And just like in the beginning, lean startup in large companies often starts within the grassroots. The main request we have been getting from leaders over the last three years is for their product teams to be trained on how to use lean startup methods and tools. And while this is challenging work, product teams take to lean startup methods quite well. They want to launch successful products and they see it as great tool for solving some of the challenges they have had in the past (e.g. premature scaling).
The Innovator’s Rhythm
The real challenge is what happens after the training and coaching is done. The newly trained product teams often find their way back into a company that is not setup to support their new skills and ways of working. Entrepreneurship and innovation work at a certain rhythm and pace. This is best represented by the build-measure-learn loop. Product teams use this rhythm to identify their assumptions, run experiments and use data to make evidence based decisions. This rhythm also helps product teams identify customer needs, build the right solution and find the right business model to deliver value.
In contrast, large organizations have a different rhythm based on executing the current business model. This rhythm is often the antithesis of the innovator’s rhythm; long budget cycles, thirty page business cases and incentives based on revenue growth. This mismatch is problematic for grassroots movements. As much as innovators try to do their work, they are often stifled by the management processes in their company. Paradoxically, the same leaders that sent the team out for lean startup training find themselves telling that same team to “stop experimenting and write a business case”.
Building Organization Capabilities
Lean startup training is not enough. In order for these practices to thrive in large companies, we have transform the rhythm of our management systems to match the rhythm of innovators. Clayton Christensen is right; organizational capabilities trump human capabilities. A bad organizational system will beat a well trained human being everyday. The management tools we have in our companies right now have been developed meticulously over decades and centuries. Company leaders have excellent ways to calculate profit and loss, balance sheets, net present value and return on investment.
Due to their historical success, these tools are embed in corporate cultures as the default when leaders want to make decisions. However, these tools are not appropriate for managing innovation. For example, if we look at the formula for calculating ROI, we can see the problem with this approach for new ideas. To calculate ROI, you need data on the total revenue the product will make and total costs of creating the product. For transformational innovation, the honest answer to these questions is “we don’t know”. But if our leaders require these numbers in order to make decisions, then product teams are going to make them up.
New Management Tools
Our current management tools were made for a time when the world moved much slower. The pace of change in the current business environment does not suit the management tools we are currently using. If innovation is now required as part of doing business, what we need are new tools to manage the process.
Within the lean startup movement, we have a great tool box for innovators to use in their work including business model canvases and experiment boards. What we now need to work on most diligently are tools for the leaders who manage innovators. If we have given our innovation teams the best contemporary tools to create breakthrough products, we should not leave our leaders to manage innovation using the traditional management tools they have always used.
One key management area that needs new tools is investment decision making. Traditionally, managers have asked for thirty-page business cases before they can release funding. This long standing practice should be replaced with innovation accounting. We need to work with our leaders to develop a process in which they asking the right questions at the right time. These questions need to match the rhythm of innovators.
Pearson has developed the Lean Product Lifecycle. This award-winning framework breaks the innovation process into its key components and steps (idea, explore, validate, grow, sustain, retire). These steps provide a guide for product teams to do the right things at the right time. For example, we encourage teams to do customer discovery to learn about customer needs (i.e. explore) before they start building a solution (i.e. validate).
Those same key steps also define leadership expectations and guide decision making. So rather than ask for a business case and then make the decision to release one large amount of funding, managers are encouraged to make small incremental investments and track the progress of their teams via the lifecycle. If a team is yet to figure out customer needs and jobs-to-be-done, it makes no sense to ask for five-year revenue projections. Instead, managers can make a small investment and manage the team by asking how close they are to figuring out customers needs or finding the right solution.
This process allows managers to double-down investment on those ideas that are showing the most traction; and saves them from having to make one-huge bet based on the believability of a ‘fictional’ business plan. On the other side of the coin, innovation teams are now able to truly apply lean startup methods because management expectations and decision making processes are aligned with what the team has been been trained to do.
Investment decision making is just the tip of the iceberg. We also need to develop similar methods for strategy development and portfolio management. Please note that this is not an argument for established companies to abandon the tools that have worked for them in terms of executing on their business models. Rather, it is about have options and knowing when to use the right tools to make the right decision. Our new innovation management tools should work in parallel with the traditional accounting and management tools. The effort is to transform our companies into ambidextrous organizations that are excellent at both searching and executing.
This article was first published on Forbes where Tendayi Viki is regular contribution. Tendayi Viki is the author of The Corporate Startup, an award winning book on how large companies can build their internal ecosystems to innovate for the future while running their core business.