Opinion: Why every company needs a chief entrepreneur

Photo credit: Aqua Mechanical.

Every large company must face the reality of continuous innovation and disruption or risk becoming obsolete in the twenty-first century. The organizational structures that characterize established companies today are unlikely to produce that new growth.

This doesn’t discredit the success corporations have generated from finding a successful business model and improving it over time. They are where they are because they successfully scaled and continuously improved a proven business model.

However, to achieve substantial and continued growth today, companies will have to look beyond improving the existing business model or simply launching new products. These actions just won’t generate enough growth anymore.

A radical shift

Growth will come from more ambidextrous organizations that excel at improving their established business model (exploitation) and excel at inventing tomorrow’s growth engines at the same time (exploration). It will come from entirely new value propositions and business models. Excelling at exploitation and exploration simultaneously is extremely difficult due to the very different cultures, skills, tools, and mindsets required. However, only businesses that succeed at nurturing these two cultures under the same roof will thrive in this age.

It’s a radical shift but an important one. A 2016 KPMG study highlighted how 74 percent of CEOs are concerned about new entrants disrupting their business models. In the same study, 53 percent of CEOs believed they aren’t disrupting their own business models enough. In a McKinsey study, 80 percent of CEOs believed their business models are at risk, and only 6 percent of executives were happy with their company’s innovation performance. The organizational structures in many of these companies just aren’t set up to create breakthrough growth.

So, what do we need to do to successfully position organizations for innovation?

The Chief Entrepreneur

First, companies need to move beyond traditional R&D, technology, and product innovation to focus on new value propositions and business models. It also means creating an entirely new organizational structure in which exploitation and exploration can co-exist and growth can thrive.

Exploration efforts must be led by what I call the Chief Entrepreneur (CE). He or she will have equal power to the CEO to focus exclusively on inventing the company’s future. The Chief Entrepreneur manages a team of entrepreneurs, a portfolio of innovation experiments, and is the guardian of the company’s innovation culture.

Understanding 21st century innovation and growth

When we talk about innovation, we often think R&D, new technology, and new products. However, It’s increasingly difficult for organizations to grow substantially through product and technology innovation (classic R&D) alone.

Kodak is a frequently cited example of an innovative company that still went bankrupt. Despite inventing the core technology used in digital cameras today, Kodak’s technology innovation wasn’t enough for the company to figure out a business model that could be a central piece to their future growth strategy.

Organizations are eager to create new growth but have yet to make the distinction between incremental and efficiency innovation that sustains the current business and transformative innovation that explores new horizons and potentially disruptive business models. For example, a new product model or feature might add some short-term revenue to a stagnating sector. Cost-cutting activities and business process re-engineering may steady the ship or make the company efficient, but focusing on these types of innovation alone will not be sufficient to your company’s survival.

Transformative growth comes from great value propositions and business models. New technology may still play a part but new tech has to be packaged in a great value proposition and coupled with a powerful business model.

Nestle achieved this with its Nespresso brand when it reinvented how coffee was sold to households. However, technology doesn’t always have to be brand new. Nintendo’s Wii succeeded despite inferior technology because of an exciting value proposition to an underserved segment coupled with a profit-spitting business model. Nintendo managed to sell over 100 million hardware units and over 900 million software units in more than six years until seeing a decline in sales. See that even Nintendo forgot to reinvent itself despite this success.

A chief entrepreneur with power

But what does the CE really do?

The innovation dream team

Establish and maintain an innovative culture