capital portfolios. The TDK identity is their common superpower.

Innovation on steroids

“Your job as a leader is not to predict the future but to create the systems that discover the future.” - Professor Bill Barnett.

Simultaneously exploring the uncharted territories of radical innovation while efficiently exploiting existing resources and capabilities, will blur the lines between your organisation and the external ecosystem.

It will also make your organisation innovative and forward-looking; the place where top talent will choose to work.

The time for ambidexterity is now. Are you ready to take the leap?