Hatching a new way to do business

Some of the world’s biggest companies are taking steps to protect their position in the market by embracing the culture of innovation and entrepreneurialism that allows small start-ups to thrive.

Chicks

“For elephants, it’s hard to dance,” said José María Álvarez-Pallete, chief executive of Telefonica Europe, at the launch of its programme to find the best technology start-ups on the continent earlier this month.

Telefonica wants to find the brightest and most innovative small companies to help keep the huge organisation nimble. It will invest 10% of the start-up capital these young businesses need in the hope that they can help keep Telefonica – the elephant – dancing.

“We want to create an ecosystem of start-ups in our markets, so we don’t have to buy technology somewhere else. If these companies are close to an operator [such as Telefonica’s mobile network O2] then they will understand us,” Álvarez-Pallete states.

O2
O2’s new campaign which champions innovation

But it is not just elephant-sized companies in the tech sector that are looking for ways to be light on their feet. Supermarkets, financial services firms, charities and the automotive sector are thinking about ways to be more useful to consumers using a start-up mentality – some striking up unusual partnerships to do so.

Pharmaceutical giant GlaxoSmithKline (GSK) signed a deal with the McLaren Formula 1 team last September to try to learn from a company known for its world-class racing and super-quick tyre changes.

“The idea is to work with McLaren and learn how it operates such a leading-edge, fast-paced innovative company,” says Kerry O’Callaghan head of GSK’s global brand communications team. She is open about what the business expects to learn and how it can change.

“There’s a culture at McLaren about being open about any mistakes – a philosophy of constant innovation and learning. From a cultural point of view, that’s a great thing to bring into the business. We’re looking at how we can get our company culture to be forward-thinking, fast-paced and innovative.”

The prospect of changing cultures has resulted in wildlife charity WWF and accountancy organisation ICAEW teaming up to form the Finance Innovation Lab, which provides a place where people can talk about financial models that are outside the norm. The unusual collaboration came about because both parties have an ambition to find a better model of capitalism that doesn’t damage communities or the environment.

For ICAEW’s head of sustainability Richard Spencer, the combination of the two businesses means the lab can be more productive. “Getting together with WWF was a really unlikely combination and made people want to find out more. It hasn’t necessarily been a cosy relationship, it’s a relationship of constructive disagreement.”

Collaborating in this way has generated interest from companies such as Unilever, Puma and PwC, which have used the lab to debate alternative financial models following the economic crisis. According to WWF’s Jen Morgan, programme leader at the lab, it is “a place where longstanding relationships can be built, and that embraces failure”.

We’re looking at how we can get our company culture to be forward-thinking, fast paced and innovative

But such willingness to talk about failure is unusual in big companies, says Eric Ries, author and pioneer of ‘The Lean Startup’ idea, where firms test embryonic developments, launch products quickly and make changes as they go. Ries says that reluctance to take risks and be open about failings is common in big business.

“Most businesses are not willing to talk about this on the record because it involves admitting there is a failure going on and they are not comfortable having that on their public persona.” But he warns that if companies are not open about what hasn’t been successful, they may go out of business (see Q&A, below).

Ries has a theory that businesses of any size can create a basic prototype, or “minimum viable product”, that can be tested quickly in the real world to see whether there is an appetite for it and can develop the product from there.

This is something that entrepreneur Adil Abrar has done for two of the brands he has launched. The Amazings is a website that puts skilled retired people together with others, who pay to learn from them. The site currently offers classes in retro hairstyles, dancing and local history.

The company launched last October and had sold its first class within two days. In eight weeks, Abrar says he had enough information in terms of what people had bought and how much they’d paid to continue to grow the business and attract investment. He claims to have spent nothing on marketing.

He has also founded Buddy, an SMS and smartphone app for people with illnesses such as anxiety or depression to record their thoughts, feelings and actions and share them with their counsellor or health professional.

panadol
GSK’s Panadol Xtra

But he admits that he and his team could have launched Buddy more quickly to gauge the demand for such an app.

Abrar says the launch team spent nine months researching how the product would work. But when the app was released, it wasn’t well received and people said they wanted something “completely different”.

He now helps large companies find ways to work in a more entrepreneurial and agile fashion (see Carrots or turnips? How to act like a start-up, below). He claims there are “frustrated entrepreneurs” within many big businesses.

“They are there [in big companies], but they get trampled on. They come up with ideas, but get so frustrated with the process and the fact that they are just not doing anything, and that causes them to leave.”

One Google executive, who wishes to remain anonymous, has similar feelings to those Abrar describes, which is ironic given that Google has been named one of the world’s most innovative companies (see Just how innovative is Google?, right). He talks about how happy he feels in his current role at a much smaller technology company, now that he has autonomy and is listened to.

Listening to staff is another way that big brands can mimic the mentality of small companies and bring in new ideas. Darren Cox has recently been promoted to general manager of brand and innovation at Nissan Europe and part of his new remit is to encourage innovative ideas from everyone in the company.

“At the moment, most of the innovation comes from engineers, designers and marketers. We are going through a ‘re-engineering’ process, recognising we can do even more.

“Part of my new role is to widen the scope and give people in our purchasing department, production lines or in dealerships a voice because they have as good ideas as the engineers in Japan. It is just that we hadn’t got any way to filter them,” he explains.

Chick

Cox credits the company’s swift actions for helping it get through recent crises. “Nissan is trying to allow people to be entrepreneurial. One of our management ‘pillars’ is agility. This is key to the way Nissan approaches business.”

Even though the manufacturer had to deal with the Japanese tsunami and flooding in Thailand, which hit Nissan’s supply chain hard, Cox claims innovative thinking helped it sell more cars in the last calendar year than in the one before (see How automotive brands innovate, below).

Part of this has been to do with the skills and personalities of senior people at Nissan, such as Carlos Ghosn, the chief executive of Nissan Motor Co and Renault. Ghosn is known as the person who helped turn the business around in the late 1990s but he came under fire for investing in unproven green technology before the successful launch of the Nissan Leaf electric car.

The ability to think like an entrepreneur enables Nissan to be innovative and even maverick in its approach to product development. Cox says: “You could put Carlos or the other board members in an internet start-up and they would do it very well.”

Barack Obama

One pioneer that businesses could all learn from is Todd Park, US president Barack Obama’s new chief technology officer and previously CTO at the US Department of Health and Human Services. Far from being a federal bureaucrat, he is “a pioneer of doing lean start-ups in government”, according to Ries.

Addressing last week’s South by Southwest conference, Park said: “The last two years have been the most entrepreneurial experience of my life. I apply with my teams the lean start-up principles I used in the private sector. I go into Silicon Valley mode, work at start-up speed and attack, doing things in short amounts of time with extremely limited resources.”

As Ries points out, if someone can act in an entrepreneurial manner in one of the biggest and most bureaucratic state organisations in the world, there is no excuse for any large business not to act swiftly and innovatively, to make the elephant dance.

How automotive brands innovate

Nissan and Renault chief executive Carlos Ghosn has been credited with turning around failing Nissan at the end of the 1990s and for investing in green technology to produce the Leaf, the first mass-market all-electric car.

Deltawing
Nissan DeltaWing: Claims to use half the amount of fuel than rival racing cars

“If you look at the way Nissan does things, it sets a direction and sticks to it. Carlos has done this on a number of occasions. He has an innovative mindset and does not let the current affairs of the day knock him off course,” says Darren Cox, general manager of brand and innovation at Nissan Europe.

The Nissan Leaf has now been on the market for a year, but during the three years it took to develop, the financial crisis hit, not to mention the tsunami in Japan and widespread flooding in Thailand that affected Nissan’s supply chain. There were a lot of opportunities to stop the investment, says Cox, but they pressed on.

The culture within Nissan is one that encourages innovation, claims Cox. “The chief executive does say the power comes from within, so unless we get our engineers, marketers and designers to innovate then we are dead within our industry. We need to differentiate within ourselves, so our employees are encouraged to be innovative and break conventions.”

This approach saw the launch of the Nissan DeltaWing this month (above). The racing car has been developed to use half the normal amount of fuel for a track vehicle and will test those claims in the Le Mans 24 Hours race later this year.

The Nissan Leaf was named Car of the Year 2011, while this year’s award – announced this month – went to the Vauxhall Ampera. It is also an electric car with a battery that will last about 40 miles. But the difference between this and other electric vehicles is that when the battery runs out, a generator takes over to run the car for up to another 300 miles.

Despite General Motors, which owns Vauxhall, filing for bankruptcy in the US in 2009, being publicly berated by president Barack Obama and then being bailed out by the US government, it has still produced two vehicles that won Car of the Year awards.

That success followed a time when electric vehicle launches weren’t so successful, admits Denis Chick, director of communications at General Motors UK. “We previously developed a futuristic car but it was very expensive and there was no charging infrastructure, so it didn’t sell in very big numbers.

“The company was chastised for spending so much money on it and creating a vehicle that wasn’t very usable. It wasn’t their fault, they were just trying to kick-start a revolution in efficient motoring.”

Vauxhall
Car of the Year: The Vauxhall Ampera electric vehicle won this year’s award

Chick adds that GM has spent the last couple of years explaining to the press how the Ampera will work and has had to take an innovative approach to calming fears about ‘range anxiety’, where people assume that the battery will run out and leave them stranded.

“Journalists didn’t understand how easy it is to live with. We built a small village for them to stay in overnight and spend a day in the life of the vehicle. We set them challenges and explained the cost of living using electricity. For the price of the electricity needed to make a cup of tea and a slice of toast, you can drive 15 miles.” The Ampera can go 370 miles before it needs recharging.

Chick claims that all staff are encouraged to share ideas, including those on the production line who suggested a more efficient way to build vans. “There are constant communications top down and sideways. People feel engaged rather than working in silos. It has to be in the culture and come from the top.”

Just how innovative is Google?

Last month, Google was hailed as the third most innovative business in the world by US magazine Fast Company. But its size and structure can mean that creativity is stifled and employees become bored, according to a former Google executive, who does not want to be named.

When I joined Google several years ago, the company was like a start-up, with only a small number of people in the European office I worked in.

It changed a lot over that time, going from a small structure to a really big multinational. There were a lot of internal processes, bureaucracy and compliance. Conversely, they created programmes to ease internal mobility, so it was easier to change roles or locations. I am very grateful for having had the chance to work there.

I don’t think that big companies can embed a culture of entrepreneurialism because it is inevitable for any big company to have processes. You can improve that a little by changing certain aspects, but the main structure is not going to change.

If a big company has a decentralised structure, then everything can go faster. If your manager in London can take a decision even though the company is Indian, then yes it can learn from how a small company works. If a decision has to go to the headquarters, it is different. At Google, all main decisions are taken in California by the management. If it broke down its businesses and created separate units it could potentially [work more quickly].

In the few months before I left Google, the top management changed the company structure so that it felt more like a start-up. They organised the structure by product. Maybe they felt like they were working at a start-up, but I didn’t notice any change.

Employees feel happy and satisfied when they are given the autonomy to make decisions. I now work for a small but very international company.

There are few processes and a lot of flexibility, which means that I can take decisions. You feel bored, empty and without passion – even if you have a high salary – when you just execute processes that have been developed by others.

Carrots or turnips? How to act like a start-up

The Amazings
The Amazings: Helps retired people pass on their skills and knowledge

“Business disruption is the new normal,” says Adil Abrar, founder of small businesses Buddy, The Amazings and Sidekick Studios.

He believes technology or new ways of working disrupt established business models. An example might be telecoms, which was traditionally a fixed landline business, then mobiles came in, followed by internet calling such as Skype. Now, says Abrar, cloud-based services might overtake Skype. For example, the Twilio service lets users make calls via an app.

But the good news for big brands is that while the disruptions may be because of start-up businesses, they too can act like small companies and make sure they are still relevant to consumers.

Large companies can innovate to create what author Eric Ries terms “minimum viable products” (see Q&A, right). These are very basic prototypes that are quick and cheap to produce and can be tested in the real world.

Abrar gives the example of a brand that might offer fresh food on subscription, where customers pay £20 a month “to get the best carrots or turnips in town delivered”. The minimal viable product might involve creating an online landing page, which is SEO optimised.

“You can use AB testing and rotate the key messages [online to see which gets the most uptake]. If you buy some Google Adwords, which might cost £100, the people in the real world who search for carrots or turnips will go to your landing page and you can validate which business is better, carrots or turnips.

“You can see what people click on and how many give you their email address. You can do that without creating a proposition or sitting in a focus group.”

The risk with this is that people might then decide they want to order carrots, but at that point will realise that the website isn’t real. But Abrar says sites can be non-branded and can be honest about the fact that people won’t get a box of carrots delivered. “You can apologise, and say thank you for doing this but we didn’t get enough people interested.”

The benefit of this approach is that marketers will know what will work, rather than trying to invent what might, and it can be run alongside other activity. It can be a cheap way to find out. “There are so many tools out there that allow you to ‘fake’ services, without spending money on an agency. It is about building something straightaway and then measuring what you have built.”

Q&A

Eric Ries

Eric Ries, author of The Lean Start-up

Marketing Week (MW): If a large company is successful, what is the problem if it doesn’t act like a small company?

Eric Ries (ER): The challenge for big companies is that they slowly go out of business [because of new and disruptive products that take away their market share, such as Nokia losing out to Apple].

MW: If I am a marketing manager in a big company with a great idea, how can I convince my boss it will work?

ER: People have to develop a language and logic in their argument that matches the concerns their boss has, rather than the concerns they have.

If the current system [of innovation or new product development] is disciplined, bureaucratic and process-oriented, then to do something innovative a person has to be anti-discipline, anti-bureaucratic and anti-process. But what they must do is try to convince their boss that there is a process-oriented approach to create an outcome they care about.

MW: How can a big company apply start-up thinking?

ER: At a recent workshop, I got participants to name a project they were working on and a few key assumptions that the project is based on. Then they had to pick a ‘leap of faith’ assumption [something they assumed consumers would want in a product] and name some metrics that might be an indicator of whether that assumption is true. Then they had to develop some ideas for a minimum viable product [a product with the smallest set of features to test] that could run to collect the data [to see if it would work].

Many of the teams came back saying: “We have been working on this for two and a half years and realised in the last five minutes that we have this key assumption that no one has bothered to test.”

If you think about the collective amount of money and time being wasted, if we can change even a fraction of that to useful work, we just made a huge contribution to the company’s bottom line.

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