Beating to a Different Drum: 5 Elements for Building an Explore Unit

Innovation Strategies
/by
CL beating different drum

To say that someone “marches to the beat of a different drum,” is usually a put down or mild insult. It means, here is someone who does not conform to convention and is probably a little odd. That’s how it feels to be a Corporate Explorer. You are marching out of step with the operating rhythm of the existing business, pursuing a completely different approach to explore new markets than applies in established, mature ones.

When a firm has an ambition to build innovation businesses beyond the core, they face a decision. You could keep the innovation team within the existing core business and expect them to follow the same drum beat as everyone else. That sounds fair and reasonable. The problem here is that practices vital to delivering performance in an operating business are highly destructive when you are managing a business with high levels of uncertainty.

The alternative is to set up an Explore Unit that operates with a rhythm appropriate to innovation. That means working in rapid cycles to learn about new opportunities, de-risk ventures with experiments, and make constant course corrections to find the right business model. Setting up such a unit is not a guarantee of success. However, it is essential to give Corporate Explorers some autonomy to operate outside of regular business practices, without sacrificing their connection to the core business, whose assets they plan to leverage to scale their new ventures.

Here are five essentials that can set a new venture building unit and its team on a path to successful exploration:

  1. Purpose. What is the explore unit expected to achieve; what is its ambition?
  2. Resource allocation. How are exploratory units funded?
  3. Decision making. How will the organization make decisions about capital and resource allocation?
  4. Team. How do you structure the unit and recruit a winning team?
  5. Operating model. What does the team do; how does it structure its work?

Purpose. Exploratory units set an ambition that is equal to the scale of the threat or opportunity of disruption. The purpose should guide decisions about the scope of activities for the venture, key partnerships, resources, and value proposition. For an ambition statement to be useful, it needs to be aspirational (that is, to have a clear goal), logical (to provide a strategic rationale), and emotionally compelling. At the venture level, a purpose might include a financial metric, for example, $100 million revenue by 2030. This helps get everyone’s attention to the scale of the task and makes it clear what the Corporate Explorer is expected to deliver. The size of the aspiration should be big enough to create anxiety, even a little fear.

Resource Allocation. Corporations can adopt an approach to managing financial resources that synchs up with the experimentation practices of the explore business. This means funding in small increments, disbursed when the venture needs them, not against an artificial calendar.  This requires:

  • Budget autonomy. At the top of any Corporate Explorer’s list is budget autonomy and the ability to bypass company procurement rules. They want to operate with the same freedoms as an entrepreneur and be able to develop meaningful incubation experiments. It is also vital to replicate the scarcity most startups experience to force ventures to make careful choices about how to learn what they need to know. This helps them guard against developing a reputation for waste that can be turned against them when opponents try to cut budgets.
  • Milestone based. Similar to start-up funding rounds, established companies should ask early-stage ventures to present evidence of what they have achieved so far and make commitments to what they think they can achieve in the next round. Investment Boards can be put in place to make choices about when to release funding at different milestones.
  • Multi-year commitments. Corporate Explorers need funding committed over multiple years far more than they need a specific dollar amount. This arrangement enables them to scale the venture to the opportunity, rather than having to deliver short-term results that justify their existence in the annual budget cycle.
  • Out of cycle funding. Even with a multiyear commitment to funding, a Corporate Explorer may find that the allocated budget fails to keep pace with what is needed to respond to the market opportunity. Sometimes, market adoption of innovation is much faster than anticipated, often because of unexpected external events, such as a global pandemic. That makes it vital to have a C-suite sponsor with the capability to commit funds out-of-cycle, so that the opportunity is not lost.

Decision-making. Time is a critical resource for innovators. Companies need to make timely decisions about what resources are allocated and when. Establish a simple governance approach as early as possible, with three different bodies involved:

  1. Senior leadership team (SLT): The top managers of the corporation or management board in European firms.
  2. Investment board: A subset of managers delegated to manage explore investment portfolio on behalf of the SLT or the board. In some instances, this is the same as the SLT.
  3. Explore unit leaders: Corporate Explorers and their teams.

These bodies make six different types of decision, including issues beyond resource allocation. These decisions should not be made in isolation. Each decision-making body has a role in each decision. We define three roles: they decide (D), they are consulted (C), or they are informed (I).

  1. Long-term ambition for the explore venture
  2. Allocation of budget
  3. Hiring and firing an explore team
  4. Capital allocation to enable acquisitions
  5. Goals for the next 12–18 months (or some other relevant timeline)
  6. Pursue, pivot, or stop judgments of individual projects

Team. A new venture adds new team members rapidly as it moves into the incubation phase. Corporate Explorers wrestle with how many team members are needed, with what skills or domain knowledge, and if should they hire from inside or outside?

An Explore unit should include the following roles:

  • Venture leadership, to own the venture and its vision, to develop a compelling business case and scaling path, and to inspire the team.
  • Market analysis, to identify and evaluate emerging trends and new market spaces.
  • Customer discovery, to identify and validate high-value customer problems by conducting in-depth research.
  • Venturing and M&A, to identify and secure investments and alliances that enable the venture to scale.
  • Product management, to commercialize and manage new offerings through business experimentation techniques.
  • Organizational culture, to lead agile practices that sustain a pace of discovery and learning.

A word of caution: there is a temptation to hire quickly. The euphoria of getting budget approval for a new explore unit encourages some Corporate Explorers to build up the team right away. Sometimes, teams start too fast without enough clarity on the opportunities they will pursue and adding more people dilutes the team’s focus.

Operating Model. Explore units need to operate with agility to quickly spin up a new team or decide to disband one if milestones are not met. We call these exploratory business sprints, which are used to ideate, incubate, and scale new ventures. Key features include:

  • Teams. Appoint a small team focused on a discrete opportunity. Some teams add an innovation coach with design thinking or agile practices. During the ideation phase, these teams can be part-time, but as the opportunity moves to incubation, the teams become larger, and it is critical to have all or most of the team working full time on the venture.
  • Cadence. Create short time frames for the team to do its work: for example, a 90-day cycle split into three 30-day sprints. This creates momentum by ensuring that there is constant pressure to get to the next sprint with something tangible accomplished.
  • Scopes. Teams provide a clear definition of the result or outcome they will achieve in each cycle, e.g., data from an experiment, validation of customer needs, pricing. The sprint sponsors sign off on the scope, so that there is complete alignment. The scope should not dictate how to deliver the outcomes; this is the work of the team.
  • Rituals. Create an environment for learning, in which successes and failures are openly discussed. Rituals are key and include kickoffs, at which sponsors and teams negotiate the scope for the next sprint; daily stand-ups, when teams describe key actions and help needed; and retrospectives, when teams share feedback on how the team is operating affects the quality of outcomes.
  • Decision making. Report on outcomes, not activities. This focuses attention on the decisions to be made. Did a venture validate or refute a hypothesis about some element of the business design? If it did, what does this mean for its desirability, viability, and feasibility as a venture?

Managing these five elements – purpose, resource allocation, decision-making, team and operating model – can set a new unit on its path effectively. This will enable the new unit to follow its own drum beat in a way that can support Corporate Explorers as they de-risk investments.

However, there are limits to the value of autonomy. When it is time to scale, it can become hard to convince the operationally weary core business to play along and let the explore team have access to sales channels, manufacturing resources, or whatever it is they need to leverage. If the explore unit becomes too separate, pursuing its own strategy without any reference to the core business then it is likely to fail. It will just be a lonely, solo drummer, unlikely to reach a full crescendo.