How to Create an Open Innovation Culture: Act Like a Venture Capitalist

Posted by Adi Gaskell on Dec 5, 2017 1:28:13 PM

In previous posts I’ve spoken about both the growth in open innovation and the ways that open innovation can help to tame the rapidly advancing costs associated with innovating in the modern world.

The nature of open innovation can lend itself to one off encounters however. For instance, you might conduct an innovation challenge to find a solution to a particular problem you’re facing, or license technology from a university. Whilst these are undoubtedly worthy endeavors, I believe the best results are achieved when you regard open innovation as a philosophy that will underpin the way your organization innovates.

When you have this culture in place, the various mechanisms of open innovation are mere tools, and your over-riding philosophy is that no stone should be left unturned in the hunt for the next important innovation to make your organization better. Such an approach would ensure that innovation is something that you do all the time rather than as a one-off event.

It’s a topic that’s attracted an awful lot of interest, with management gurus ranging from Clayton Christensen to John Kotter discussing at length the challenges organizations face when developing a culture of continuous innovation.

In practice, arguably the best exponents of innovation have taken an approach akin to that of a venture capitalist. Alphabet are perhaps the best example. Born out of an organizational restructure at Google in 2015, the new holding company consists of a portfolio of businesses, including the Google internet business itself (containing YouTube, Android et al), as well as more fledgling enterprises such as the Waymo driverless cars, AI startup DeepMind and life sciences startup Verily.

Accountability

Such a structure is attractive in that it provides not only transparency around the success, or otherwise, of each project, but also provides direct accountability for these projects at a board level. It’s an approach that many large companies have adopted via what are known as ‘growth boards’.

The idea is a straightforward one. Every idea that is pursued within the company has a board it is accountable to and whom finances the project. This board is typically made up of executives from across the organization, and the ultimate hope is to create a true startup spirit inside the large organization.

The Lean Startup’s Eric Ries suggests that such boards have three main responsibilities:

  1. To be a sounding board for the ‘founders’ of the internal startup - It isn’t required to have a single board for each startup, but it is vital that there is a body accountable for whether innovations should be supported, pivoted or halted.
  2. To act as a clearinghouse for information about the startup - It’s vital that the rest of the organization knows about the startup, what it’s trying to do and how successful it is proving to be. This responsibility rests with the startup board, to therefore allow the innovators themselves to focus on innovating rather than fielding constant questions about progress. Instead, all such requests should be routed via the executives sitting on the startup’s board. Ries suggests that by making such requests expensive in terms of the time requested of the executive, it encourages middle-managers to be more thoughtful in the requests they make.
  3. To be the gatekeepers of future funding - There are numerous methods for funding internal startups, but Ries is an advocate of metered funding that creates a true sense of scarcity within the innovation team. As such, the decisions of the startup board are framed in terms of either time or money, with projects often disbanded if sufficient progress wasn’t made in a finite time-frame. Aside from a broad allocation however, most startup boards allow the innovators to spend their ‘resources’ in the best way they see fit. They don’t exist to micromanage the projects, but equally the startup teams must bear the full cost of all resources they use, be they staff, facilities or equipment.

Suffice to say, these are broad guidelines rather than prescriptive steps to follow. Just as no two venture capital firms operate in the same way, neither will two startup boards function identically. They have proven effective in a wide range of industries and organizations however, suggesting the approach is one that has clear merit.

Winning the war for talent

Such an entrepreneurial approach is crucial if large organizations are to attract the talent they need to thrive. Estimates suggest that the vast majority of millennials would rather work for a startup than a big corporate, and it seems unlikely that this is down to any lack of effort on the part of the corporate. Rather, it’s that working in a startup gives people the freedom to work in an unstructured, unfettered way that young people love, but big companies typically hate.

By taking a VC-driven approach however, not only are you providing clear channels for entrepreneurial activity for new employees, but you also help to teach and support existing employees to become explorers rather than managers.

GE are one of the pioneers of this approach via a program known as FastWorks. The program, which was introduced in 2014, aims to apply the principles of a startup within GE. The aim is to make product development more effective, shortening cycle times and significantly enhancing the ability of the company to learn.

It’s a philosophy that the company hope will spread throughout the organization, encouraging employees to take risks and constantly learn and question the status quo.

“It’s about giving people the environment to think in a different way and getting people to take risks,” says Viv Goldstein, global director of innovation acceleration at GE. “I can say this is the most unbelievable experience, and I’ve been with GE for 20 years.”

The company has funded several hundred projects put forward by employees via their growth boards, with each idea then thoroughly tested over a 90-day sprint. If sufficient learning is obtained, the project advances. If not, it’s discontinued.

By adopting a VC style approach to innovation, it’s allowed large organizations to adopt the speed and nimbleness of startups. Whilst it’s perhaps too early to say if it’s helped them to overcome the ‘innovator's dilemma’, the early results do suggest that they’ve had a fundamental role in shaping how companies think and behave.

 

Topics: Innovation Insights

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