In recent years, management gurus have advised SMEs and large companies to take a look at tech startups and adopt new management methods to deal with, paradoxically, those same technological companies in which they look for inspiration.
Yet implementing these new-found methodologies in more traditional companies has led to a major bottleneck: established organizations cannot innovate at the same speed and ease as emerging businesses, who are focused on the disruption of processes and sectors. As a consequence, these new management models have to adapt to different parameters and to a different scale.
This is the conclusion drawn by Silicon Valley-based academic and entrepreneur Steve Blank, who has proposed his own lean innovation management methodology as a solution. But what exactly is this method and how can it be applied to traditional businesses?
This post is also available in Spanish.
Silicon Valley-based academic and entrepreneur Steve Blank has created the lean innovation management methodology with the intention that, in his own words: “established companies organize and act on innovation at the speed of startups”.
“Lean innovation management is a way for established companies to organize and act on innovation at the speed of startups.” - Steve Blank, serial entrepreneur, author, educator
Blank says it’s thanks to lean innovation management that established companies can increase their innovative initiatives tenfold in a fifth of the time they currently spend on Research & Development (R&D).
What are the main elements of lean innovation management?
Firstly, Blank draws an interesting comparison between established businesses that are consistently innovative and organizations who devote themselves to what he calls the “innovation theater” - businesses who draft newsletters with wonderful news about major innovative projects without making any kind of meaningful improvement or change to their existing line of products and services.
To avoid falling into this second category and start laying down the principles of lean innovation management in your company, Blank says that businesses must perform two vital exercises:
1. They must recognize and acknowledge their need to be ambidextrous organizations: that is, capable of combining their core business with innovation, or in other words, to "walk and chew gum at the same time";
2. They must then categorize innovative initiatives into three groups, in line with the “three horizons” coined by Baghai, Coley and White in the 1999 book "The Alchemy of Growth":
- Horizon 1 - activities that support existing business models;
- Horizon 2 - activities that extend existing businesses with partially known business models;
- Horizon 3 - projects focused on unknown business models.
This second exercise is at the core of Blank’s lean innovation management: by classifying innovation into three categories, companies can use specific tools and pursue adapted objectives that will enable them to be truly ambidextrous, that is to say, innovative at the same time as maintaining and consolidating their traditional business.
Blank advises addressing innovations in Horizon 1 with conventional management tools, since such projects are usually aimed at improving processes or reducing costs. He then advises devoting attention to Horizons 2 and 3 (in which new opportunities are explored within partially known business models or unknown business models) by using lean startup principles.
Blank proceeds to offer further recommendations as summarized below:
1. Projects from Horizons 2 or 3 need support from individuals involved in Horizon 1 - from the legal, financial and/or purchasing departments - in order to get the green light from executives.
2. When an Horizon 2 or 3 innovation proves to be a success, the company must decide whether to integrate it into Horizon 1 as a new division or not, whether to exploit it as a self-sufficient unit, or whether it is best to break it apart and sell it. This decision and its deployment is as important as the innovation itself.
3. Companies must assume that all innovations on the horizon 3 will leave a trail that Blank calls “organizational and technical debt” - in other words, the costs incurred through creating code and failed prototypes. For the expert, it is important that businesses have systems and resources ready and able to clear that debt through a process he calls refactoring.
4. It is equally important that when a Horizon 2 or 3 innovation comes to fruition, its leaders are not automatically integrated into Horizon 1, because usually that leads to frustration and eventual resignations; rather, any kind of success must give them the opportunity to start a new cycle of innovation with the aim to find more success among Horizons 2 or 3.
5. Finally, the key to success in any of these projects is the involvement and approval of the company’s top-tier management - Blank calls them the “the C-Level” - to ensure that innovations are successfully carried out in all three horizons. If a company’s top executives are unwilling to tolerate and resolve R&D conflicts, nor do they particularly value and embrace continuous improvement, any strategy is doomed to failure regardless of its brilliance.
If all of these recommendations are successfully applied, Blank says that companies will able to act as truly ambidextrous organizations, simultaneously carrying out initiatives pertaining to Horizons 2 and 3, without neglecting the continuous improvements occurring in Horizon 1, and thus they will gain the ability to innovate with the speed and success of a startup.
This post is also available in Spanish.
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