Where Successful Innovation Lives

The numbers are crazy. Startups have never been as well funded ever before. What does that mean? Your core competitors that are going to disrupt you if you're an established company, small or big, they're getting really well financed. Much, much better than most innovation departments. I'm not talking research and development, R and D, I'm talking innovation. Innovation is not as well financed as startups. If you look at valuation, the valuation of startups is going through the roof. Now, we can think of this, whatever we want and say bubble or so, but it does mean that acquiring companies is getting more and more expensive. So it's less and less a path and say, oh, we don't innovate, we can just buy. Well, look what happened with discord. If you read in the news they rejected a $10 billion Microsoft offer. So it's getting harder and harder to just acquire. Now to the topic of today. Where does innovation live? So we often hear everybody needs to be an innovator. Yeah, well, kind of. So some of the innovation indeed should live here in what we call exploit in your existing business units. You know, the typical kind of efficiency innovation. But more and more we should focus on exploration because otherwise we'll get disrupted by those really well finance startups that we've seen. So quick repetition. Many of you have maybe seen us talking about this. There are three types of innovation. Efficiency, innovation about processes, sustaining innovation about products and channels. And then transformative innovation. Really new growth engines. They can live in different parts of the organization. Everybody should try to make their business better. Not everybody needs to be an internal entrepreneur. I'm just going to go into one message where innovation needs to live. One part, one area where innovation needs to live. And I'll start with the illustration of Logitech, Logitech Swiss company. They're very well known for having made computer mice. And so but they needed to pivot and they hired a new CEO a while ago, Bracken Darrell, who infused an entrepreneurial spirit in the company again. And we call this the entrepreneurial CEO and he spends 40 to 60% of his time on innovation. So what I want to show with this is that innovation needs to live at the very top because otherwise it won't take off. So we can go into details where in the business units it needs to live and where in which areas and where in the org chart. But if it doesn't live at the top, innovation will not happen on a large scale. So if we look at Logitech, just want to show this a little bit. They have five major areas like productivity, gaming, video, music and smart homes. They said we're going to invest in these areas to become the leading cloud, peripheral player, Bluetooth, speakers, tablet accessories, video calibration, PC gaming. And what this means in our little can Google, the portfolio map is that you need to allocate the resources from what Bracken Darrell calls the trees, the established business. They're grown, they're big, but they're gonna fall over into the plants, the emerging businesses and the seeds, the businesses of tomorrow. And they reallocated 75% of their resources from peripherals to the new areas like Bluetooth, speakers, tablets, video collaboration and gaming. So you need to make sure that when you want innovation to happen somewhere and growth to happen somewhere, that you allocate the resources there. Second example, same message, slightly different solution. Innovation needs to live at the top. Could be the CEO, but I'm going to give you a slightly different model and I'll start first with the business models first and then go into how they made this reality. So kspingan, this was about a decade ago, a traditional finance and banking conglomerate. We actually portrayed them as innovators of the month, company of the month, invincible company of the month. They said we're going to use these technologies, biometrics, big data, AI, blockchain and cloud, in order to do two things to boost efficiency, cut costs, improve client experiences and strengthen risk management. So they would make it live, innovation, live in the key businesses. An example of that, kind of a scary example, is how you can apply for loans online. And they would use this technology here to observe micro expressions of your face to see if you're lying. And they would use that to give out loans much faster. And if you look at the data here, how fast it went, it's pretty amazing. So they got a lot new sales, a lot new loans, applied much faster. And this was game changing. This is when innovation lives in your core businesses to make it better. But of course they said, well that's not enough. We are investing in this technology to create completely new growth engines. So innovation needs to live in an exploratory space as well. And I'll show you how they did this. And they said we're going to use these technologies to invest in five growth arenas, financial services, healthcare, auto, real estate in smart cities. And if you look at what happened, they actually I'll give you one growth example where they went from ideation to testing and persevering, all the way to transferring it to a core business. The most famous example is Pingan Good doctor, which became the biggest health platform on the planet. Think of it, an insurance and banking conglomerate built the biggest health platform on the planet because they invested in innovation outside of their core businesses in completely new arenas. So innovation lives in the core, but it also lives in a separate space where they can explore. And here's the key. In that space, failure is an option. So you can see here three business models. I'll mention two. Haoche, secondhand car platform, Haofeng, a real estate platform. They completely bombed. It was a failure. So they had to retire them successfully retire a failed business. And that's why they could actually succeed. And even based on those learnings, they made some good acquisitions. They invested in Auto Home and finally acquired autohome based on the insights they had from experimentation. What you can see is that innovation clearly lives in the exploitation engine, existing businesses and in the exploration engine. And to achieve this, they radically invested in new infrastructure. 22,000 IT developers, they hired 500 plus big data specialists and they generated 2,000 global patents. The result is they went from the top 500 companies to the top 20 companies on the planet in about a decade. That's amazing. How did they do this? Because they let innovation live in both sides of the organization. So Peter Ma, the founder, hired a lady, Jessica Tan, to take care of innovation and she became the co CEO. And then they even experimented with the ARC chart. And they said, well, I'm going to be the chairman Peter Ma. And they hired a CEO who completely focused on execution, running the businesses beside Jessica Tan as a co CEO. And they hired a third co CEO, Jason Yao, who would actually build a bridge in between and focusing on technology. So they made sure innovation would live everywhere, but would live in a different way in efficiency, innovation, sustaining innovation and transformative innovation. So I just wanted to leave you with that quick message of two examples. But the key message here is when innovation doesn't live at the top, it will never take off at scale.