Jul 18, 2012

The toughest thing of all - growing new businesses in established organizations

July 18, 2012 - The last place where I would expect to find marital counsel is Harvard. Yet, while talking to some of their faculty, it dawned on me that divorce and corporate failure rates are inching towards the same number. Success, like many things in life, is a fleeting thing.

If you look at the list of the top companies in the world, very few of them were there already fifty years ago. And those who were there, likely went through rough patches. For example, mighty IBM, the start of corporate America, had one great crisis for ten years from the mid-90s, shedding hundreds of thousands of workers in the process, and eventually emerging from it. Same stands true for other big names such as Philips, Volkswagen, Fuji, Bank of America, GM and Kodak. The list can be very long.

Someone said to me that for a marriage to be happy, you must stay the same person but also grow into a new and interesting one for your spouse - really hard to do both at the same time. But some people do stay happily married all their life. And indeed, some companies do manage to keep their strong position over time. So, what is the secret to corporate longevity?

The answer is a tongue-wrenching word: ambidexterity.

Ambidexterity is the ability of companies to rejuvenate the sources of revenue and profit, by playing not only the "established business" portfolio that typically yields incremental gains, but also being effective at exploring radical - but riskier- new business opportunities. It is hard - that is why Harvard puts a lot of emphasis on it. But that is what Genpact has invested in for a while. 

The following is a list of things that ambidextrous companies do. Those folks who drive growth initiatives must keep them firmly in mind. Not the usual yada-yada.

  • Don't expect love - prepare for some food-fight. Established businesses, especially when they have been successful for long, marginalize new ventures
  • There is inherent conflict between established business lines and new products - capabilities, incentives, etc. Hence the need for a catalyst within the organization, one senior executive who enjoys C-level sponsorship. If the new business group is too low in the organization, the result will be incremental innovation, not exploration of really new opportunities
  • Don't wait until the burning platform has burned you. Almost always companies neglect "opportunity gaps" (i.e. big opportunities to do much better than today) and only react when they have "performance gaps" (i.e. when their situation starts deteriorating). The ideal scenario is a healthy company whose leaders understand the risk of quick deterioration, can visualize and communicate it to the rest of the company ("manufacture a crisis") and act on it robustly
  • No place for rookies. The emerging business group should be small but staffed with really good people (ideally many of them internal if they have the right skills)…and absolutely not the people who don't find good place somewhere else. There is a tendency to pay people for how big their current business is - that prevents strong people who are running good businesses. Real radical innovation teams must come partially from the corporate group and from the business units to ensure that they can be incubated and THEN released back. But innovation isn't a hobby. There must be substantial time of strong individuals to make this work
  • White knights are fairy tales stuff. None can come from outside the company and make innovation happen by poking fingers into gold mother lodes. If the leader of the group is an outsider, it is imperative that he/she spends time understanding the organization (and the key players) really well, as the initiative won't be successful in the absence of mutual trust and cooperation. But the active role of "insiders" is paramount - they do hold the key to success
  • The soft stuff is the hard stuff. Interestingly, Harvard places a huge value on "culture creation" - they maintain that there is nothing soft about it and building an innovation culture is fundamental. Culture is shaped by senior executives showing consistent innovation behavior (e.g. senior leaders talking tangibly about innovation to clients in front of sales force; or clear time allocation of leaders' calendar) conducive to considerate risk taking, increased listening to other people's ideas (especially client's perspectives but also cross-disciplinary teams). "Statements of intentions" aren't effective for this stuff if they are not backed by very clear actions. So much for those nice and glossy memos…
  • Stay real. Initially, don't take on things that are very hard to do. Focus on initial wins and celebrate them to create cross-team trust
  • No place for shy people - product innovation has a business development streak. Getting anchor clients and keeping a constant/thorough client feedback throughout the iterative product development is the most important attribute of the process. All the rest is secondary
  • Beware of capital markets. There seems to be lots of evidence that capital markets push companies to suck the business dry of real business innovation because it prizes short term growth and allocation of capital to related initiatives - and then moves on to the next company when the last one has ossified. Handling the investors on innovation is an art that few CFOs master
  • Be patient for growth but impatient for profits - don't throw money at new stuff until you see if it can absorb intelligently

Just like the relationship with your spouse - don't take radical growth for granted.

About the author

Gianni Giacomelli

Gianni Giacomelli

Chief Innovation Leader

Gianni serves as Chief Innovation Leader where he drives and sponsors Genpact’s strategic initiatives aimed at sustaining clients’ transformation into digitally-enabled companies. He also co-leads the Massachusetts Institute of Technology (MIT) efforts to set up a Collective Intelligence Design Lab.