III. Safeguarding Discontinuous Innovation Profiled Practice New Business Idea Accelerator Disciplined yet flexible system for determining the appropriate organizational home for new business ideas at each stage of development 39
Refocusing Investments to Inflect Growth 40 Extending Support for New Business Ideas Company Background Corporation, the Finnish mobile communications firm, has FY2001 revenues of US$27.8 billion and approximately 53,800 employees. Strategic Context In less than a decade, transformed itself from a domestic Finnish conglomerate to the dominant global player in mobile telephony. To support its broad strategic vision of leadership in multiple areas of mobile communications, establishes the Ventures Organization () in 1998 to extend its innovation efforts beyond its established divisions business development groups and the central Research Center. s intent is to support innovation in diverse new business areas and break down organizational silos that can inhibit the exploitation of technologies that may also benefit established businesses. Practice Summary establishes an integrated new business governance system that quickly directs new business ideas to the most appropriate internal innovation group. A single oversight committee in which all innovation groups are represented is empowered to allocate staff and funding to new business ideas, and to transfer projects across organizational boundaries. The group employs a set of clearly defined decision rules for regular project evaluation and placement.
Practice #4: New Business Idea Accelerator Corporation 1,400% 700% 0% Company Profile is the world s number-one maker of mobile phones, which account for 74 percent of sales, and a leading provider of wireless and Internet protocol infrastructure. One of Europe s largest companies by market capitalization, is focusing on high-speed data connections through third-generation wireless systems, digital subscriber lines, and interactive television networks. It is also aggressively building a presence in the market for Internet security appliances. Selected Statistics Five-Year Total Return to Shareholders Percentage Return Since 1996 Industry* S&P 500 FY2001 Revenue US$27.8 B FY2001 Earnings US$1.96 B Market Capitalization (1 November 2002) US$80.4 B Five-Year Average Annual Return to Shareholders 47.9% FY2001 Employees 53,849 * Communications equipment companies. 1996 1997 1998 1999 2000 2001 Creates a Forum for Opportunities with Uncertain Development Paths Technology New Existing Research Center (NRC) Central R&D and incubator for core business Existing New Business Development Groups Business Development in Core Business Groups Mobile Phones (NMP) and Networks (Net) Markets Ventures Organization () Ensuring Idea Ownership needed this kind of unit [because some initiatives] didn t fall easily into s existing organizational structure; they fell somehow in between the existing units, or they took place across these entities. So nobody was the natural owner of these initiatives. Therefore, the purpose of is to look at growth opportunities that are beyond the remit of the existing businesses but within s overall vision. Pekka Ala-Pietilä President Corporation and Ventures Organization Source: ; Day, Jonathan D., Paul Y. Mang, Ansgar Richter, and John Roberts, The Innovative Organization, McKinsey Quarterly, no. 2 (2001), pp. 21 31; Doornik, Katherine, and John Roberts, Corporation: Innovation and Effi ciency in a High-Growth Global Firm, Stanford University Case Number S-IB-23, February 2001; Web site; Corporate Strategy Board research. New Ventures Organization is established in July 1998 to pursue opportunities that go beyond s current technologies and seem likely to create new markets 41
Refocusing Investments to Inflect Growth 42 One for All An Integrated Overview To maximize idea flow across the organization and to accelerate incubation of new businesses, creates an integrated oversight body the New Business Development Board to steward projects across multiple innovation groups. Its members include representatives of corporate and division business development groups, the Research Center, and the Ventures Organization. Its broad-based composition adds to the legitimacy of its conclusions and its ability to negotiate difficult decisions. Flexible Innovation Management The New Business Development Board (NBD Board) is able to rapidly move project teams from one part of to another even splitting or restructuring teams to pursue all promising applications that develop over time. The NBD Board s structure helps units to quickly apply insights that emerge from all of its innovation groups, and permits rapid reprioritization of resources in changing market conditions.
Integrated New Business Stewardship Innovation Governance Spans Internal Boundaries Oversight Board Facilitates Flow of Ideas New Business Development Board Mobile Phones Staff Networks Staff Senior executive chairs Board deliberations Research Center Staff Corporate Business Development Staff Governance Mandate Ventures Organization Staff Comprehensive Oversight Board evaluates all new business ideas with uncertain application to existing products, regardless of where they have been generated Inclusive Decision Making Board involves 13 managers from across the company in determining best forum for advancing each project Diverse Inputs Decisions about new business ideas draw on a variety of internal and external sources Frequent Reviews Monthly meetings evaluate new ideas and review status and placement of ongoing initiatives Source: ; Day, Jonathan D., Paul Y. Mang, Ansgar Richter, and John Roberts, The Innovative Organization, McKinsey Quarterly, no. 2 (2001), pp. 21-31; Doornik, Katherine, and John Roberts, Corporation: Innovation and Effi ciency in a High-Growth Global Firm, Stanford University Case Number S-IB-23, February 2001; Web site; Corporate Strategy Board research. 43
Refocusing Investments to Inflect Growth 44 Clearing the Path from Concept to Commercialization Porous Organizational Boundaries recognizes that the ultimate value of a new business idea cannot be fully predicted when it is first proposed, so it maintains flexibility with respect to internal placement. Projects flow from one part of the organization to another as they are tested, developed, and commercialized. By creating porous boundaries, ensures that all units can contribute to the development of new ideas throughout the company. Disciplined Innovation Management Clear decision rules help make rapid, consistent determinations of organizational fit at each project development milestone. Ideas that are closely related to the core are developed in the divisions or the Research Center, while more loosely related ideas that leverage existing capabilities into adjacent markets are explored in the. Even as it seeks to innovate, is disciplined about serving its strategy of leadership in mobile communications. Ideas that are truly unrelated to strategy even if financially attractive are rarely pursued, and once-promising projects that prove to be a poor fit are divested. Renewing the Core s robust new business development system is designed to benefit the core business in addition to developing new businesses. The structure protects new business ideas in their early stages from corporate bureaucracy and mature-business management practices. But as projects progress, the New Business Development Board can readily transfer emerging applications to established divisions when appropriate. Indeed, most projects that are initially shifted to the from established business units are ultimately reintegrated into the core.
Project Ownership Decision Rules The Right Home at the Right Time Determines the Best Forum for Ventures Advancement at Each Stage of Development Core Business Decision Rules for Placement of New Business Ideas Closely Related to Core Research Center R&D Incubator Mobile Phones Networks New Business Group New Business Development Board 1 Loosely Related to Core Ventures Organization () High Strategic New Growth Potential Businesses 2 3 Uncertain Strategic Early-Stage Potential Tech Fund Strong Viability Poor Viability Mature Ventures Internet Communications Home Communications Shut Down 4 Sustainable Fit with Core Poor Fit with Core 5 Good Fit with Poor Fit with Divest 1. Relatedness Test Closely related Developing technologies to serve current markets or extending technologies to serve new markets (to core) Loosely related Developing new technologies to pursue new markets (to ) 2. Strategic Potential Test High potential Clear strategic linkage or promise of US$500 million or more in revenues within four to fi ve years (to New Growth Businesses) Uncertain potential Early-stage concept in need of validation (to Early-Stage Technology Fund) 3. Viability Test Strong viability Good potential for commercialization in attractive market ( mature venture ) Poor viability Invalidated technology, business plan, or market potential (shut down) 4. Core Business Fit Test Sustainable fi t Commercialization benefi ts from using technology, distribution, or partnerships of core businesses (to core) Poor fi t Commercialization does not require core business capabilities or support (to ownership test) 5. Ownership Fit Test Good fi t adds critical capabilities as parent (new BU) Poor fi t Different owner would add more value (divest) Source: ; Day, Jonathan D., Paul Y. Mang, Ansgar Richter, and John Roberts, The Innovative Organization, McKinsey Quarterly, no. 2 (2001), pp. 21-31; Doornik, Katherine, and John Roberts, Corporation: Innovation and Effi ciency in a High-Growth Global Firm, Stanford University Case Number S-IB-23, February 2001; Web site; Corporate Strategy Board research. 45
Refocusing Investments to Inflect Growth 46 Extensive Idea Capture Casting a Wide Net The comprises six specialized units, each of which promotes different types of new business ideas and draws on varied internal and external perspectives. Together, the units help to understand how markets and technologies are likely to change, and to develop robust new business models. An Array of Incubators The maintains several distinct incubators, each with different policies and support systems. An early-stage seed fund assists individual employees with nascent concepts, while the New Growth Businesses incubator develops projects with clear strategic and revenue potential. A few projects become mature ventures substantial revenue generators that promise to eventually become full-fledged business units. Looking Outside also acquires ideas and technologies from outside the company, through the Venture Partners venture capital arm, and through Innovent, its associated group that collaborates with early-stage entrepreneurs. The also maintains a dedicated team of technologists, economists, and futurists that helps examine long-term trends through scenario development and market and technology analysis.
Broad-Based Venturing Structure s Entrepreneurial Web s Structure Provides a Comprehensive Forum for Developing New Business Ideas Ventures Organization Units Ventures Organization () New Growth Businesses Mature Ventures Early-Stage Technology Fund Venture Partners Innovent Insight and Foresight Incubates s new business ideas into substantial, sustainable businesses Stewards growing businesses with substantial revenues and clear paths to profi tability Provides individual employees with seed money to explore promising ideas; 40 million fund Invests in mobile and IP-related start-up businesses and technologies; US$650 million in venture capital Collaborates with earlystage entrepreneurs by sharing expertise and resources; United States based team Identifi es disruptive technology and market developments and resulting opportunities Internal Incubators Draw Ideas From Throughout External-Venturing Arms Connect to Outside Entrepreneurs Dedicated Team Explores Implications of Disruptive Change Source: ; Day, Jonathan D., Paul Y. Mang, Ansgar Richter, and John Roberts, The Innovative Organization, McKinsey Quarterly, no. 2 (2001), pp. 21-31; Doornik, Katherine, and John Roberts, Corporation: Innovation and Effi ciency in a High-Growth Global Firm, Stanford University Case Number S-IB-23, February 2001; Web site; Corporate Strategy Board research. 47
Refocusing Investments to Inflect Growth 48 Renewing the Core While Exploring Beyond Building a New Venture One of Ventures Organization s first projects brought together staff from small, unconnected projects developing Wireless Application Protocol (WAP) software. The environment enabled them to focus on applications outside markets traditionally serves. Assessing Success assesses the overall success of the Ventures Organization, based on contributions to existing businesses through technologies that inspire new products in addition to the generation of additional earnings streams from successful new businesses. Benefits for Established Businesses As research progressed, the WAP software group was renamed Internet Communications (NIC) and targeted the emerging Internet security market. Some WAP applications that were better suited to handset and network needs were repatriated to the relevant divisions. By 2002, the group has become a major player in Internet security applications and continues to generate technologies that improve core mobile phone products.
Accelerating New Business Development Benefits the Core While Building New Internet Security Business Development of Internet Communications (NIC) 1998 1999 1999 2000 2001 2002 1 2 3 4 5 6 From Research to Venture R&D Assembling Capabilities Finding Focus Realizing Returns Networks Infusion from the Core Resources Return to the Core Networks NIC Refocusing on a New Market NIC Growth from Within and Without NIC Acq Acq Mobile Phones Even More for the Core NIC Group of engineers working on Wireless Application Protocol (WAP) software in the Research Center moves to Ventures Organization to explore commercial possibilities Wireless Software Solutions is one of three initiatives Staff from Networks who are working on other WAP-related projects are moved to s Wireless Software Solutions group The merged group is renamed Internet Communications (NIC) WAP becomes an important technology for core wireless network applications Groups of NIC staff return to apply their WAP knowledge in the Networks unit NIC redefi nes itself around corporate Internet security applications As NIC s focus moves from concept validation to revenue generation, it is termed a mature venture within NIC quickly fi lls key technology gaps through acquisitions: Network Alchemy provides secure online transaction systems, while Ramp Networks builds Internet security appliance offering NIC is ranked the fastest-growing Internet security vendor, attaining 22 percent market share As wireless devices are increasingly used to transmit personal data, integrates Internet security software into Mobile Phones products New Communicator uses NIC-developed encryption technology Source: ; Salkever, Alex, s Security Connection, BusinessWeek Online (10 September 2002); Day, Jonathan D., Paul Y. Mang, Ansgar Richter, and John Roberts, The Innovative Organization, McKinsey Quarterly, no. 2 (2001), pp. 21-31; Doornik, Katherine, and John Roberts, Corporation: Innovation and Effi ciency in a High-Growth Global Firm, Stanford University Case Number S-IB-23, February 2001; Web site; Corporate Strategy Board research. 49