Lean Startup in Large Organizations

Overcoming Resistance to Innovation

James A. Euchner

• Publisher: Productivity Press
• Year: 2022
• ISBN:
  9780429783326
• Edition: 1
• Topic: Business
• Subtopic: Operations
• Index: Business

Large corporations must become far more agile in implementing new products and new business models. The pace of technology change, the blurring of industry boundaries, and the agility and resources of startups in almost every industry segment demand it.

Many companies have begun to adopt the principles of Lean Startup in order to increase the pace and agility of their innovation initiatives, but most have had limited success in doing so. Although the principles seem intuitive and straightforward, there are challenges to using them inside an existing company, especially in a manufacturing environment. The biggest requirements, beyond those espoused for startups, are:

• Developing a business model for the new venture that not only works in the marketplace but also works within the constraints of the corporation

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• Managing the conflicts that inevitably arise with the current operating business; every business that has operated over decades has well-established ways of doing things that may not fit the required pace and flexibility required of a new venture

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• Conducting business experiments with physical goods as well as with software offerings

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• Managing the risk of investing in a new domain for executives that are used to investing where the risks are more clearly understood

This book describes a systematic approach for implementing Lean Startup in large organizations. It builds on the principles of Lean Startup and adds additional practices required to manage the realities of the corporate context. The book describes how it is done, with examples from practice in companies that have successfully used the methods. It complements Lean Startup methods with elements of corporate innovation practices developed by leading academics and practitioners. It brings these practices together for the first time in a practical and integrated way.

1
Introduction

DOI: 10.4324/9780429433887-1

Lean Startup is a collection of practices for creating a new business from scratch. The practices are designed to deal with the conditions of extreme uncertainty that come with starting any new business [Ries, 2011]. Lean Startup is designed to surface critical assumptions and then to test each one with rapid experiments. Thousands of startups have used the Lean Startup methodology to move more quickly and more surely toward a viable business [Blank, 2018].

Lean Startup has also attracted many adherents in large enterprises. Some companies, like GE, have made it part of their operating system; at GE, Lean Startup has been implemented in a way analogous to the way Six Sigma was implemented, as a widely taught system of practices [Goldstein and Euchner, 2017]. Other companies have adopted Lean Startup only in separate new-venture incubators, isolated from the core business, where the method can be practiced in its purest form. Still others have adopted parts of the system, integrating them into their current way of doing innovation [Koen, Golm and Euchner, 2014]. But Lean Startup has not been as successful in large companies as it has been in startups [Blank, 2021].

Understanding the challenges Lean Startup presents for large organizations and beginning to address them is the object of this book. The essays, interviews, and articles included in this collection offer insight into both Lean Startup and the challenges it faces when implemented in large organizations.

Lean Startup practices are all about learning: Learning about the customer, learning about the limits of technology, learning about the different elements of the business model. Unfortunately, the very practices that make this learning possible can be threatening to existing organizations. The practices by their very nature create a set of fears and reactions that must be managed for Lean Startup to succeed. This book names the fears and resistances and discusses a set of practices that addresses them. The complementary practices are based on both theories of researchers and their application in practice [Euchner and Ganguly, 2014].

The book begins by summarizing the Lean Startup approach. In Chapter 2, “Lean Startup in a Nutshell,” I provide an overview of the methodology, along with excerpts of interviews with Eric Ries and Steve Blank, the principal creators of Lean Startup. The core of Lean Startup is seven principles that, taken together, make the overall system work. Three of these principles relate to how to learn using iterative experimentation: The Lean Learning Loop, the Minimum Viable Product (MVP), and the pivot-or-persist decision. The next three principles relate to what to learn, conceptualized as three core hypotheses that must be validated to create a successful business: The Value Hypothesis, the Business Model Hypothesis, and the Growth Hypothesis. The final principle is innovation accounting.

Making Lean Startup work in the context of a large company brings unique challenges. The very practices that lead to success in finding a product-market fit can create problems for creating a venture-corporation fit. For each Lean Startup practice, there is a threat to the existing corporation that must be managed. The threat—which is real—leads to a fear, which operates at an emotional (and often unspoken) level. An overview of the threats, the fears that they induce, and a set of complementary practices that alleviate the fears are the subjects of Chapter 3, “What’s Different in Large Organizations.”

The first fear is a fear of chaos. Lean Startup is a very dynamic process, based on a rapid sequence of experiments and pivots. This can seem very chaotic inside established companies, which generally have well-established new product development practices. Meshing the somewhat chaotic practices of Lean Startup with the expectations for discipline and metrics most companies bring to new product development is a threshold issue for the adoption of Lean Startup. Chapter 4, titled “Containing the Chaos,” discusses the Innovation Stage-Gate, a mechanism for doing so. It includes excerpts from an interview with Gina O’Connor, who has studied innovation structures that work in corporate settings and how to staff them.

Chapter 5 addresses the fear of distraction. Lean Startup practices can interfere with the combination of core competencies and processes the company relies on to provide discipline and generate profit in its current business [Govindarajan and Trimble, 2010]. These well-established ways of operating create efficiencies, but they conflict with the needs of a new venture. Executives quite naturally worry about disruption to their operations, while people in functional roles worry about the risk to their careers of operating outside of their core mandates. Chapter 5, “Working with the Performance Engine,” discusses several methods for constructively managing conflict between the innovation team and the corporate functions. It includes an excerpt from an article that Abhijit Ganguly and I wrote on business experiments that addresses the conflict with corporate functions that arises in doing this type of work.

New ventures within corporations must not only create a compelling new business; they must create one that aligns with corporate strategy as well. Often, however, growth strategies are not clearly stated, and the innovation team is left to discover unstated boundaries. Lean Startup, with its focus on exploration and pivots, can create a fear that the company will drift too far from its core. Alas, misalignments are often discovered too late in the process to be corrected, to the disappointment of both executives and innovation teams—and to the detriment of both the hosting company and the new venture. Chapter 6 discusses “Achieving Strategic Alignment,” with a focus on the importance of finding opportunities that build on the assets of the mother ship. The core practice is the identification of “asset-based opportunity spaces.” Amazon is a master of leveraging assets to move into great new businesses, and this chapter includes extracts from an interview with John Rossman, who created the Marketplaces business at Amazon. The interview illustrates asset-based innovation from the perspective of a master practitioner.

In large organizations, the dominant business model is well established and often sacrosanct. But a new venture may need to go to market with a different business model if it is to succeed. This requires overcoming the inertia of the dominant model and the fear of cannibalization—the fear that the new business will succeed by feeding on customers and revenue streams of the core business. The first step in addressing this fear is simply to consider a full range of alternatives and to assess not only their profitability but their impact on the core business. Chapter 7, “Introducing a New Business Model,” discusses a process for managing risks to the core business called the Business Model Pyramid. Two key concepts in managing these risks are business model archetypes and innovation ecosystems. This chapter includes excerpts from interviews with Adrian Slywotzky, who codified business model archetypes, and Ron Adner, who systema...

Table of contents

• Cover
• Endorsements
• Half-Title
• Title
• Copyright
• Dedication
• Contents
• Preface: Why This Book
• Acknowledgments
• About the Author
• Chapter 1 Introduction
• Chapter 2 Lean Startup in a Nutshell: What Every Executive Should Know about Lean Startup
• Chapter 3 What’s Different in Large Organizations: Why Lean Startup Is Not Enough
• Chapter 4 Containing the Chaos: An Innovation Stage-Gate
• Chapter 5 Working with the Performance Engine: Graduated Engagement
• Chapter 6 Achieving Strategic Alignment: Asset-Based Opportunity Spaces
• Chapter 7 Introducing a New Business Model: The Business Model Pyramid
• Chapter 8 Organizing for Growth: The Separate-but-Connected Model
• Chapter 9 Making the Bet to Win: Ambidextrous Leadership
• Chapter 10 Yes … And: Making Lean Startup Work in Large Organizations
• References
• Index