This article was originally published on Stanford Graduate School of Business.
The conventional wisdom holds that disruptive innovation is beyond the ken of large, incumbent companies. But then there are companies like Microsoft, which transformed its ubiquitous Office software suite into the Office 365 subscription service. “If Microsoft had done that as a startup, it would be a multi-unicorn,” says Andrew Binns, a founder and director of the strategic innovation consultancy Change Logic. “Office 365 is a whole new business model, but nobody talks about it as disruptive innovation.”
Binns, along with Charles O’Reilly, a professor of organizational behavior at Stanford Graduate School of Business, and Michael Tushman of Harvard Business School, finds that more and more established companies are overcoming the obstacles to innovation with the help of what they call corporate explorers. Corporate explorers are managers who build new and disruptive businesses inside their companies. Sometimes with a formal mandate, sometimes not, they use corporate assets to support and accelerate the development of these new ventures.
Binns, O’Reilly, and Tushman studied a number of these entrepreneurial insiders and report their findings in The Corporate Explorer: How Corporations Beat Startups at the Innovation Game. The book builds on the trio’s continuing research into ambidextrous organizations — companies that succeed over the long haul by simultaneously exploiting their existing businesses and building new ones that drive future growth.
In a recent interview, O’Reilly and Binns described the traits of corporate explorers and the conditions they need to thrive.
How do corporate explorers differ from entrepreneurs?
Charles O’Reilly: If I wanted to be glib about it, I’d say they’re entrepreneurs who want healthcare. But really, they are people in large organizations who want to be entrepreneurial, and so they look for creative ways to leverage organizational assets and capabilities to generate new businesses.
One of the ways they differ from entrepreneurs is that they are skilled at leveraging internal networks to get the assets and capabilities they need. Unlike the prototypical entrepreneur who gets funding from a venture capitalist, corporate explorers must figure out how to deal with the internal political dynamics of a large organization to create a business.
They also must be able to put their ego in a box, which is not necessarily true with entrepreneurs. It can’t be all about them if they’re going to build a new business within a large organization, because they have to convince other people to help them, express appreciation for their help, and share the limelight. Balaji Bondili at Deloitte, who started a new business built on crowdsourcing, is a good example. He not only had to sell the idea to his bosses, but also had to convince the firm’s consultants to use the service and sell it to clients.
What makes a successful corporate explorer?
Andrew Binns: The first thing is an obsession with the customer problem. Corporate explorers don’t start with, “I’ve got this great widget.” They start with, “Here’s the problem in the world that we’re solving. And yeah, there will be a widget, but let’s really get excited about this problem and this opportunity.”
The second thing is that they can tell an irresistible story or offer a really compelling image. Krisztian Kurtisz of UNIQA, the large European insurance company, sold his idea for a disruptive new online business by showing the management board an image of an office building filled with employees and a contrasting image of the two people who would operate the call center in the new business he proposed. That’s the sort of dramatic image that sticks with management and allows them to move across the threshold from disbelief to action.
The third thing is social capital. As Charles said, for the most part, these folks are not seeking attention for themselves. It’s not all about them. They’re quite happy to make other people successful, and so they tend to have allies who will provide them with resources.
What do corporate explorers do?
Binns: Like entrepreneurs, corporate explorers ideate, incubate, and scale new ventures. Ideation is the same whether you’re in a corporation or a startup — you’re trying to find a compelling customer problem to solve. Charles’ colleague Amy Wilkinson wrote an excellent book on entrepreneurs, and you can take most of what she says about the passionate commitment to solve a problem in the world and make a difference and apply it to corporate explorers. There is one big difference in ideation, though, and that is corporate explorers can get stuck there because it’s fun. Idea competitions and hacker funds and other creative exercises are lot less difficult than finding a real need in the marketplace.
Incubation is about experimentation and testing each part of the business model to find out whether it’s valid or not. This is largely the same as Steve Blank’s lean startup work aimed at understanding the customer problem, finding a compelling value proposition that can make money, and identifying the business’s ecosystem and ecosystem partners. It also is often the thing with which corporate explorers struggle: How to evaluate evidence from experiments is not a skill that most corporate managers get schooled in.
O’Reilly: The scaling process is very different for a corporate explorer because they are going to leverage the resources of the organization — production capacity, products, balance sheet assets, customers, and brand equity. I’ve heard that entrepreneur CEOs spend 50% to 60% of their time chasing money, even after they get a round of funding. That’s much less of a burden for a corporate explorer.
But if corporate explorers fail to get senior management support, scaling is also one place that they can get tripped up. They can do ideation and customer validation and MVP [minimum viable product] without a lot of resources, but scaling requires senior managers to provide assets and capabilities, sometimes by taking them away from existing profitable businesses. And that’s one place where aspiring corporate explorers come apart.
Being a corporate explorer sounds a lot more exciting than climbing the ladder a rung at a time. What conditions should an aspiring corporate explorer look for in a potential employer?
O’Reilly: Look for a company in which people who go into new businesses and fail aren’t punished. Remember the Amazon Fire phone? It was a huge failure, but the entire engineering staff got promoted. If businesses fail or ideas fail because the market or technology didn’t develop as expected, there has to be a viable career path for the corporate explorer.
There also has to be genuine support from senior management at the corporate or, at least, the divisional level. Corporate explorers should look for companies with ambidextrous leaders who understand the value and need for exploration. Trying to do this within an existing business where all the metrics and incentives are based on continuous success won’t be helpful to people who are willing to try new things and fail.
There have to be clear signals and a space for corporate explorers and encouragement on the part of senior management. So that puts the burden back on senior managers. If they genuinely want this, then they need to have a process that encourages it and rewards it. Amazon has its PR/FAQ approach in which anybody can come up with an idea and present it to their boss in a one-page press release. If the boss approves, you get some resources to try it. So, if I were an internal entrepreneur, I would want to know that there is a process for proposing and funding ideas for new businesses.