Innovation Isn’t Just for Startups: How Big Companies Can Succeed
What if more managers at big corporations channeled some of the same magic that helped Tesla CEO Elon Musk and Amazon founder Jeff Bezos lead their startups to great success?
Large companies are actually fertile ground for innovation; they just need to know how to cultivate it, according to the new book Corporate Explorer: How Corporations Beat Startups at the Innovation Game. In fact, venture-minded managers in big corporations often have the tools and infrastructure to become more successful than their peers at startups, say authors Michael Tushman, a Harvard Business School professor, and Andrew Binns, a consultant affiliated with HBS’s Digital Initiative.
Tushman, the Paul R. Lawrence MBA Class of 1942 Professor of Business Administration, Emeritus, chairs the Advanced Management Program at HBS. He co-wrote the book with Binns, a principal at Change Logic, and Charles O’Reilly, a professor at Stanford University.
The book examines how the best corporate explorers create new enterprises inside large corporations. The authors explain the challenges explorers face, along with the strategies they need to gather corporate support for ideation (initial proposals), incubation (trial runs), and scaling (the development of a full-fledged new product or service).
“Becoming a corporate explorer is not a route to a safe or easy career.”
The authors share the stories of influential explorers, such as retired IBM manager Carol Kovac, who started as a bench chemist and was vice president for research when she launched what proved to be the company’s most successful “emerging business opportunity,” the Life Sciences venture. She disrupted IBM’s staid model by hiring genetic scientists and other specialists, and produced $3 billion in revenue for the company in five years.
Meanwhile, starting in 2013, Analog Devices CEO Vince Roche encouraged innovators from the top down and transformed the semiconductor giant into a designer of integrated, strategic systems—including a platform that accelerated the global rollout of 5G technology. As the authors write, “Rather than selling a silicon chip, Analog would sell an answer.”
“Becoming a corporate explorer is not a route to a safe or easy career,” they write. However, Tushman and Binns explain in the following Q&A, explorers are the ones who lead established companies into the future.
Lane Lambert: What is the difference between explorers and startup entrepreneurs?
Michael Tushman: These explorers have the energy, passion, drive, and perseverance to go against the core part of the organization to do this reinvention of IBM or Analog Devices. It also takes the passion of the explorer to create a social movement [of support], at least initially.
Andrew Binns: They are exactly the same and completely different, right?
They’re exactly the same in that they look for something wrong in the world they want to fix. They all have this insight, you know, we call it explorers’ insight. And their task is, how are we going to solve that problem? Have we got the right formula? And then scale it, turn it into real business.
And they’re completely different because the context in which they’re doing it is in some respects harder, and in some respects easier. Any entrepreneur will tell you, there are plenty of constraints that come with getting venture capital funding. A corporate explorer also has constraints. But they already have a customer base. They already have a brand. They already often have the very technology and product assets they need to put together their innovation.
Lambert: What’s an example of a successful corporate explorer venture?
Binns: In the book, we talk about the Boston-based firm Analog Devices. A lot of companies make semiconductor chips, right? But when a company wants the solution to condition-based monitoring, they say to a startup, you have no track record. They go to Analog Devices because they’ve got 50-plus years of being an advanced leader in electronics in the world.
People see lots of entrepreneur successes, and they say, boy, that must be easy because they’re free and autonomous and they can do this. What we do not see is all of the failures. On the other side, in corporations, you don’t hear about it when they succeed. Did you know that LexisNexis created a $2 billion firm that was larger than the original firm?
Lambert: Is tension between a corporate explorer and senior management necessary for a venture to be successful?
Tushman: Absolutely. The tension really gets accentuated when you need the cash and the resources to go to scale. It requires explorers like Carol Kovac … to respect the tension in the organization and to manage from the outside in. As soon as the clients say, ‘I love this stuff,’ all of a sudden some of the existing people in the consulting business say, ‘Yeah, we should try it.’ Explorers always have to deal with tension or else they wouldn’t be explorers.
“Scaling begins at ideation. Unless you’re thinking about that from the beginning, you’re not going to make any progress.”
Binns: A lot of what makes it possible to be successful is first, you need enough structural separation. You do need the CEO and senior team connected, but you also need an individual leader who is able to be a change leader. You are not given the opportunity to be a corporate explorer any more than you are given the opportunity to be an entrepreneur. You take it and you persuade people and you build the case and you build the social movement around it to get it done.
Lambert: What is the first piece of advice you would give a potential corporate explorer?
Tushman: I would say, “It’s great that you want to be a corporate explorer. But even before you start this incubation and ideation work, you should already begin to think about the scaling challenge, and already begin to think about creating a social movement so people are excited about your idea.”
Binns: Scaling begins at ideation. Unless you’re thinking about that from the beginning, you’re not going to make any progress. Be sure about what’s the problem you’re trying to solve, because the biggest flaw that a corporate explorer or entrepreneur makes is that they are too obsessed with their own idea rather than about who will care.
But then on the change side, you’ve got to have somebody inside the business who cares about this. Who’s going to actually provide you with that opportunity to solve the customer problem?
Corporate Explorer: How Corporations Can Beat Startups at the Innovation Game
Andrew Binns, Charles O’Reilly, and Michael Tushman
We first met Corporate Explorers at IBM in 2000, as the computer giant launched Emerging Business Opportunities (EBOs), a management program designed to identify, fund, and guide new growth businesses. IBM initially incubated seven, then, over 20, new businesses within this program, and its results were startling. The EBOs generated revenues that far exceeded the corporation’s acquisitions portfolio in the same period.
Carol Kovac led the most successful EBO, IBM Life Sciences. The innovation for this team was to create solutions relevant to a fast-emerging market. Kovac had her sights set on making IBM pivotal to the revolution in life sciences that had been triggered by the decoding of the genome in the 1990s. That involved doing business with many hundreds of startups with deep science backgrounds, an anathema to IBM’s traditional focus on the largest companies in the most developed markets.
Kovac and her team set the goal of building a $1 billion business inside of three years. At the end of five years, the unit’s revenues exceeded $3 billion. She got there by breaking rules and sustaining a commitment to her vision, even as she confronted the hostility of others.
A Corporate Explorer cannot be a consensus seeker who wants to remain popular with colleagues that cling to a model that the explorer is committed to breaking. Kovac and her team needed to role model a new way of working for the firm. In her case, that meant hiring people with PhDs and expertise in topics well beyond the firm’s traditional core. She hired computational chemists, genetic scientists, and pharmaceutical business experts. They dressed and spoke differently from the famously staid IBM executive.
The best Corporate Explorers not only disrupt the markets in which they operate, they also break organizational norms by demonstrating new ways of working. They are passionate about an opportunity to reinvent the business, know how to get the attention of executives with compelling facts, want to design a new venture for success, do not want to conform, and are willing to break the rules to realize their vision.
Although Carol was a scientist by background, along with many of the leaders she hired, it had not been her vision that started the unit. She focused intensely on the mission and vision for the venture, engaging organizational consultants from IBM’s internal team to lead multiple workshops with her team. She reshaped the vision to make it a personal quest to create a computing environment to transform medicine and set a target, which many regarded as crazy, of building a one-billion-dollar business within three years.
That she achieved this goal owed much to the fierce commitment and sense of identity she created within the team. Purpose is the fuel on which Corporate Explorers thrive. It is critical to success, whether it comes naturally from deep personal experience or from an intense, deliberate effort to create one.
When Carol Kovac at IBM started the Life Sciences EBO, she had no idea where they would end up. She learned that setting a long-term ambition for the business was very helpful in enabling her to pivot the unit’s strategy at key moments. Having a hypothesis about the destination makes it possible to have a roadmap and to do “route recalculation” as circumstances changed.
Venture capitalists often ask an entrepreneur seeking funding, “What’s the exit?” For example, a sale to another firm or public offering of the stock might be an exit. A Corporate Explorer should ask the same question and think about the series of steps needed to get there.
Corporate Explorer by Andrew Binns, Charles O’Reilly, and Michael Tushman, Wiley, 2022
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