Top 20 Innovation Articles – Innovation Excellence – July 2013

futuro-3.jpg1. 10 Emerging Educational Technologies & How They Are Being Used Across the Globe – by Saga Briggs

2. Ideation and the 90:10 Rule – by Matthew Griffin

3. Your Personality, Creativity and Innovation – by Lynda Koster

4. Leadership, Not Process, is the Keystone of Innovation – by Jorge Barba

5. The Courage of Empathy – Why We Have Got It All Wrong – by Lyden Foust

6. Success Practices in Co-Creation (enter the wild west!) – by Doug Williams

7. 4 Ways Open Innovation Can Drive Your Business Forward – by Greg Satell

8. Integrating Open Innovation at Tate & Lyle – by Kevin McFarthing

9. “A Little Night Music” with Clayton Christensen – by Nicolas Bry

10. Balancing Innovation via Organizational Ambidexterity – by Ralph Ohr and Frank Mattes

11. Too Busy to Innovate – by Jeffrey Phillips

12. Will Entrepreneurship Create the New World? – by Janet Sernack

13. Going Against the Crowd – by Jeffrey Baumgartner

14. Disruptus: It’s the Game Designed to Open Every Mind – by Julien Sharp

15. Internal Innovation Networks – foundation for success – by Eugene Ivanov

16. If You Aren’t Scared, You Aren’t Leading – by Deborah Mills-Scofield

17. Big Ideas and Process Excellence – by Simon Hill

18. Liberty: the True Innovation, Stronger than the Storm – by Julie Anixter

19. Five Steps to More Engaged Employees – by Holly Green

20. Patrick Le Quément: Office Design Shaping a Creative Mind – by Nicolas Bry

BONUS – Here are four more strong articles published the last week of the month:

Source: http://www.innovationexcellence.com/blog/2013/08/04/top-20-innovation-articles-july-2013/

Top 20 Innovation Articles – May 2013- Innovation Excellence –

Top 20 Innovation Articles - May 2013Here are May’s twenty most popular innovation posts in Innovation Excellence (each receiving 3,500 – 11,700 page views):

  1. Entrepreneurs Define Risk Differently – by Deborah Mills-Scofield
  2. 5 Trends That Will Drive the Future of Technology – by Greg Satell
  3. Deloitte Survey – How Millennials See Innovation – by Paul Hobcraft
  4. Apple’s Innovation Problem – by Greg Satell
  5. Embrace Self-Disruption Using the Business Model Canvas – by Doug Williams
  6. Creativity, Innovation and Cake – by Jeffrey Baumgartner
  7. How to Suck at Leadership – by Holly G Green
  8. modelH – Health Model Co-Creation Forum (part 3) – by Kevin Riley
  9. 25 Things Successful Educators Do Differently – by Julie DeNeen
  10. Big Data Collides with Market Research – by Brigid Kilcoin
  11. Don’t Kill your Organisation! Build a High Performance Innovation Team – by Matthew Griffin
  12. Language Is Killing Our Ability To Innovate – by Lyden Foust
  13. Every Business Is (Or Should Be) a Social Business – by Deborah Mills-Scofield
  14. Las Ocho I’s de la Innovación Infinita – by Braden Kelley
  15. Announcing IX Research: Research for Innovation Practitioners – by Doug Williams
  16. modelH – Health Model Co-Creation Forum (part 2) – by Kevin Riley
  17. Innovate Your Process – by Paul Sloane
  18. Innovation: a Case for Entitlement (really!) – by Deborah Mills-Scofield
  19. So how will we Innovate in the Future? – by Paul Hobcraft
  20. The Potential and Peril of Radical Innovation – by Greg Satell

BONUS – Here are four more strong articles published the last week of the month:

Source: http://www.innovationexcellence.com/blog/2013/06/01/top-20-innovation-articles-may-2013/?goback=.gde_1953902_member_246312999

10 Hot Trends of Innovation and Entrepreneurship in 2013

by Amir Raveh

Back in 2006 a British VC investor had told me that he decided not to invest in a social project called Facebook. He explained that his decision was based on the three main parameters that a successful start-up should have: An experienced team, a unique product and a big market. We all know how that turned out.
3d_print
Many of us are looking to for the next Facebook. After leading dozens of entrepreneurship and innovation workshops and courses, all over the world, I have been exposed to hundreds of new business idea here are my predictions for the 10 hottest trends in innovation and entrepreneurship in 2013:

 

  1. My PA: This will be the year of personalized applications – our mobile device will become our ultimate personal assistant.
    http://www.youtube.com/watch?v=FaSL8lp5-4g
  2. Control freak: The remote control devices will expand to reign over the entire home – Internet connectivity will reach  our refrigerators, heating system, home security, etc..
    http://www.youtube.com/watch?v=KjSI_nQPCnk
  3. Cash is (not) king: Alternative payment systems (sch as mobile wallet) will become widespread. the way we pay and how we perceive the concept of money will be transformed.
    http://www.youtube.com/watch?v=O6vblKSMxdM
  4. Talk to me: New, more human ways of communicating with machines via speech and gesture will become more commonplace.Computers will understand us better, with emphasis on user experience.
    http://www.youtube.com/watch?v=5C1nADiC6OE
  5. Print me a Tea Cup: Democratization of production – 3Dprinters will allow quick, local production of a wide variety of products.
    http://www.youtube.com/watch?v=pQHnMj6dxj4
  6. Online fundraising: Social platforms for raising capital through the crowds – creating a platform for financing ventures without the need to issue the stock market.
    http://www.youtube.com/watch?v=fGjpZrKzdjw
  7. Global teams (Programmer from the Philippines, Designer from Uruguay):  Social platforms to create and share global work teams. Online platforms will allow  the Formation of teams and business partnerships regardless of physical location. No more small discussions with a limited amount of people.Anyone can form an expanded global think tank.
    http://www.jvme.com/new/
  8. Buying for cheap is ON: Upgraded online trading platforms and smart consumption – improved infrastructure, more smart comparisons tools, creating tools recommended for social purchasing options. Due to the recession, modern society will invent ways to improve consumption.
    http://www.pikaba.com/
  9. No need for a doctor:  Personalized medicine computer (mapping DNA / genome) – will give us the ability to treat people based on their DNA and the ability to predict diseases.
    https://www.23andme.com/
  10. How is your energy? Systems to create cleaner and cheaper energy.
    http://www.youtube.com/watch?v=tuisda1q6ns

These are my predictions for 2013, but the largest and most significant innovation in recent years is that we are a generation who can make our dreams a reality, as Yanki Margalit, social entrepreneur and personal friend, put it nicely:

We are so lucky; we are living in an age of – dream it! Make it!

Source: http://insme.wordpress.com/2013/04/16/10-hot-trends-of-innovation-and-entrepreneurship-in-2013/

Want to Reach Latin American Consumers? Get Social

By: Emily Stewart

For brands reaching out to Latin American consumers, social media is the way to go.

A study conducted by Ipsos OTX and Ipsos Global @dvisor found that internet users in Latin America and parts of Asia-Pacific tend to flock to brands’ social network pages, while users in more developed regions, such as Europe and the U.S., steer clear of corporate profiles.

In Brazil, 70% of consumers said that they were “very much” or “somewhat” likely to check brands’ social media pages regularly. In Mexico, 72% reported the same, and in Argentina, 64%. Just 12% of Brazilians and Mexicans said they were very unlikely to do so, and 20% of Argentines.

It seems that markets that are less digitally mature are more likely to interact heavily with brands through social media. Take, for example, Asia-Pacific. Internet users in India, Indonesia and China, where the internet market is still developing, were much more interested in brand social media pages than consumers in South Korea, Japan and Australia – more developed markets.

In Europe and North America, where the internet boasts a long-standing trajectory and high adoption rates, consumers also report paying little attention to brands on social media.

Explanations

emarketer offers a couple of explanations for this apparent correlation between internet adoption and brand social media interaction. It is possible, for example, that social networkers in developing internet markets are just more likely to be interested in brand social media offerings. Or, it may be the case that for new internet users, such offerings are new and exciting as opposed to old news.

However, in Latin America, something else may be at play. In terms of internet market maturity, Latin America isn’t exactly the newest kid on the block (emarketer projects that 46% of the region’s population will be internet users in 2013). This in mind, there’s probably another factor at play: Latin Americans like social media.

Latin Americans are among the top social media fanatics in the world, connecting and interacting at increasingly higher rates.

Reaching consumers via social networks is vital for success in the Latin American market – regardless of company size or sector. In fact, 52% of Latin Americans social media being a factor in their purchasing decisions.

Source: http://en.pulsosocial.com/2013/02/20/want-to-reach-latin-american-consumers-get-social/

Frugal Innovation: A New Business Paradigm

By Navi Radjou and Jaideep Prabhu

GUEST COMMENTARY: What do Renault-Nissan, Siemens, and Unilever have in common? They are all pioneers of a groundbreaking business strategy called frugal innovation.

Frugal innovation is the ability to generate considerably more business and social value while significantly reducing the use of scarce resources. It’s about solving—and even transcending—the paradox of “doing more with less”. Frugal innovation is a game-changing strategy for an “Age of Austerity” in which firms are being compelled by cost-conscious and eco-aware consumers, employees, and governments to create offerings that are simultaneously affordable, sustainable, and of high quality. Even more than a strategy, frugal innovation is a whole new mindset, a flexible approach that perceives resource constraints not as a debilitating challenge but as a growth opportunity.

Paul Polman, the no-nonsense CEO of Unilever, is a corporate leader who strongly believes that resource scarcity can be a catalyst for radical innovation. He recognizes that, at our current rate of consumption, by 2030 we would need two planets to supply the resources we need and to absorb our waste. Polman wants Unilever to harness its brand reputation and scale to address this challenge. He has set a bold objective for Unilever to double its revenues by 2020 while reducing its environmental impact by 50 percent.

To implement his daring “do more with less” strategy, Polman is infusing frugality into all aspects of Unilever’s business. For instance, Unilever currently obtains nearly 25 percent of its agricultural raw materials from sustainable sources and uses lower-emission trucks to distribute its products. Meanwhile, its R&D teams are reformulating all its existing products like soaps and detergents to use less water and packaging and pollute less. Unilever has already introduced many frugal products in European countries hit hard by the economic crisis. In Spain, for example, Unilever is selling its Surf detergent in smaller packs for five washes only, and in Greece it now offers mayonnaise and mashed potatoes in smaller packages. The company has also introduced low-cost brands of tea and olive oil in European markets.

Frugal Innovation: The Secret Weapon of Emerging Markets

Unilever’s frugal offerings in Europe are inspired by emerging markets such as India, a country where the company has for years distributed soaps and shampoo in individual units or small sachets to millions of cost-conscious rural consumers.

Emerging markets such as India, China, Africa, and Brazil are a breeding ground for frugal innovation. In our book Jugaad Innovation, we show how inventive entrepreneurs and firms in emerging markets are able to innovate in resource-constrained settings and create frugal solutions that deliver more value to customers at lower cost. For instance, millions of Kenyans today rely on M-PESA, a service that enables them to save, spend, and transfer money using their cell phones without having a bank account. Likewise, SELCO provides solar energy at very low prices to over 125,000 households in remote Indian villages, debunking the myth that poor people can’t afford clean technology. Or take Gustavo Grobocopatel, an Argentinian farmer who overcame scarcity of land and skilled labour by subcontracting all farming work to networks of small firms. By scaling up his “asset-light” business model, Grobocopatel has boosted his agricultural output without adding more resources.

All these creative entrepreneurs in emerging markets share a unique mindset—which we call jugaad. Jugaad is a Hindi word meaning an innovative fix or an improvised solution born from ingenuity and cleverness. It is this jugaad mindset that enables these entrepreneurs to find opportunity in adversity and concoct frugal solutions using limited resources.

Shifting The Corporate Mindset In The West

In the end, frugal innovation is not just a drastically different way of innovating or even a radical new way of running a business—it is about fundamentally shifting the corporate mindset. As Albert Einstein famously stated: “One cannot solve a problem with the same mindset that created it in the first place.”

Western CEOs need to develop the jugaad mindset in their organisations so they can perceive scarcity as an opportunity to innovate and leverage employees’ ingenuity to create frugal solutions that offer greater value to customers at lower cost. These CEOs can emulate Unilever’s Paul Polman as well as Renault-Nissan’s Carlos Ghosn and Siemens’ Peter Löscher—visionary leaders who have successfully infused the jugaad mindset within their organisations.

Take Carlos Ghosn, the CEO of the Renault-Nissan Alliance. In 2006, Ghosn coined the term “frugal engineering”—inspired by Indian engineers’ ability to innovate cost-effectively (and swiftly) under extreme resource constraints. As Ghosn points out: “In the West, when we face huge problems and we lack resources, we tend to give up (too) easily. Jugaad is about never giving up!” Under Ghosn’s leadership, Renault-Nissan has proactively adopted frugal engineering—and the underlying jugaad mindset—and established itself as a major global manufacturer of both low-cost vehicles as well as electric cars—two of the fastest growing segments in the global automotive market.

In 2004, Renault launched Logan, an affordable, robust, and well-designed car priced at 5,000 euros (today it retails for US$10,000). The Logan has become Renault’s cash cow across recession-hit European markets as well as in many emerging economies. But Ghosn wants to do more. In 2012, he dispatched Gérard Detourbet, a senior executive from Paris who was running Renault’s entry-level car business, to India. From his new base in Chennai, Detourbet will design and build a “global small car”—a US$5,000 vehicle that will first be launched in India and then introduced in Brazil and South Africa. You can bet that when Detourbet returns to Renault’s headquarters in Paris, he will bring with him the frugal jugaad mindset he honed in India.

Siemens, the German industrial giant, is also leveraging the jugaad mindset of its R&D groups in India and China to develop frugal solutions that deliver higher value to customers. For instance, Siemens’ Indian engineers—in close collaboration with their German peers—have developed a Fetal Heart Monitor that uses inexpensive microphone technology rather than costly ultrasound technology. This affordable Fetal Heart Monitor is part of Siemens’ larger portfolio of frugal solutions labelled SMART (Simple, Maintenance-friendly, Affordable, Reliable, and Timely-to-market). SMART products are 40-60 percent cheaper than high-end solutions. They are also energy-efficient as well as quicker and easier to implement, use, and maintain. Siemens estimates there is a US$200 billion global market for SMART products. As Peter Löscher, CEO of Siemens, affirms: “Scarcity of resources is not an impediment but an enabler (of innovation).”

In coming years, we believe that more Western CEOs will adopt the jugaad mindset within their organisations—just as Paul Polman, Carlos Ghosn, and Peter Löscher have deftly done. In doing so, more Western firms will be able to innovate faster, better, and cheaper—and produce a steady stream of frugal solutions to delight value-conscious customers.

Navi Radjou (navi@naviradjou.com) is a Silicon Valley-based strategy consultant, a World Economic Forum faculty member, and a fellow at the University of Cambridge’s Judge Business School. Jaideep Prabhu (j.prabhu@jbs.cam.ac.uk) is the Jawaharlal Nehru Professor of Indian Business and Enterprise and Director of the Centre for India & Global Business at the University of Cambridge’s Judge Business School. Radjou and Prabhu are co-authors of the bestseller Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth (Jossey-Bass, 2012).

Source: http://knowledge.insead.edu/innovation/frugal-innovation-a-new-business-paradigm-2375

What really blocks innovation

By

After a week at the beach over the holidays and a lot of time reflecting on innovation work, I thought it would be interesting to start the new year by writing about what blocks innovation.  I think much of what is written and said about the sclerotic nature of innovation activities focus on symptoms and not root causes.  Until we understand the underlying issues associated with innovation, it’s difficult to do innovation well, if at all.  Over the last four months we’ve had great success using the Executive Workmat with executive teams, helping them to understand the components of successful, sustained innovation.  But what’s become obvious as we’ve led workshops and discussions about the Workmat is that there are a number of hidden objections, concerns and disagreements about innovation in executive teams.  Until these issues are resolved, tools and methods won’t matter.  Training and certification are useless.  Even your interaction with third party consultants will suffer.

If there are a number of hidden or unspoken barriers or concerns about innovation, what are they, and how do we address them before trying to start innovation initiatives or projects?  I think there are four issues that block innovation but are often hidden from view:

  1. Executive alignment
  2. Uncertainty about near term and longer term objectives
  3. Resource allocation
  4. Don’t want to “go first” but don’t want to be “left behind”

Alignment

After countless business books, management philosophies, balanced scorecards and other means of obtaining executive alignment, you’d think that every organization is closely aligned to strategic goals and outcomes.  Where innovation is concerned, nothing is further from the truth.  When we talk to executive teams about innovation, its clear that there are very different perspectives, different goals and even different definitions between and among members of many executive teams.  What most executive teams are aligned to is obtaining the next quarter, staying within budget and driving up share price.  Anything that may call any of these objectives into question is anathema to the team.  While executives demand innovation, they hope it will happen in ways that do not disrupt the highly tuned “business as usual” operating models I described in Relentless Innovation.   Further, even when there is some agreement about the need for “innovation”, what is usually described as innovation is really incremental change at best, or continuous improvement.  Executive teams lack a common language and definitions about innovation, and limit their sights and definitions to incremental, internal and product-oriented innovation, rather than the breadth and depth of innovation potentials and outcomes that are possible and necessary.  The vision for innovation is cramped, cautious and serendipitous at best.

Uncertainty about objectives

Which is most important?  Obtaining short term goals or envisioning long term needs and objectives?  And what does “long term” mean anyway?  After years of right-sizing, most organizations have just enough people to accomplish the day to day work.  Pulling the best people from the day to day activities to focus on longer term innovation seems risky and dangerous.  Where should the teams place emphasis?  How much of the existing time, resource and focus should be placed on day to day efficiency?  How much should be focused on longer term objectives with less than certain outcomes?  If resources are reallocated to innovation, what should the team “Stop” doing?  Here lies the rub.  We all have limited resources and far more opportunities than we can pursue.  Which are the most important, and what should we “start” doing, and what should we “stop” doing in order to free up the resources necessary to innovate?  This question is probably the most difficult for many executive teams to answer.  Until there is clarity about objectives and they are placed in the correct balance by the CEO or other senior executives, the management team will revert to what is safe and predictable, and innovation will be starved for attention and resources.

Resource Allocation

As noted above, until the objectives are clear, little focus is placed on innovation, and resources are scarce.  But there’s more to this than simply creating more focus around objectives.  It’s not a matter of simply “more” resources, but a matter of the “right” resources at the right time.  Innovation demands the best people in the organization, not simply the people who are available or who can be freed up from their existing activities.  This is not a case where more bodies are necessary.  Innovation suffers unless the best people are involved.  When the most respected people are involved, the ideas seem less risky, they have the backing of the best people in the organization.  When people who enjoy less respect are involved in innovation, you send the signal that innovation is less important, and the ideas are more easily ignored.  What is the level of investment your team is willing to provide for innovation, not just in the number of people, but the caliber of the people?  You send a very powerful message as an executive team with the choices you make, both in terms of the number of people, as well as the type and caliber of people.  Think of it this way:  who on your team can you least afford to “give up” to an innovation activity?  If innovation is as important as we think it is, can you afford for them to not be on the team?

No pioneers but plenty of followers

No one wants to be the first to try out a new activity or methodology when so much is on the line, especially in organizations with highly efficient processes and limited resources.  So it can be very difficult to find an executive on the management team willing to take the plunge and start an innovation activity.  I’ve been fortunate enough to sit in on meetings where the CEO asks his or her team, “who wants to lead an innovation effort?” and the silence is overwhelming.  Everyone in the room recognizes the possibilities and the risks involved.  There’s a palpable sense of fear based mostly on concerns about “failing” to achieve a novel concept and also based on distracting the organization from their day to day activities.  Yet what is also interesting is that every executive wants as much investment and attention as the next one, so while no one wants to go first, most don’t want to go “last” or see another individual gain a lot of credibility because they were successful.  Don’t kid yourself, any executive team is a group of people who are at the top of their game, and who want every last resource they can obtain and every last opportunity they can pursue.  While innovation is risky, these executives don’t necessarily want to be the first to the plate, and definitely don’t want others to gain an inordinate about of credit for the success they may achieve.

Clarity, alignment, resourcing, leadership

Before asking your teams to innovate, examine the commitment and alignment of the executive team.  Sustained innovation can only occur when there is clarity about goals, alignment within the executive team to the goals, deep commitments to appropriate staffing and resource allocation, and the willingness to lead into risky or uncertain initiatives.  When these factors are present, innovation can flourish.  When any one is absent, innovation will suffer, because we tend to revert to safer, more familiar activities when we feel threatened.

Source: http://innovateonpurpose.blogspot.com/2013/01/what-really-blocks-innovation.html

The Future of Corporate Innovation and Entrepreneurship

by steveblank

Almost every large company understands it needs to build an organization that deals with the ever-increasing external forces of continuous disruption, the need for continuous innovation, globalization and regulation.

But there is no standard strategy and structure for creating corporate innovation.

We outline the strategy problem in this post and will propose some specific organizational suggestions in follow-on posts.

I’m sitting at the ranch with Alexander OsterwalderHenry Chesbrough and Andre Marquis listening to them recount their lessons-learned consulting for some of the world’s largest corporations. I offered what I just learned from spending a day at the ranch with the R&D group of a $100 billion corporation along with the insights my Startup Owners Manual co-author Bob Dorf who has several Fortune 100 clients.

(Full disclosure. I’m recovering from a reading spree of Chandlers Strategy and Structure, Gary Hamel’s The Future of Management and The Other Side of Innovation by Trimble and Govindarajan, Henry Chesbrough’s Open Innovation, as well as The Innovator’s DNA from Dyer, Gregersen and Christensen. So some or most of this post might be that I’ve overdosed on business books for the month.)

Collectively we’re beginning to see a pattern and we want to offer some concrete suggestions about Corporate Management and Innovation strategy and the structural (i.e. organizational) changes corporations need to make.

If we’re right, it will give 21st companies a way to deal with innovation – both sustaining and disruptive – as a normal course of business rather than by exception or crisis. Companies will be organized around Continuous Innovation.

Strategy and Structure in the 21st Century
While companies have existed for the last 400 years, their modern form is less than 150 years old. In the U.S. the growth of railroads, telegraph, meat packers, steel and industrial equipment forced companies to deal with the strategies of how to organize a complex organization. In turn, these new strategies drove the need for companies to be structured around functions (manufacturing, purchasing, sales, etc.)

90 years ago companies faced new strategic pressures as physical distances in the United States limited the reach of day-to-day hands-on management. In addition, firms found themselves now managing diverse product lines. In response, another structural shift in corporate organization occurred. In the 1920’s companies restructured from monolithic functional organizations (sales, marketing, manufacturing, purchasing, etc.) and reorganized into operating divisions (by product, territory, brand, etc.) each with its own profit and loss responsibility. This strategy-to-structure shift from functional organizations to operating divisions was led by DuPont and popularized by General Motors and quickly followed by Standard Oil and Sears.

GM 1925 org chart

General Motors Organization Chart ~1925

In each case, whether it was organizing by functions or organizing by operating divisions, the diagram we drew for management was an organization chart. Invented in 1854 by Daniel McCallum, superintendent of the New York and Erie railroad, the org chart became the organizing tool for how to think about strategy and structure.   It allowed companies to visually show command and control hierarchies – who’s responsible, what they are responsible for and who they manage underneath them, and report to above them.  (The irony is that while the org chart may have been new for companies, the hierarchies it described paralleled military organization and had been around since the Roman Legion.)

While org charts provided the “who” of a business, companies were missing a way to visualize the “how” of a business. In the 1990’s Strategy Maps provided the “How.” Evolved from Balanced Scorecards by Kaplan and Norton, Strategy Maps are a visual representation of an organization’s strategy. Strategy Maps are a tool to translate the strategy into specific actions and objectives to measure the progress of how the strategy gets implemented (but offer no help on how to create new strategies.).

Strategy Maps from Robert Kaplan

Strategy Maps from Robert Kaplan

By the 21st century, organizations still lacked a tool to create and formulate new strategies.  Enter the Business Model Canvas. The canvas describes the rationale of how an organization creates, delivers, and captures value (economic, social, or other forms of value). The canvas ties together the “who and how” and provides the “why”. External to the canvas are the environmental influences (industry forces, market forces, key trends and macro-economic forces.)  With the business model canvas in hand, we can now approach rethinking corporate innovation strategy and structure.

Business Model Canvas

Management Innovation in the 21st Corporation
Existing companies and their operating divisions implement known business models. Using the business model canvas, they can draw how their organization is creating, delivering, and capturing value. A business model for an existing company or division is not filled with hypotheses, it is filled with a series of facts. Operating divisions execute the known business model. Plans and processes are in place, and rules, job specifications, revenue, profit and margin goals have been set. Forecasts can be based on a series of known conditions.

BusinessModel Innovation in existing companies

Inside existing companies and divisions, the business model canvas is used as a tool to implement and continuously improve existing business models incrementally. This might include new products, markets or acquisitions.

A New Strategy for Entrepreneurship in the 21st Corporation

Yet, simply focusing on improving existing business models is not enough anymore. To assure their survival and produce satisfying growth, corporations need to invent new business models. This challenge requires entirely new organizational structures and skills.

This is not unlike the challenges corporations were facing in the 1920′s. Companies then found that their existing strategy and structures (organizations) were inadequate to respond to a changing world. We believe that the solution for companies today is to realize that what they are facing is a strategy and structure problem, common to all companies.

We propose that corporations equipped for the challenges of the 21st century think of innovation as a sliding scale between execution and search.

  1. For companies to survive in the 21st century they need to continually create a new set of businesses, by inventing new business models.
  2. Most of these new businesses need to be created outside of the existing business units.
  3. The exact form of the new business models is not known at the beginning. It only emerges after an intense business model design and search activity based on the customer development process.
  4. Companies will have to maintain a portfolio of new business model initiatives, not unlike a venture capital firm, and they will have to accept that maybe only 1 out 10 initiatives might succeed.
  5. To develop this new portfolio, companies need to provide a stable innovation funding mechanism for new business creation, one that is simply thought of as a cost of doing business
  6. Many of the operating divisions can and should provide resources to the new businesses inside the company
  7. We need a new organizational structure to manage the creation of new businesses and to coordinate the sharing of business model resources.
  8. Some of these new businesses might become new resources to the existing operating units in the company or they could grow into becoming the new profit generating business units of the company’s future.

Source: http://steveblank.com/2012/12/03/the-future-of-corporate-innovation-and-entrepreneurship/

Innovation is Action. So Get Up, Get Out, and just go be an Entrepreneur.

Innovation is Action. So Get Up, Get Out, and just go be an Entrepreneur. by Dean DeBiase

After talking with hundreds of startup teams around the world, from the ones we are accelerating at 1871 in Chicago to a new stealth startup in India, I have found that, sometimes the best advice is to tell them to stop meeting so often at their favorite cafe/coffee shop, and instead, get out there and  work on the actual startup idea!  Waiting until everything is “just right”  can be a entrepreneurial trap. In reality, is OK to shift and pivot along the way–some of the most successful startups have. A great Sketchbook video from our friends at Kauffman Foundation puts this into a simple perspective…”just go be an entrepreneur”. Enjoy!

Source: http://www.innovationexcellence.com/blog/2012/12/01/innovation-is-action-so-get-up-get-out-and-just-go-be-an-entrepreneur/

Reclaim Your Creative Confidence

By Tom Kelley and David Kelley

Most people are born creative. As children, we revel in imaginary play, ask outlandish questions, draw blobs and call them dinosaurs. But over time, because of socialization and formal education, a lot of us start to stifle those impulses. We learn to be warier of judgment, more cautious, more analytical. The world seems to divide into “creatives” and “noncreatives,” and too many people consciously or unconsciously resign themselves to the latter category.

And yet we know that creativity is essential to success in any discipline or industry. According to a recent IBM survey of chief executives around the world, it’s the most sought-after trait in leaders today. No one can deny that creative thinking has enabled the rise and continued success of countless companies, from start-ups like Facebook and Google to stalwarts like Procter & Gamble and General Electric.

Students often come to Stanford University’s “d.school” (which was founded by one of us—David Kelley—and is formally known as the Hasso Plattner Institute of Design) to develop their creativity. Clients work with IDEO, our design and innovation consultancy, for the same reason. But along the way, we’ve learned that our job isn’t to teach them creativity. It’s to help them rediscover their creative confidence—the natural ability to come up with new ideas and the courage to try them out. We do this by giving them strategies to get past four fears that hold most of us back: fear of the messy unknown, fear of being judged, fear of the first step, and fear of losing control.

Easier said than done, you might argue. But we know it’s possible for people to overcome even their most deep-seated fears. Consider the work of Albert Bandura, a world-renowned psychologist and Stanford professor. In one series of early experiments, he helped people conquer lifelong snake phobias by guiding them through a series of increasingly demanding interactions. They would start by watching a snake through a two-way mirror. Once comfortable with that, they’d progress to observing it through an open door, then to watching someone else touch the snake, then to touching it themselves through a heavy leather glove, and, finally, in a few hours, to touching it with their own bare hands. Bandura calls this process of experiencing one small success after another “guided mastery.” The people who went through it weren’t just cured of a crippling fear they had assumed was untreatable. They also had less anxiety and more success in other parts of their lives, taking up new and potentially frightening activities like horseback riding and public speaking. They tried harder, persevered longer, and had more resilience in the face of failure. They had gained a new confidence in their ability to attain what they set out to do.

We’ve used much the same approach over the past 30 years to help people transcend the fears that block their creativity. You break challenges down into small steps and then build confidence by succeeding on one after another. Creativity is something you practice, not just a talent you’re born with. The process may feel a little uncomfortable at first, but—as the snake phobics learned—the discomfort quickly fades away and is replaced with new confidence and capabilities.

Fear of the Messy Unknown

Creative thinking in business begins with having empathy for your customers (whether they’re internal or external), and you can’t get that sitting behind a desk. Yes, we know it’s cozy in your office. Everything is reassuringly familiar; information comes from predictable sources; contradictory data are weeded out and ignored. Out in the world, it’s more chaotic. You have to deal with unexpected findings, with uncertainty, and with irrational people who say things you don’t want to hear. But that is where you find insights—and creative breakthroughs. Venturing forth in pursuit of learning, even without a hypothesis, can open you up to new information and help you discover nonobvious needs. Otherwise, you risk simply reconfirming ideas you’ve already had or waiting for others—your customers, your boss, or even your competitors—to tell you what to do.

At the d.school, we routinely assign students to do this sort of anthropological fieldwork—to get out of their comfort zones and into the world—until, suddenly, they start doing it on their own. Consider a computer scientist, two engineers, and an MBA student, all of whom took the Extreme Affordability class taught by Stanford business school professor Jim Patell. They eventually realized that they couldn’t complete their group project—to research and design a low-cost incubator for newborn babies in the developing world—while living in safe, suburban California. So they gathered their courage and visited rural Nepal. Talking with families and doctors firsthand, they learned that the babies in gravest danger were those born prematurely in areas far from hospitals. Nepalese villagers didn’t need a cheaper incubator at the hospital—they needed a fail-safe way to keep babies warm when they were away from doctors who could do so effectively. Those insights led the team to design a miniature “sleeping bag” with a pouch containing a special heat-storing wax. The Embrace Infant Warmer costs 99% less than a traditional incubator and can maintain the right temperature for up to six hours without an external power source. The innovation has the potential to save millions of low-birth-weight and premature babies every year, and it came about only because the team members were willing to throw themselves into unfamiliar territory.

_________________________________________________________________________________
Tackling the Mess, One Step at a Time

by Caroline O’Connor and Sarah Stein Greenberg

You can work up the confidence to tackle the big fears that hold most of us back by starting small. Here are a few ways to get comfortable with venturing into the messy unknown. The list gets increasingly challenging, but you can follow the first two suggestions without even leaving your desk.

1. Lurk in online forums. Listen in as potential customers share information, air grievances, and ask questions—it’s the virtual equivalent of hanging around a popular café. You’re not looking for evaluations of features or cost; you’re searching for clues about their concerns and desires.

2. Pick up the phone and call your own company’s customer service line. Walk through the experience as if you were a customer, noting how your problem is handled and how you’re feeling along the way.

3. Seek out an unexpected expert. What does the receptionist in your building know about your firm’s customer experience? If you use a car service for work travel, what insights do the drivers have about your firm? If you’re in health care, talk to a medical assistant, not a doctor. If you make a physical product, ask a repair person to tell you about common failure areas.

4. Act like a spy. Take a magazine and a pair of headphones to a store or an industry conference (or, if your customers are internal, a break room or lunch area). Pretend to read while you observe. Watch as if you were a kid, trying to understand what is going on. How are people interacting with your offering? What can you glean from their body language?

5. Casually interview a customer or potential customer. After you’ve gotten more comfortable venturing out, try this: Write down a few open-ended questions about your product or service. Go to a place where your customers tend to gather, find someone you’d be comfortable approaching, and say you’d like to ask a few questions. If the person refuses? No problem, just try someone else. Eventually you’ll find someone who’s dying to talk to you. Press for more detail with every question. Even if you think you understand, ask “Why is that?” or “Can you tell me more about that?” Get people to dig into their own underlying assumptions.

Caroline O’Connor is a lecturer at the Hasso Plattner Institute of Design. Sarah Stein Greenberg is its managing director.

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Another example comes from two students, Akshay Kothari and Ankit Gupta, who took the d.school’s Launchpad course. The class required them to start a company from scratch by the end of the 10-week academic quarter. Both were self-described “geeks”—technically brilliant, deeply analytical, and definitely shy. But they opted to work on their project—an elegant news reader for the then–newly released iPad—off-campus in a Palo Alto café where they’d be surrounded by potential users. Getting over the awkwardness of approaching strangers, Akshay gathered feedback by asking café patrons to experiment with his prototypes. Ankit coded hundreds of small variations to be tested each day—changing everything from interaction patterns to the size of a button. In a matter of weeks they rapidly iterated their way to a successful product. “We went from people saying, ‘This is crap,’” says Akshay, “to ‘Is this app preloaded on every iPad?’” The result—Pulse News—received public praise from Steve Jobs at a worldwide developer’s conference only a few months later, has been downloaded by 15 million people, and is one of the original 50 apps in Apple’s App Store Hall of Fame.

It’s not just entrepreneurs and product developers who should get into “the mess.” Senior managers also must hear directly from anyone affected by their decisions. For instance, midway through a management off-site IDEO held for ConAgra Foods, the executives broke away from their upscale conference rooms to explore gritty Detroit neighborhoods, where you can go miles without seeing a grocery store. They personally observed how inner-city residents reacted to food products and spoke with an urban farmer who hopes to turn abandoned lots into community gardens. Now, according to Al Bolles, ConAgra’s executive vice president of research, quality, and innovation, such behavior is common at the company. “A few years ago, it was hard to pry my executive team away from the office,” he says, “but now we venture out and get onto our customers’ home turf to get insights about what they really need.”

Fear of Being Judged

If the scribbling, singing, dancing kindergartner symbolizes unfettered creative expression, the awkward teenager represents the opposite: someone who cares—deeply—about what other people think. It takes only a few years to develop that fear of judgment, but it stays with us throughout our adult lives, often constraining our careers. Most of us accept that when we are learning, say, to ski, others will see us fall down until practice pays off. But we can’t risk our business-world ego in the same way. As a result, we self-edit, killing potentially creative ideas because we’re afraid our bosses or peers will see us fail. We stick to “safe” solutions or suggestions. We hang back, allowing others to take risks. But you can’t be creative if you are constantly censoring yourself.

Half the battle is to resist judging yourself. If you can listen to your own intuition and embrace more of your ideas (good and bad), you’re already partway to overcoming this fear. So take baby steps, as Bandura’s clients did. Instead of letting thoughts run through your head and down the drain, capture them systematically in some form of idea notebook. Keep a whiteboard and marker in the shower. Schedule daily “white space” in your calendar, where your only task is to think or take a walk and daydream. When you try to generate ideas, shoot for 100 instead of 10. Defer your own judgment and you’ll be surprised at how many ideas you have—and like—by the end of the week.

Also, try using new language when you give feedback, and encourage your collaborators to do the same. At the d.school, our feedback typically starts with “I like…” and moves on to “I wish…” instead of just passing judgment with put-downs like “That will never work.” Opening with the positives and then using the first person for suggestions signals that “This is just my opinion and I want to help,” which makes listeners more receptive to your ideas.

We recently worked with Air New Zealand to reinvent the customer experience for its long-distance flights. As a highly regulated industry, airlines tend toward conservatism. To overcome the cultural norm of skepticism and caution, we started with a workshop aimed at generating crazy ideas. Executives brainstormed and prototyped a dozen unconventional (and some seemingly impractical) concepts, including harnesses that hold people standing up, groups of seats facing one another around a table, and even hammocks and bunk beds. Everyone was doing it, so no one was scared he or she would be judged. This willingness to consider wild notions and defer judgment eventually led the Air New Zealand team to a creative breakthrough: the Skycouch, a lie-flat seat for economy class. At first, it seemed impossible that such a seat could be made without enlarging its footprint (seats in business and first-class cabins take up much more space), but the new design does just that: A heavily padded section swings up like a footrest to transform an airline row into a futonlike platform that a couple can lie down on together. The Skycouch is now featured on a number of Air New Zealand’s international flights, and the company has won several industry awards as a result.

Fear of the First Step

Even when we want to embrace our creative ideas, acting on them presents its own challenges. Creative efforts are hardest at the beginning. The writer faces the blank page; the teacher, the start of school; businesspeople, the first day of a new project. In a broader sense, we’re also talking about fear of charting a new path or breaking out of your predictable workflow. To overcome this inertia, good ideas are not enough. You need to stop planning and just get started—and the best way to do that is to stop focusing on the huge overall task and find a small piece you can tackle right away.

Best-selling writer Anne Lamott expertly captures this idea in a story from her childhood. Her brother had been assigned a school report about birds, but he waited to start on it until the night before it was due. He was near tears, overwhelmed by the task ahead, until his father gave him some wise advice: “Bird by bird, buddy. Just take it bird by bird.” In a business context, you can push yourself to take the first step by asking: What is the low-cost experiment? What’s the quickest, cheapest way to make progress toward the larger goal?

Or give yourself a crazy deadline, as John Keefe, a d.school alum and a senior editor at radio station WNYC, did after a colleague complained that her mom had to wait at city bus stops never knowing when the next bus would come. If you worked for New York City Transit and your boss asked you to solve that problem, how soon would you promise to get a system up and running? Six weeks? Ten? John, who doesn’t work for the transit authority, said, “Give me till the end of the day.” He bought an 800 number, figured out how to access real-time bus data, and linked it to text-to-speech technology. Within 24 hours, he had set up a service that allowed bus riders to call in, input their bus stop number, and hear the location of the approaching bus. John applies the same fearless attitude to his work at WNYC. “The most effective way I’ve found to practice design thinking is by showing, not telling,” he explains.

Another example of the “start simple” strategy comes from an IDEO project to develop a new dashboard feature for a European luxury car. To test their ideas, designers videotaped an existing car and then used digital effects to layer on proposed features. The rapid prototyping process took less than a week. When the team showed the video to our client, he laughed. “Last time we did something like this,” he said, “we built a prototype car, which took almost a year and cost over a million dollars. Then we took a video of it. You skipped the car and went straight to the video.”

Our mantra is “Don’t get ready, get started!” The first step will seem much less daunting if you make it a tiny one and you force yourself to do it right now. Rather than stalling and allowing your anxiety to build, just start inching toward the snake.

Fear of Losing Control

Confidence doesn’t simply mean believing your ideas are good. It means having the humility to let go of ideas that aren’t working and to accept good ideas from other people. When you abandon the status quo and work collaboratively, you sacrifice control over your product, your team, and your business. But the creative gains can more than compensate. Again, you can start small. If you’re facing a tough challenge, try calling a meeting with people fresh to the topic. Or break the routine of a weekly meeting by letting the most junior person in the room set the agenda and lead it. Look for opportunities to cede control and leverage different perspectives.

That’s exactly what Bonny Simi, director of airport planning at JetBlue Airways, did after an ice storm closed JFK International Airport for a six-hour stretch in 2007—and disrupted the airline’s flight service for the next six days. Everyone knew there were operational problems to be fixed, but no one knew exactly what to do. Fresh from a d.school course, Bonny suggested that JetBlue brainstorm solutions from the bottom up rather than the top down. First, she gathered a team of 120 frontline employees together for just one day—pilots, flight attendants, dispatchers, ramp workers, crew schedulers, and other staff members. Then she mapped out their disruption recovery actions (using yellow Post-it notes) and the challenges they faced (using pink ones). By the end of the day, Bonny’s grassroots task force had reached new insights—and resolve. The distributed team then spent the next few months working through more than a thousand pink Post-its to creatively solve each problem. By admitting that the answers lay in the collective, Bonny did more than she could ever have done alone. And JetBlue now recovers from major disruptions significantly faster than it did before.

Our own experience with the open innovation platform OpenIDEO is another case in point. Its launch was scary in two ways: First, we were starting a public conversation that could quickly get out of hand; second, we were admitting that we don’t have all the answers. But we were ready, like Bandura’s phobics, to take a bigger leap—to touch the snake. And we soon discovered the benefits. Today, the OpenIDEO community includes about 30,000 people from 170 countries. They may never meet in person, but together they’ve already made a difference on dozens of initiatives—from helping revitalize cities in economic decline to prototyping ultrasound services for expectant mothers in Colombia. We’ve learned that no matter what group you’re in or where you work, there are always more ideas outside than inside.

For people with backgrounds as diverse as those of Akshay, Ankit, John, and Bonny, fear—of the messy unknown, of judgment, of taking the first step, or of letting go—could have blocked the path to innovation. But instead, they worked to overcome their fears, rediscovered their creative confidence, and made a difference. As Hungarian essayist György Konrád once said, “Courage is only the accumulation of small steps.” So don’t wait at the starting line. Let go of your fears and begin practicing creative confidence today.

Tom Kelley is the general manager of IDEO and the author of The Ten Faces of Innovation (Currency/Doubleday, 2005). He is an executive fellow at UC Berkeley’s Haas School of Business and at the University of Tokyo. David Kelley is the founder and chairman of IDEO and the founder of the Hasso Plattner Institute of Design at Stanford, where he is the Donald W. Whittier Professor in Mechanical Engineering.

Source: http://hbr.org/2012/12/reclaim-your-creative-confidence/ar/1

Restarting the US small-business growth engine

NOVEMBER 2012 • John Horn and Darren Pleasance

Source: Strategy Practice

Reinvigorating small business starts with identifying the high-growth firms that disproportionately drive economic activity and jobs. In an accompanying video, AOL cofounder Steve Case explains how big businesses can benefit too.

There’s mom. There’s apple pie. And there’s small business. As the US economy struggles to go on climbing out of the downturn and create jobs, no hero stands taller in the nation’s political and business psyche than the small-business owner. With good reason. Small businesses, defined as companies with fewer than 500 employees, account for almost two-thirds of all net new job creation. They also contribute disproportionately to innovation, generating 13 times as many patents, per employee, as large companies do.1

Sadly, small-business optimism is at its lowest levels in almost 20 years.2 After crashing in the recession, confidence remains below any level recorded since the early 1990s, because the recovery has been so anemic. Had small business come out of the recession maintaining just the rate of start-ups generated in 2007, the US economy would today have almost 2.5 million more jobs than it does.

What’s particularly disturbing is that the greatest decline in entrepreneurial activity occurred in the 18–24-year-old cohort. While older entrepreneurs bring more experience and a higher likelihood of success to their business building, the shortage of young business founders means that the US economy is currently not producing enough of its next generation of serial entrepreneurs.

The recent US presidential campaign made much of the need to restart the US small-business engine, which won’t be easy. But one place to begin, our research suggests, is to focus more sharply than usual in today’s economic debate on two things: precisely how small business contributes to growth and job creation, and the ways the private sector—not just government—can support that job creation dynamic. (For more, view this video interview with Steve Case, chairman and CEO of Revolution and cofounder of America Online, or download a PDF of the edited transcript.)

On entrepreneurship: A conversation with Steve Case
The chairman and CEO of Revolution and cofounder of AOL explains why small, high-growth companies are the secret to economic vitality and job creation and how large companies could benefit from them.

A vast universe

While the small-business universe is vast, its real economic impact comes disproportionately from a much smaller subset of high-growth firms. These firms, our research shows, can more or less double their revenues and employment every four years. And they are everywhere, in every industry sector (exhibit) and in far more geographies than is commonly thought.

Of course, many entrepreneurial firms fail, and that too is part of the DNA of small business, so it is routinely impossible to predict which will succeed. That’s why understanding how this high-performing cohort works is important to restoring the confidence and job creation potential of small business.

Of course, government too plays an important role in the way it fosters entrepreneurs and applies regulation. But government assistance is not the only answer. We believe that large businesses can do more—much more—to support small business, both within and outside of their own organizations. In the process, they can make themselves more flexible and add new strategic options.3 To understand why, let’s first dispel some myths about US small business to better understand the contours of a sector that includes more than 99 percent of all employer businesses.

Myth #1. All small businesses want to grow.

Not all owners of small businesses want them to grow; many “mom and pop” enterprises are happy to stay small. It is really a subset of young businesses—those less than five years old—that do want to grow and that create the majority of jobs: 40 million over the last 25 years. This represents 20 percent of total gross job creation and total net new job creation in the United States over this time period.

Myth #2. All small businesses are equally valuable to job creation in the economy.

Small businesses in general are valuable for the US economy and provide flexibility and valuable services. But a subset of small businesses—high-growth ones—creates the vast majority of new jobs. Seventy-six percent of these high-growth firms are less than five years old. The 1 percent of all firms that are growing most quickly (fewer than 60,000 in all) account for 40 percent of economy-wide net new job creation. To provide a sense of magnitude, high-growth firms add an average of 88 employees a year, while the average non-high-growth company only adds 2 to 3.

Myth #3. High-growth firms come from high-tech locales.

Conventional wisdom suggests looking for high-growth firms in areas like Silicon Valley or the Route 128 corridor outside Boston, where many well-known ones have emerged. However, our look at a broad spectrum of companies shows that all industries have high-growth firms. While sectors do vary somewhat, in no industry do high-growth firms account for even 5 percent of the total number of firms in the industry, and there are very few industries where less than 1 percent of firms are growing quickly. In the United States, high-growth firms are found in every metropolitan statistical area, and no region has a disproportionate number of them. Conversely, Silicon Valley has many firms that struggle to grow and never become breakout stars, as well as many smaller companies that have no desire to grow quickly.

Myth #4. Taxes and regulation are small business’s primary constraint.

Many business leaders will tell you that taxes and regulation are the biggest barriers to starting up and enlarging small businesses. It’s true that some regulations and laws have inhibited the growth of small businesses; the Sarbanes–Oxley Act, for instance, had the unexpected consequence of discouraging some companies from making initial public offerings, a step typically followed by a burst of hiring.4 But taxes and government oversight are not the primary barriers to stimulating the growth of small businesses. In the latest recession, their owners pointed to a lack of market demand as the primary problem, as well as an inability to obtain financing.5

Meet the high-growth leaders

What are these high-growth entrepreneurial firms? Many are storied names from Silicon Valley: Google, Hewlett-Packard, Intel, and others. But many high-growth firms are neither in high tech nor based in Silicon Valley. Consider Under Armour, which has grown to take on adidas and Nike in the global sports apparel industry. In the 1990s, founder Kevin Plank, a former football player from the University of Maryland, set out to find a shirt that would keep athletes cooler. After developing one, he would drive up and down the East Coast with the shirts in his trunk and sell them to high-school and college players. Eventually, word of mouth generated a company with revenues of almost $1.5 billion.

Or consider Scentsy, an Idaho company that sells wickless and flameless scented candles. Through multiple outlets (online, home parties, catalog sales), Scentsy has raised its revenue from about $75 million in 2008 to $382 million in 2010, right through the depths of the recession. Or HubSpot, a Cambridge, Massachusetts, firm that provides marketing software to other small and midsize businesses, thus growing by helping other entrepreneurial companies to grow.

Nurturing high-growth businesses

The sectoral and geographic diversity of high-growth enterprises naturally lends itself to discussions of support by federal, state, and local governments. Such steps can effectively cut regulatory red tape, refine tax laws, address immigration laws, and streamline patent procedures. For example, the recently passed JOBS6 Act should encourage firms to launch IPOs, by streamlining red tape, raising limits on soliciting private investors, and providing new funding sources.

Public-sector leaders should examine the policies that limit the growth of entrepreneurial small companies, as well as those that could spur it. But the private sector—and larger businesses, in particular—have a bigger role to play than is generally acknowledged. In fact, we believe that larger businesses should think more broadly and creatively about supporting and mentoring entrepreneurs, spurring demand for the products and services their businesses supply, and providing creative financing to tap mutually beneficial growth opportunities.

Changing mind-sets

Perhaps the most important starting point for large businesses is to change their mind-set regarding small-business entrepreneurs. Too many larger businesses rigidly view them as direct competitors, intent on dethroning large companies from leadership positions. Granted, this is sometimes true. However, in our experience many more vibrant entrepreneurs operate in complementary industries and are often overlooked as suppliers. By supporting burgeoning entrepreneurs, leaders of large businesses can help this critical segment of the economy while providing additional flexibility and options for their own organizations.

Consider, for example, a large health care provider that helps support high-tech software service providers in its area, to make such potential suppliers more effective and efficient. This approach could help build an emerging cluster, which would encourage the development of a larger and better labor pool, as well as more competition for the products and services sold by the suppliers. It would probably also help make large companies in the cluster more efficient and thus better able to stay ahead of their competitors, including the entrepreneurs.

Yet in one roundtable discussion with a group of entrepreneurs, we heard several of them mention that they find it particularly challenging to locate the right representatives at larger companies. One related a story about trying to take a software solution to a larger company after learning publicly that it was seeking just such an offering. When the entrepreneur called to discuss his idea, however, he was first directed to the business-development group, which focused on mergers and acquisitions. A second attempt landed him in the purchasing department, which required him to go through procurement channels before getting a contract. All this took place before he could even determine whether his idea really was the answer to the larger company’s problem.

One way around this issue would be for larger companies to staff a small department that interacts with prospective entrepreneurs to develop better intelligence about their activities. Typically, a large company’s purchasing group has specific product-buying guidelines; there is no reason a similar (but different) group couldn’t be assigned to assess external solutions to challenges that the large company identifies on an ongoing basis.

In fact, some companies do look for innovations outside their walls—for instance, Cisco and P&G, though they focus mostly on acquisitions. InnoCentive, by contrast, is an entrepreneurial firm that helps companies connect with external problem solvers. Whether large companies execute such strategies internally or outsource them, these companies could all be more flexible and adaptable if they increased their connections with smaller businesses that could fill missing capabilities through arm’s-length contracts, joint ventures, or acquisitions.

More mentoring

Another approach leaders of large companies could use more often would be to improve their mentoring of entrepreneurs. Mentoring is one area of support that entrepreneurs find most helpful, yet most difficult to obtain. In particular, a large company could set up a program to mentor current employees planning to start their own businesses—for example, suppose an internal team wants to pursue an offering that wouldn’t meet the company’s hurdle rate but could be profitably developed by a start-up and would benefit the company itself. Such a program could stimulate creative thinking within the company, create new ideas that stayed within it, and help budding entrepreneurs know if their ideas were ready for implementation. For the large companies, it would be more likely to provide new suppliers than direct competitors. Effective mentoring can also build a stronger, more experienced labor pool.

Naturally, people who have lived the experience of starting up and maintaining a firm provide the best mentorship to budding business leaders. It can take the form of assistance with writing business plans, sharing a large company’s experience, and supporting more tactical needs, such as how to get legal advice, as well as accounting and administrative tasks. Large businesses also have a role to play here. American Express OPEN’s small-business support program, Victory in Procurement, has been running a group-mentoring and training program for the past few years as part of an initiative to help entrepreneurs respond to government procurement requests. As part of the program, some participants receive 12 hours of interaction with government contracting experts. And Cisco’s Entrepreneur Institute provides knowledge and business solutions to entrepreneurs. Its Web site details several success stories.

Spurring demand

More than in previous downturns, small entrepreneurs cite a lack of demand—final consumer demand or demand from other businesses—as their primary obstacle: they believe they have good products or services but just can’t find enough customers. Since the supply chains of large companies include many small, entrepreneurial businesses, the large companies could specifically look for them when seeking new business partners. Of course, not all supply chain decisions should be made this way, but if a large business does find a local partner that is more economical, shortens the supply chain, and provides quicker turnarounds, the choice should be a no-brainer.

Studies of clusters lend credibility to the idea of supporting small suppliers in complementary industries. These clusters, such as Silicon Valley in high tech or Research Triangle Park in biotech, have long been regarded as one of the keys to strong economic development. Clusters are desirable because they are self-sustaining innovation machines. The companies in a cluster continually try to out-innovate each other to stay ahead. Their proximity promotes the exchange of ideas that spark new innovations, and they are a natural magnet for talent. But while many countries (and locations across the United States) have tried to replicate the Silicon Valley model, few have succeeded.

When Michael Porter and colleagues studied the impact of clusters on job growth, they found that those comprising more than one sector (for instance, health care and high tech) experienced the fastest growth rates. The United States currently has a broad variety of clusters, and many are interdisciplinary in nature.

More and better financing

Venture capital funding has been shifting to later-stage investments over the past decade, partly because the market for IPOs has declined. Meanwhile, it’s tougher for smaller businesses, as well as many larger ones, to get even the traditional financing they need. Supplier financing is an area where large businesses can help entrepreneurs. By paying some contracts earlier than existing terms require, a large business can cut a small supplier’s working-capital costs. This should be regarded as a short-term support program, not necessarily as an across-the-board, long-term commitment. It isn’t essential to change the terms for every company, but selectively targeting those that need some short-term financing support could be an easy form of aid, especially if it doesn’t materially change the large company’s working capital.

Although the recent downturn hit the US small-business and entrepreneurial segment hard, the trend can be reversed. The public sector has a role, but the private sector must lead where it can develop new and creative solutions, as well. It is often in the interest of larger organizations to foster and encourage smaller ones, especially where everyone can benefit. Not all of the steps a large business can take will produce tomorrow’s Apple or Under Armour—but they’ll improve the chances.

About the Authors

John Horn is a senior expert in McKinsey’s Washington, DC, office, and Darren Pleasance is an alumnus of the Silicon Valley office.

Source: http://www.mckinseyquarterly.com/Strategy/Growth/Restarting_the_US_small_business_growth_engine_3032