In our first post here, we introduced the Four models of Corporate Entrepreneurship. Today, we cover the last of the four models, which we call the Producer.
The Producer Model is similar to a “skunk works” organisation made famous by Lockheed and a common recommendation in the innovation literature: a separate, well-funded organisation to protect innovation projects from turf battles, encourage cross-unit collaboration, build potentially disruptive businesses, and create pathways for executives to pursue careers outside their business units.
Unlike the separate organisations of the 1970s and 1980s, however, current implementations are conscious of the difficulties that such separated organisations have traditionally had in bringing proven new businesses back into the mainstream company.
Beginning in 2005, Cisco (NASDAQ: CSCO) executives investigated and contemplated several trends in information technology that suggested that the company would need to become much more engaged in learning about and exploiting new business opportunities, not just continued innovation in its core markets. The locus of innovation in the information technology industry was moving from the enterprise space (e.g., e-business) to the consumer space.
Also, the Internet was moving from text-based to video-based applications. None of these were areas where Cisco had much experience back in 2005. But Cisco knew that it needed to play here and in other emerging information technology markets in order to continue growing at a pace sufficient to maintain its stock value.
The answer for Cisco was to create a new organisation called the Emerging Markets Technology Group (EMTG). EMTG’s mission would be to detect important market trends while they were still nascent, conceive ways in which Cisco could take advantage of them, and organically grow new ventures inside the company. Cisco decided that a central group with a strong mandate would be required to defend corporate entrepreneurship projects against both corporate antibodies (the people who want to kill it before it gets started) and corporate love (the people who want to latch onto it and turn it toward their priorities). Because Cisco is large, EMTG would have to focus on large targets, so it needed a budget to prove out concepts.
Few initial ideas will make it through the various due diligence and market sizing investigations that make up the standard front end of a corporate entrepreneurship project. Perhaps no more than 1 in 50 ideas can be turned into large-scale concepts. So this meant that EMTG must bring in 1000 ideas or more for preliminary investigation. It started by canvassing its business partners, customers, and employees. EMTG started a wiki called iZone to gather these and developed a WebEx space for collaboration.
This generated many dozens of ideas, but it was not enough. So EMTG created an incentive program called iPrize. The winner of an iPrize is personally awarded $250,000, and Cisco commits to invest at least $10 million in the concept. Two months after iPrize was launched, Cisco received more than 1200 ideas! Many of these 1,200 ideas were not very good or very significant. But EMTG’s attitude is that sometimes poorly thought out or small-scale ideas represent individual views of a big market opportunity. It may take a dozen ideas to flesh out a concept that represents an addressable and lucrative market opportunity.
To build integrated concepts, you need entrepreneurs. In many, if not most, companies, capable entrepreneurial project leaders are a rare breed. Cisco was fortunate, however. EMTG looked around the corporation and discovered that more than half of the entrepreneurs in the start-up companies it had acquired over the past 10 years were still working at Cisco. When these entrepreneurs found out what EMTG was doing, they came knocking.
In early market testing of the new product or system, EMTG is disciplined about selecting its customers. Early customers are viewed as development partners, not just potential sources of future revenue. Thus, they need to be chosen carefully to generate as much relevant market learning as possible. If things are still looking good in market tests, then about six months before a full market launch, EMTG forms a “tiger team” of people from manufacturing, finance, service, sales, and other divisions to work out all the dependencies. These people meet every week to determine the go-to-market strategy. This is also the time when organizational conflicts are resolved, so that the transition from a proven technology and market into a scaling business does not falter, as is often the case during this critical and difficult transition.
Robert C. Wolcott and Michael J. Lippitz are leading authorities on innovation and corporate entrepreneurship at the Kellogg School of Management at Northwestern University, and co-authors of Grow From Within: Mastering Corporate Entrepreneurship and Innovation (McGraw Hill, 2010). In the past seven years, they have studied more than 30 companies across industry sectors and developed an ongoing dialogue with them about corporate entrepreneurship through the Kellogg Innovation Network (KIN)
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