HI AM GBTI GR005v5

GRIST

GOING BEYOND

THE IDEA

BY ANDY MORRISON

DELIVERING SUCCESSFUL

corporate innovation

Going Beyond the Idea

Delivering successful corporate innovation

Andy Morrison

GRIST

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© 2003, Henley-Incubator

First edition May 2003

Printed in the United Kingdom

ISBN: 0-9542799-4-8

© 2003, Henley-Incubator iii

Contents

iv List of figures

v Author profilev Author’s Acknowledgements

vi Foreword

1 Executive summary1 Key findings2 Research methodology2 Report outline

5 Chapter 1 The need for innovation6 Crossing the valley of death7 The search for ideas8 Why do innovative initiatives often fail?9 The innovation system

10 The innovation eco-system

11 Chapter 2 Developing an innovation strategy11 Understand industry characteristics12 Evaluate organisational preparedness12 Compare alternative innovation styles14 Select an appropriate innovation business model15 Advise would-be entrepreneurs

17 Chapter 3 Key success factors18 Success factor 1: Relentless focus on solving a customer problem19 Success factor 2: A leader and team with a passion to achieve20 Success factor 3: A common language for communicating and charting

progress22 Success factor 4: Relevant and quantifiable assets and skills to contribute24 Success factor 5: Internal and external networking

27 Chapter 4 Case studies28 BG and Lattice Group (SSTUK)30 South Staffordshire Water Group (HomeServe)33 Abbey National (cahoot)36 QinetiQ Nanomaterials39 BT Retail (BT Contact Central)41 And finally…

43 References

iv © 2003, Henley-Incubator

List of figures

6 Figure 1: Typical stage-gate process9 Figure 2: The innovation system

10 Figure 3: The innovation eco-system12 Figure 4: Evaluating organisational preparedness13 Figure 5: Five styles of innovation14 Figure 6: Selection of innovation business model21 Figure 7: QinetiQ ‘NABC Plus’ process

Going Beyond the Idea: Delivering successful corporate innovation

© 2003, Henley-Incubator v

Author profile

Andy Morrison is a senior innovator at Henley-Incubator. He hasinternational achievement in business development and the articulation andimplementation of strategy in major blue-chip companies. He hassuccessfully performed both line-management and consulting roles. Recentwork has included:• Assisting the director of a new ventures division in the energy sector to

implement a stage-gate process for the management of the corporateventuring process and leading the early-phase facilitation of a number ofbusiness ideas based on proprietary intellectual property rights (IPR).

• Setting up and leading a multi-functional team to create a telecominfrastructure business in a regulated utility, integrating internal andexternal resources and leading negotiating teams with potential jointventure partners. The venture was delivered from idea to transaction ineight months.

• A three-month interim assignment as industrial sales and marketingdirector for a Brazilian joint venture gas utility. The major deliverable wasa strategic marketing plan that integrated sales and marketing processeswith network expansion.

• Leading a project for an international sugar company to validate marketassumptions and prepare the business case for a new venture idea.

Andy’s formative years were spent at Shell, where he devised andimplemented the brand and B2C marketing strategy for entry into theChinese domestic market, doubled net income in a mature global B2Bbusiness supplying special fluids and greases to the aviation sector and turnedaround a loss-making new market entry in Latin America over two years,growing market share from 5% to 17% and successfully integrating acompetitor brand.

Andy has a first class degree in chemical engineering from the University ofSheffield, UK.

Author’s acknowledgements

I would like to thank and acknowledge the invaluable contribution ofindividuals and companies that provided the case examples, and the Henley-Incubator Network members who supplied the inspiration and the significantinput during thought leadership forums and interviews. I would also like tothank my co-researchers, Jill Hender, Jeff Zitron and Simon Hennell, withwhom I have shared case material and who will be publishing their ownreports in this series, covering other aspects of innovation in companies.

My sincere appreciation is also due to Professor David Birchall, Dr Peter Raceand others at Henley Management College faculty and Mark Wellings at Grist,all of whom provided guidance and encouragement to the work, and toAndrew Gaule and the team at Henley-Incubator.

vi © 2003, Henley-Incubator

Foreword

The idea for this report dates back to a meeting of the Henley-IncubatorNetwork in November 2002, which brought together senior practitioners ofinnovation in major companies. The meeting was called to address ‘Crossingthe valley of death’, in response to difficulties expressed by several membersin driving validated ideas through to business reality.

Discussion at that first meeting and the subsequent research for this reportconfirmed that there are simply too many variables affecting the outcome tobe able to create a foolproof recipe for innovation success. Innovationstrategy, like corporate strategy, only has a meaning when it is attached to aspecific set of circumstances in a specific company.

The purpose of this report is to assist ‘extrapreneurs’ in developing anunderstanding of the innovation eco-system in their organisations, to selectappropriate business models of innovation and to demonstrate elements ofinnovation strategy that can be combined by them to create successfuloutcomes.

Who are extrapreneurs? These are people who have a powerful skill-set thatincludes entrepreneurship, plus the extra skills of managing internalinterfaces and the external perspective of customer requirements and achanging business environment. These inspirational leaders can be found inthe boardroom, amongst CEOs, strategy directors and main board membersresponsible for managing innovation and value creation. They can also befound amongst the ranks of senior practitioners responsible for innovationteams as well as individual staff who want to lead their ideas to businesssuccess.

This report is the second in a series researched and written by Henley-Incubator, and published by Grist. The first title was Corporate Venturing:Rewarding entrepreneurial talent; other topics in development include thepurpose and measurement of ventures, people, and partnership issues. Wewelcome comments and feedback from people involved in the challenge ofensuring that innovation is not stifled in organisations, entrepreneurial spiritis nurtured and new value is created for the organisation.

Andrew GauleCEO, Henley-Incubator

© 2003, Henley-Incubator 1

Executive summary

Most innovative companies are able to generate plenty of ideas and toprioritise those with the greatest potential, but that is often the point whenthe greatest problems begin—driving validated business ideas through tobusiness reality.

Despite putting an innovation process in place, the ‘engine’ often still doesn’tproduce the desired outcomes. Executives complain both about ‘falsepositives’ where projects are allowed to proceed without sufficient validation,and ‘false negatives’ where promising projects are killed too early, oftenbecause they cannot compete on equal terms with the core business. LeoRoodhart of Shell GameChanger described the journey from validated idea tosuccessful business adoption as like “crossing the valley of death”.

Key findings

There is no one recipe for success that can be applied uniformly. Nevertheless,research conducted for this report by Henley-Incubator has identified five keysuccess factors that transcend sector differences.

Relentless focus on solving a customer problem: Although technologicalbreak-through and inspirational ideas are valid routes to innovation, more oftenit is about solving a customer problem. Lower cost, greater convenience orproduct/service enhancements are key motivators, but other less obviouspropositions such as reassurance can also be powerful. For example, the foundersof HomeServe, an unregulated subsidiary of South Staffordshire Water,recognised that customers’ fear of suffering an expensive plumbing emergencyat short notice, meant that they over-estimated the likelihood of one actuallyoccurring, an incongruity that provided a source of value.

A leader and team with a passion to achieve: Companies that rely ontraditional business development for innovation often find it hard to matchpeople with the right entrepreneurial skills to the opportunities, but thepassion and commitment of the people associated with an opportunity are avital determinant of its success. One of the most striking features to emergefrom looking at the development of cahoot, Abbey National’s online bank, ishow much was achieved by so few people inside the business. “You don’toften get the chance in a major firm to set up a business from scratch. Theguys were up for this, really up for it,” enthused CEO Tim Murley.

A common language for communicating and charting progress:Innovation initiatives are often ‘shoehorned’ into annual budgeting cyclesand investment appraisal processes in which they have to fight for funds onthe same terms as incremental investments in the core business. Manyventure units become frustrated by having to constantly recycle businessplans and other papers, diverting them from engaging effectively their realbusiness issues. In 2000, when Hal Kruth joined QinetiQ (formerly DERA)from Stanford Research Institute to direct the newly created QinetiQVentures, he introduced a language that became known as ‘NABC Plus’. Thisborrowed heavily from the venture capital world, but was adapted to fit theneeds of QinetiQ, a company just emerging from the public sector, with astrong culture of caution in the face of risk.

2 © 2003, Henley-Incubator

Relevant and quantifiable assets and skills to contribute: One of themost common reasons for companies to establish venturing units as part oftheir innovation strategy is the desire to harvest the value of assets and skillsin new ways. A common pitfall is over-confidence about the relevance oftheir assets and skills for application in new businesses. BT Contact Central(BTCC) is a new business being developed by BT Retail that provides multi-media call centre systems, enabling customer relationship management(CRM) initiatives for clients. Before embarking on the new venture, PaulWhite, the CEO, had personally built around 200 call centres for BT and itscustomers. Relevant assets? “The channel,” as Paul White describes the BTRetail selling machine: thousands of sales people and a hundred fully trainedspecialists calling on customers, helping generate leads for BTCC.

Internal and external networking: Networking is critical. Internalnetworking not only gets the company interested in the first place, it alsoenables the team to guide the project through the corporate turbulence—ensuring things actually happen. But three key questions, which requireexternal networking, need to be answered before boards will commitsignificant resources to an idea:• Is it real?• Can we win?• Is it worth winning?

Ventures that have become successful have often been very quick to engageoutside. SSTUK, an infrastructure business providing masts and sites formobile telephony and private radio clients, developed by the Lattice Group,is a good example. External engagement helped define the proposition,identify key drivers and generate realistic expectations. The venture wasdelivered from idea to transaction in little over six months.

Research methodology

The research comprised a review of relevant academic literature and aprogramme of interviews with company units responsible for innovation.Five of these were researched in greater depth for this report to produce thecase studies in chapter 4. The examples have all managed to ‘cross the valley’to become business reality, and were selected to illustrate differentcharacteristics that have been important to their success.

Not all factors were present in every case study: far from it. What was commonwas the ability to recognise deficiencies and problems and to take theappropriate measures to resolve or control them. While the research is notexhaustive, it is implied that an innovation initiative that enjoys the benefitsof most/all of the success factors will be very well positioned to succeed.

Report outline

Chapter 1 analyses the continuing need for innovation and the reasons whyinitiatives often fail. To assist diagnosis of the reasons for failure ininnovation initiatives and facilitate planning for success it also describes thecomponents of the innovation system and the eco-system in which it exists.

Chapter 2 provides a step-by-step guide to help companies develop anappropriate innovation strategy:• understand industry characteristics• evaluate organisational preparedness• compare alternative innovation styles• select an appropriate innovation business model• advise would-be corporate entrepreneurs.


Executive summary


Chapter 3 analyses five key factors which contribute to driving a business ideathrough to reality successfully:• relentless focus on solving a customer problem• a leader and team with a passion to succeed• a common language for communicating and charting progress• relevant and quantifiable assets and skills to contribute• internal and external networking.

Chapter 4 focuses on five detailed case studies highlighting ideas that can beused both to develop an innovation strategy and to assist in itsimplementation, including:• BG and Lattice Group (SSTUK)• South Staffordshire Water Group (HomeServe)• Abbey National (cahoot)• QinetiQ Nanomaterials• BT Retail (BT Contact Central).


The need for innovation

This chapter analyses the continuing need for innovation and the reasons whyinitiatives often fail. To assist diagnosis of the reasons for failure in innovationinitiatives and facilitate planning for success it also describes the componentsof the innovation system and the eco-system in which it exists.

“Innovation is the specific instrument of entrepreneurship. It is the act thatendows resources with a new capacity to create wealth. Innovation, indeed,creates a resource and endows it with economic value.”

– Peter Drucker1

“Innovation is the introduction of some novel feature to the organisation’sproducts, services or processes, which adds value for one or more of thestakeholders.”

– Professor David Birchall2

This research does not address minor product enhancements, customisations,novel marketing campaigns or other forms of innovation that could beconsidered to be ‘business as usual’. Nor does it address ‘strategic’ mergers andacquisitions, which deliver growth but do not imply innovation. We focus oninitiatives—typically, new ventures—that involve a discontinuous changebeyond business as usual. In general, these are initiatives with a beginning, amiddle and an end, carried out by an identifiable team of people.

Much of the work of corporate research and development divisions is notactually innovation. In many cases, a high proportion of the work of theseinstitutions is in product customisation, compliance testing and after-salesservice—important tasks, but not to be confused with innovation.

Corporate venturing encapsulates the types of innovation that companiesparticipating in this research are seeking to exploit. For the purposes of thisreport we define ‘corporate venturing’ as: the use by companies of the valuesand practices of the external market for venture capital, in order to promoteinnovation and growth. Particular values and practices that are sought bycompanies are:• access to a deal flow of qualified ideas• rapid and efficient matching of good ideas with talented management

teams to drive them forward• quick elimination of the weak, and management of accepted investments

through application of strict stage-gate processes• strong incentivisation of entrepreneurs through significant use of success-

based rewards• management of risk through the use of a portfolio of investments rather

than the close supervision of one or two major ‘plays’.

Clearly, accessing a deal flow of qualified ideas from within the company isnot a straightforward task. Nor, generally, is the matching of good ideas thatdo emerge with the talented management teams to take them forward. Astrong case can be made for looking externally for ideas and for collaboratingwith others, a concept that has been described as ‘open-market innovation’.3

Some industry conditions are particularly suitable for this, for example where

Chapter 1:

“An unmet need was fulfilled with greatmarketing and then driven extremely

hard with a considerable amount offocus.”

–Jeremy Middleton, Non-ExecutiveDirector, HomeServe


there is a high intensity of innovation, where economies of innovation arelow and where innovations have high applicability across companies withinthe industry.

Crossing the valley of death

An idea, on its own, is not an innovation. Ideas have to be ‘processed’ beforethey become innovations. Irrespective of the tools used to unearth the ideas,the innovation process is similar in most companies. Ideas are screened anddeveloped by passing through a series of stages where progress is measuredand further funding is approved or denied. Those that pass all the stages areimplemented.

Figure 1 illustrates the innovation process. The vertical axis reflects the‘momentum’ associated with projects as they make their way from conceptthrough to wide business adoption. The early period is often quite tough,with the business model changing rapidly, teams frequently having to juggleoperational and development priorities, and difficulties experienced inobtaining the attention of those who need to contribute. Once the idea takesshape as a project, work begins to validate and fund the initiative. Althoughthere are inevitably some casualties at this stage, for those that survivescrutiny, there is a gradual building of momentum towards a point of internalsanction.

Many companies find the next stage of the journey the most troublesome,however. Leo Roodhart of Shell GameChanger likened the period betweeninitial sanction and business adoption to “crossing the valley of death”, withunpredictable threats presenting themselves, often preventing an idea frombeing developed to its full potential. What is it that distinguishes thoseinitiatives that do succeed from those that fail? While there is no one recipethat can be applied uniformly to individual situations, this report aims toprovide innovation leaders with tools to help them succeed and somelearning from the achievements of others.

Figure 1: Typical stage-gate process

Source: Henley-Incubator

“When we first went to the venturesdirector with this, half way through the

presentation he said he wasn’t interestedin making materials and it was boring. It

was only when we explained the ability todevelop and leverage the IP that he

spotted the potential.”–Paul Reip, MD QinetiQ Nanomaterials


Crossing the valley of death

Concept and

shapeValidateand fund

Build andplot Launch

Adopt andscale

Chapter 1: The need for innovation


Although an idea alone is not enough, successful innovation depends uponfeeding the process with appropriate ideas. There are essentially three ways inwhich they enter the process:• from the annual cycle of strategy and business planning—what might be

described as ‘traditional business development’• from a deliberate ‘mining’ or ‘stimulation’ process• from an ‘autonomous strategic initiative’, meaning an individual proposal

from an internal or external entrepreneur—in hindsight, some might callthis ‘serendipity’.

Corporate venturing is most closely associated with the second way, althoughin fact any of the ways can lead to a ‘venture’ or to an ‘innovative initiative’.A good example of an autonomous strategic initiative is the development ofDirect Line Insurance.4 In 1984, Peter Wood, an independent entrepreneur,put the idea of a business based on telephone sales of insurance products tothe Royal Bank of Scotland. The business was launched in 1985 and by 1992it had grown to cover 670,000 motor policyholders with premium revenue inexcess of £200m.

The search for ideas

This report does not attempt to examine the process of collecting and shapingideas, but instead focuses on the second stage of the journey, turning theminto successful reality: going beyond the idea. For the purposes of this report,it is sufficient to note that idea generation is not, or should not be, a randomprocess, nor necessarily a democratic one. Drucker5 emphasises that“Systematic innovation therefore consists in the purposeful and organisedsearch for changes, and in the systematic analysis of the opportunities suchchanges might offer for economic or social innovation.” This clearly calls forsomething more than a suggestion box.

Many dotcom-era corporate venturing units cast a wide net across theircompanies, inviting staff to contribute ideas. When the ideas came in, manywere neither ‘purposeful’ in Drucker’s sense, nor fully formed. Venturingunits were left with the challenge of trying to help form the ideas and/or dealwith disgruntlement from those whose expectations were not realised. Someexecutives argue that if a company needs to ‘stimulate’ ideas, the game isalready lost; that these processes are doomed to be value-destroying bycosting more to administer than they deliver. This is too pessimistic a picture,but it is a clear pitfall to be avoided.

Of the five companies studied in depth for this report, only QinetiQNanomaterials could be described as being led by new technology.HomeServe is based on capitalising on a difference between the perceived andactual risk of home emergencies; BT Contact Central on applying knowntechnology in a new business model; SSTUK on leveraging existing assets; andcahoot on exploiting a new channel for a banking service. While the sampleis small the spread is consistent with the seven places where Drucker6 advisescompanies to look purposefully for innovation ideas:• the unexpected—the unexpected success or failure• the incongruity—the difference between reality and what it ‘ought to be’• process needs• changes in industry or market structure• demographics• changes in attitudes, beliefs and perceptions• new knowledge, scientific or otherwise.

In some cases, such as in research and development divisions, innovationunits are set up with a remit and/or skills to look at only some of these

“The concept that we developed thatafternoon in June 2000 is more or less

the same concept we see now. I’ve givenmore presentations than I ever thought

I’d have to, but that first grasp at it,turned out to be very valid.”

–Paul Reip, MD QinetiQ Nanomaterials


sources. Drucker argues that the overwhelming majority of successfulinnovations exploit change and that innovations that constitute change, suchas the Wright Brothers’ aeroplane, are very much the exception.

Why do innovative initiatives often fail?

Diagnosis of the reasons for failure reveals at least three categories.

Need for innovation is cyclical

In tough times, the financial capacity of companies to innovate is reduced andefforts are directed towards innovation initiatives that save money rather thanthose that grow the top line. In good times, companies are inclined to investmore in innovation, looking to strengthen their competitive position. These arethe periods when companies are most likely to invest in corporate venturing.

Research by London Business School7 notes that corporate venturing emergedas a distinct form of innovation in the 1960s and has gone through threecycles. The first ended in 1973 with the oil price shock and ensuing recession,the second took place during the 1980s, fuelled by the growth of thecomputer and electronics sectors and the third was the dotcom bubble, whichpeaked in 2000. The existence of the economic cycle means that innovationinitiatives can fail, even if they are well conceived and executed, if theyemerge at the wrong time.

Innovation is difficult for companies

Innovation and venturing is difficult for companies, largely becausemanaging a venture-building process is fundamentally different fromdelivering the annual operating plan, requiring a radically different set ofskills. The people with the entrepreneurial skills for venture creation have adifferent mindset, a different perception of the need for speed and a differentperspective on risk and reward. Company executives are trained to analysedata, whereas entrepreneurs must ‘live it’. Each of the success cases studiedhas benefited from a leader with unusual passion and commitment as well asskills and behaviours that set them apart. Some of them come from withinthe company, others from outside. Without the right leadership, aninnovation is unlikely to succeed, and yet companies do not always paysufficient attention to this.

The approach to risk is different too. Big companies manage risk by investingin only a few initiatives at a time, whereas venture capitalists manage risk byinvesting in a portfolio. Big companies manage their business on an annualplanning cycle, which is out of step with the needs for speed and flexibilityof emerging businesses. To succeed, companies have to find a way of living intwo worlds: the ‘feeling world of creativity’ and the ‘rational world ofjudgment’.8

Failure to address this challenge leads to either ‘confusion’ or ‘splitting’.9

Where there is confusion, gatekeepers send conflicting messages, sometimesfrom the ‘hard’ world of judgment, other times paced in the ‘soft’ world ofcreativity. Project teams get confused and lose confidence. Excessivebureaucracy and/or gaming can take hold. Under splitting, the organisationgives up trying to reconcile the worlds, and the creative and rational worldsexist in separate silos. Many companies complain that their R&D departmentsdon’t create the things that the marketers want to sell, and that marketingfails to communicate its needs to R&D.

“There has been constant creative frictionbetween [CEO] Richard’s desire to push

the HomeServe business forward and thewater company’s more conservative

approach. They have generally gone withit, but would be more challenging andchecking, concerned that things would

succeed.”–Jeremy Middleton, Non-Executive

Director, HomeServe


Chapter 1: The need for innovation


Companies make mistakes

One of the biggest enemies of successful innovation is poor decision-making,based on either false positives, where a non-conforming project isaccidentally allowed to proceed to the next stage, or false negatives, where apromising project is killed prematurely. In many cases, it is the lack of realobjectivity that is the problem, with gatekeepers distracted by such things as:• not wanting to disappoint the team• urgently having to ‘do something’• group-think—collective optimism• fear of evidence—over-reliance on instinct• box-ticking—the process takes over from the content.

What can be learned from the failures that can help those who follow tosidestep potholes? The research indicates that innovation needs to beconsidered as an ‘eco-system’ and not simply as a question of project delivery.Successfully crossing the valley of death is about measuring and managingthe components of the eco-system.

The innovation system

The components of the innovation system are shown in figure 2. Projectdelivery includes the valley of death, but depends crucially upon a number ofother factors. If the ideas pipeline is producing the wrong sort of ideas, therewill be a higher proportion of failure. If the core business is not committed toadopting the projects, benefits cannot be realised. If processes to manageinvestment and risk are inadequate, or if strategic fit is lacking, furtherdangers are encountered. Supporting the whole structure are the specialpeople who can bridge the creative and rational worlds—the ‘extrapreneurs’.

Figure 2: The innovation system


“It takes real effort for senior staff notto become too involved. The best thing

we ever did was to form a limitedcompany, because that changes your

attitude and that of the guys you workwith. The second best thing was getting

a separate office outside the main sitewith a lockable door.”

–Paul Reip, MD QinetiQ Nanomaterials

Project delivery

Innovationideas

pipeline

Businessadoption and

benefitsrealisation

Investment allocation and risk management

Fit with other innovation projects

People andpartners

Bridgers

Business partners

OperatorsThinkers


Once innovation is understood to depend upon a system, the need tomeasure the health of all components of the system is evident. Once themeasures are in place, it becomes possible to manage the system: for example,to adjust the targeting of ideas towards those that have a higher probabilityof success, to explicitly address the strategic fit with other projects, or toaddress problems of business adoption if they are being experienced.

Within the ‘business as usual’ of the core business, most elements of thesystem are already in place, and companies with strong internal cultureshardly need to write down the rules that apply for project delivery. There is atemptation to think that innovation project delivery can be managed in thesame way. However the rest of the innovation system is different from theprocesses for managing the core, so this is not the case.

Developing measurement systems for innovation programmes requiresestablishing relevant metrics for sensing the health of all components andsetting up ongoing monitoring, so that any problems that may be identifiedcan be managed with the help of objective data. At first the establishment ofmetrics is uncomfortable, requiring the collection of data that has not beensought before. Once established, many of the measures turn out to be in thenature of ‘traffic lights’, so that once actions have been taken to turn them‘green’, subsequent monitoring is less onerous.

The innovation eco-system

Practitioners setting up new innovation activity face further considerations(shown inside the oval area of figure 3), which relate to the preparedness ofthe company for the type of innovation activity proposed. Some, likereporting and management decisions, and knowledge sharing and insights,have a ‘cultural’ dimension. Companies with established knowledge-sharingbehaviours are likely to be more prepared than those with strictly verticalcommunication channels. Those with existing channels for staff to engagewith senior sponsors find it easier to break down the communication barriersfor innovation projects. Shell GameChanger is one of a number of innovationinitiatives in Shell, for example, and there are established processes forgaining sponsorship and engagement.

Figure 3: The innovation eco-system


“In terms of measures, we have alwaysfocused on financial performance,

customer satisfaction, key operationalaspects and marketing take-up rates.”

–Jeremy Middleton, Non-ExecutiveDirector, HomeServe


Reporting andmanagement decisions

Knowledge sharing and insights

Strategicalignment

withbusiness

imperatives

Innovationportfolioscorecardand results

Project delivery

Innovationideas

pipeline

Businessadoption and

benefitsrealisation

Investment allocation and risk management

Fit with other innovation projects

People andpartners

Bridgers

Business partners

OperatorsThinkers


Developing an innovationstrategy

This chapter provides a step-by-step guide to help companies develop anappropriate innovation strategy:• understand industry characteristics• evaluate organisational preparedness• compare alternative innovation styles• select an appropriate innovation business model• advise would-be corporate entrepreneurs.

Understand industry characteristics

Companies need an innovation strategy that takes account of their industrycharacteristics as well as what they intend to achieve through innovation.There have traditionally been two approaches to this: ‘rationalist’ and‘incrementalist’.

As explained by Tidd,10

the rationalist approach is grounded in militaryexperience and is essentially a linear process of:• analysing the existing situation• determining a new course of action in light of the analysis• carrying out the innovation• measuring the results.

This is the world of corporate planning and annual budget cycles. Proponentsargue that it delivers stronger alignment within a complex organisation andthat it deploys the most knowledgeable and experienced resources in thebusiness to deliver innovation. Sceptics believe that managers find it difficult toaccurately appraise their current position, are unable to predict the future andoften disagree on what constitutes the strengths and weaknesses of the firm.The approach has been blamed for ill-advised diversifications in the 1970s, suchas the attempted entry by oil majors into the nuclear energy industry.

Incrementalists point out that many successful practitioners, such asengineers and doctors, do not follow rationalist strategies. Instead they areguided by a clear objective (a cured patient, in the case of a doctor) and makedeliberate steps towards that end, checking progress after each change beforedeciding the next step. In the incrementalist’s world, it is not necessary tounderstand completely the complexity of the present situation or the futureuncertainty, to make useful progress. Advocates of an incrementalistapproach often claim that it is in fact more rational, because it is a moreefficient way of responding to a world of complexity and continuous change.Critics see it degenerating into ‘muddling through’ and blame the dotcomboom and bust on just such thinking.

Neither the rationalist nor the incrementalist approach is wholly right orwholly wrong. Much depends on the characteristics of individual industries.Representatives of industries such as telecommunications, where change is

Chapter 2:

“We could see what National Grid wereachieving with Energis at the time, and

we realised that we had the onlyremaining national footprint of propertyassets suitable for telecom exploitation”.

–Steve Copley, MD SSTUK

“If you add up all the people who thebanks say they’ve got registered for

online banking, you’ve got all the PCs inthe world. We were being realistic.”

–Tim Murley, MD, cahoot


very rapid, are more likely to use an incrementalist approach, whereasindustries such as energy, where investment time frames cover a decade ormore, are more attuned to the rationalist way. Those in fast-moving industriesoften wish they had the benefit of well-developed scenario plans; those withlong cycles itch to get some entrepreneurial energy and drive. Both agree onthe need for innovation.

Evaluate organisational preparedness

An approach to evaluating organisational preparedness for innovation wasdeveloped by Pinchot and Pellman,11 who present a checklist of 19innovation success factors. Figure 4 resolves the success factors into thosedirected at organisational alignment, those directed at organisationalautonomy, and those that affect both dimensions. Companies who manageto achieve both strong alignment and strong autonomy are likely to be moreeffective in achieving difficult innovation goals. In this situation staffunderstand the underlying objectives of the organisation and are confident inadapting their actions to help achieve those goals.

Figure 4: Evaluating organisational preparedness


Alan Barker12 uses the analogy of the creation of a new theatrical productionby the Théatre de Complicité to illustrate effective innovation requiring bothalignment and autonomy. As for business innovation projects, theatreproductions have tight, fixed deadlines and they are multi-disciplinary,requiring the diverse skills of a team if they are to succeed. Team members arestongly aligned to the goals of the production, but have high degrees ofautonomy within their specified areas of expertise. Traditionally, the army isseen as an organisation with high alignment but low autonomy. An exampleof high autonomy and low alignment might be a partnership of lawyers. Theimportant thing is not that all companies should strive to be like the theatre,but that by recognising that a certain level of preparedness exists, it is possibleto select an appropriate innovation business model.

Compare alternative innovation styles

Innovation has many forms, ranging from product improvements andextensions, through supply chain and other efficiency improvements to the

“QinetiQ is a big battleship; it takes timeto train its guns on target. Once it does,

the effect is quite impressive. There are alot of people involved in the process and

it takes time.”–Paul Reip, MD QinetiQ Nanomaterials


Alignment and autonomy

Acceptabillity ofboundary crossing

Support for intrapreneurs

Tolerance of risk, mistakes and failure

Good treatment of people

Transparency and truth

Avoiding the 'homerun' philosophy

Transmission of visionand strategic intent

Measurment of innovation

Managers who sponsor innovation

Strong organisational community

Social, environmental and ethical responsibility

Attention on the future

Focus on customers

Discretionary time for staff

Decision-making by the 'doers'

Empowered cross-functional teams

No hand-offs (from entrepreneur to

professional manager)

Choice of internal suppliers

Self-selection of entrepreneurs

Behaviours indicating highorganisational alignment

Behaviours indicating highorganisational autonomy

creation of whole new revenue streams. The business model of innovationthat is appropriate in a given set of circumstances is therefore closely linkedto the objective being pursued. There are also several alternative toolsavailable to managers for the purposes of innovation including: • investment in technical R&D• traditional business development within the operating businesses• setting up of a separate organisational team • support for individual entrepreneurs from within or without.

A useful framework for considering innovation styles (or business models) hasbeen developed by Pierre Loewe and Peter Williamson.13 They described fivestyles of innovation that have proven successful for the companies theystudied, and which separated them from their less innovative peers. Figure 5summarises their findings.

Chapter 2: Developing an innovation strategy


Rapid change is creatingmany challenges andopportunities

Existing business offersimportant opportunitiesfor growth

Limited opportunity forgrowth or need forradical change in corebusiness; many ideas forexpansion outside it

You sense a bigopportunity, but manyquestions remain

You have the resourcesto leverage discoveriesmade by many smallerplayers in your field

• A rough but exciting picture of how thecompany can and must change

• Sharing the picture with larger and largergroups of ‘intrapreneurs’, who get achance to refine it

• An internal market for ideas, resourcesand rewards

• Passionate commitment to the businessand its customers

• A culture of experimentation andcommitment to learning that infects thewhole company

• Autonomous teams with real power andthe charge to make life better forcustomers

• Clear understanding of the crucial assetsand competencies that innovation canbuild on

• Helping people with traditionalbackgrounds to see opportunity in relatedfields outside their existing activities

• Task forces aimed at finding and seizingopportunities

• Research carefully focused on specificbusiness goals

• Careful cost control on each experimentand probe

• Patience and stamina: avoiding efforts tomake a big business of a new idea beforeit is fully understood

• Strong internal R&D capacity helpsexecutives know the industries they areinvesting in

• Continuous prospecting for potentialacquisitions and the ability to executethem quickly

• Well-defined process of integrating newcompanies into the existing business andscaling them up

Leaders catalyse theentrepreneurialenergy of an entiremanagement team sothe group repeatedlyquestions everything,rapidly creating newbusiness models

Managers focus ontheir existing businessand innovate sodramatically that theychange its natureover and over

Managers leverageexisting strategicassets and corecompetencies in newdirections, largelyoutside their existingbusinesses

A series of low-costprobes progressivelysolve the problemsthat had prevented abig innovation fromhappening and makeit a reality

Managers outsourcemuch initial creativityand screening to themarketplace,investing in start-upsand gobbling upthose that provethemselves

Style Key characteristics When to employ it Ways of managing that make it work

Furnace(eg GE)

Spiral staircase(eg Charles Schwab)

Fertile field(eg Shell GameChanger)

Explorer(eg Monsanto)

Pacman(eg Cisco)

Figure 5: Five styles of innovation

Source: Reproduced with permission of the author


The research found that many successful companies practise several of thestyles at the same time, but each involves a co-ordinated package ofmanagement techniques to nurture it, and levers which are perfect for one, mayactually block another. Thus companies that utilise several styles must generallyseparate the pursuit of one style from another.

Of the five case studies in this report, HomeServe is an example of a successful‘explorer’ style, in which South Staffordshire Water sensed an opportunity toparticipate in the emergency plumbing business and worked it out throughthe careful development of a new venture. BT Contact Central emerged froma company (BT) that has suffered a high degree of turmoil over recent yearsand is aiming for much higher levels of innovation throughout theorganisation as part of a ‘furnace’ style. SSTUK, cahoot and QinetiQNanomaterials are all products of ‘fertile field’ models, where companies werelooking to leverage strategic assets and core competencies.

Select an appropriate innovation business model

The selection of the appropriate innovation business model depends uponboth the organisational preparedness and the innovation objective.Combining high levels of alignment and autonomy is by no means easy. Theexample shown in figure 6 is Charles Schwab, which has succeeded increating a ‘spiral staircase’ of innovation in a market space that it understandswell. Other companies have tried, and some like British Airways have enjoyedsuccess for a time, leading the global airline industry through much of the1990s. Specialist business-building companies like 3M and Virgin Group alsocombine high levels of autonomy and alignment, but have the advantageover most companies in that they are less constrained by precedent in theirchoice of market spaces.

Figure 6: Selection of innovation business model


By understanding an organisation’s behaviour towards alignment andautonomy, it is possible to narrow the selection of an appropriate innovationbusiness model. Large and diverse companies like GE and Shell, where thereis limited alignment, have a choice between an all-embracing ‘furnace’approach, such as that led by Jack Welch at GE, or more limited excursionsthrough ‘fertile field’ models such as those employed by Shell GameChanger.BT Brightstar, the corporate venturing arm of BT Exact Technologies, is afurther well-known example of this model.

“I think cahoot has survived because it ison its own. If we’d put it back into a core

business unit more quickly, it wouldprobably have disappeared.”

–Philip Ramsell, Corporate Development,Abbey National


Pacman(eg Cisco)

Organisationalalignment

Organisationalautonomy

Low High

High

Low

Explorer(eg Monsanto)

Don't try(eg The Post Office)

Spiral staircase(eg Charles Schwab)

Furnace (eg GE)

Fertile field(eg Shell GameChanger)

Chapter 2: Developing an innovation strategy


One problem that several dotcom corporate venturing units faced was thatthey were applying a ‘fertile field’ model in a company that was unpreparedfor the level of autonomy required to succeed.

Companies who have stronger alignment than autonomy behaviours, canstill be innovative. Indeed, small start-up companies are sometimes aligned tothe point of being autocratically led, yet they are one of the prime sources ofinnovation in the economy. The ‘explorer’ innovation model is well attunedto a ‘single-minded’ approach such as this. The ‘Pacman’ model also worksbest with high levels of organisational alignment in view of the regular streamof transactions involved in acquiring technologies and stakes in companies.

Interestingly, success using one innovation business model can lead to re-ratings of alignment and autonomy over a period of time. There is little doubtthat the achievements of GE have succeeded in creating a stronger alignmentand identity than existed before. Equally, as confidence grows in the resultsof a ‘Pacman’ model, greater autonomy is likely to be permitted. Although wedo not recommend adopting an innovation strategy for the express purposeof changing organisational behaviours, it can be a valuable secondary benefit.

Advise would-be entrepreneurs

What does this mean for budding entrepreneurs from within the company oroutside? If someone has a great idea, and the drive to pursue it, what shouldthey do? External entrepreneurs have few options—they may be fortunateenough to find that their target company has a venturing programme whichis open to external ideas, such as at easyGroup, but more often that will notbe the case. Failing that, they have to approach the company on the basis ofan autonomous strategic initiative, as Peter Wood did with Direct Line. To besuccessful, this requires a considerable amount of networking skill and aproposition that can quickly engage the senior people who are approached.

Internal entrepreneurs, or ‘intrapreneurs’, face a different challenge. Theyhave the advantage of knowing the company, its key people and the ‘hotbuttons’ that can engage them. They can spot links and opportunities that anoutsider would likely miss. On the other hand, as an existing stakeholder inthe company, an intrapreneur has something to lose, and it may be moredifficult for them to approach senior management in the way an outsidercould. The advice to the intrapreneur is simple: get onto the radar screen. Thismeans either approaching the company as an outsider would, with the samenetworking skills and pre-work, or:• Engaging with those methods the company uses to collect innovative

ideas, such as the annual strategy and planning cycle or a deliberatestimulation process.

• Putting in the 90% of perspiration that goes with the 10% of inspiration.The goal of this should be to translate the language of the idea into thelanguage of business, so that managers can engage with it effectively.

• Preparing an outline business case that meets whatever screening criteriaare established in the company. This may drive the proposition out of theintrapreneur’s comfort zone, but until the idea is validated, it cannot beprocessed further, and cannot lead to innovation.

Once an idea has been validated, the focus of attention moves from whetheran idea should be progressed, to how it can be progressed to best effect. Thefactors that ultimately determine the financial success of the innovation willlikely have more to do with the how than with the what.

“We decided that we would employmavericks and we would understand that

not everyone was a team player. Theorganisation recognised it too. They let

us do it.”–Tim Murley, MD, cahoot


Key success factors

This chapter analyses five key factors which contribute to driving a businessidea through to reality successfully:• relentless focus on solving a customer problem• a leader and team with a passion to succeed• a common language for communicating and charting progress• relevant and quantifiable assets and skills to contribute• internal and external networking.

Innovation managers need to steer a good idea through project delivery and intobusiness adoption, and to take all necessary actions to maximise the chances ofa successful outcome. Not all good ideas turn into good opportunities, and thereare occasions when the successful outcome is to identify the problem early andterminate the work before too much time and effort is expended.

Senior executives from a variety of business sectors confirm that thecombination of corporate situation, innovation objective, innovation stylesand climate for innovation is more or less unique to an individual company.There is therefore no recipe for success that can be learned and applieduniformly. Nevertheless, there are a number of themes that transcend sectordifferences and which can be used to provide a menu of suggestions toincrease the chances of success.

An established framework for monitoring progress in early-stage ventureimplementation is provided by the Bell-Mason venture developmentframework (VDF), which was created by Gordon Bell and Heidi Mason.14 Theirproposition is that ventures need to look after 12 dimensions through fourrecognisable stages of development. By the fourth stage, venture launch, alldimensions need to be in place and fit for purpose. However, they do not allneed to mature at the same rate. The premise behind the VDF is that it shouldnot be necessary to understand the technology of an innovative opportunityto be able to ask the right business questions. The 12 dimensions are groupedunder the main headings of product, market, people and finance.

The people heading is one that is sometimes overlooked by companies, but itis consistent with the venture capital adage that the people are as important adeterminant of innovation success as the idea itself. Indeed, it is frequentlyheard that venture capitalists, if pressed, would rather invest in a mediocreidea with a great management team than an exceptional idea presented byonly average people. As we have seen, not all innovation initiatives are newbusinesses, but the need for committed leadership applies just as strongly toother types.

As the venture develops through the four stages up to launch, the objectivesand milestones required under each heading are set to become progressivelymore demanding. At no stage, however, is it safe to ignore any of thedimensions. The aim of the stage-gate process is to allocate tranches ofdevelopment funds in such a way that as total investment in an initiativerises, uncertainties are systematically resolved and the risk of an unpleasantsurprise is reduced.

Chapter 3:

Bell-Mason venturedevelopment framework



Success factor 1: Relentless focus on solving a customerproblem

What makes a great innovation? Occasionally a piece of technology or aninspirational idea emerges that changes the game and creates a market wherenone existed before. The market for aviation transport was limited to balloonsand airships before the Wright Brothers proved that heavier-than-airmachines could be made to fly. No amount of customer focus groups wouldhave detected a need for aviation transport. Jonas Ridderstrale15 talks of theneed both to listen to customers and to ignore them. After all, he argues,“Gallery visitors did not tell Picasso to invent cubism”. A modern-dayexample of an inspirational idea is the development of the BA London Eye,which is the subject of a case study in an earlier report in this series.16

Although technological break-through and inspirational ideas are valid routesto innovation, more often successful innovation is about solving a customerproblem. QinetiQ is a company with a long heritage as part of DERA, theDefence Evaluation and Research Authority from which it demerged in 1999.It started out as a research and development organisation with an enviablebank of intellectual property and an intention to exploit this in sectors otherthan their traditional military sphere. In screening opportunities for newbusiness spin-outs, QinetiQ makes a useful distinction between ‘painkillers’and ‘vitamins’. A ‘painkiller’ is a project that solves an existing customerproblem that is causing pain or preventing him or her from doing somethingthat they want to do. It provides a reason to believe that customers will paymoney for the ‘cure’. ‘Vitamins’ are projects that promise to make an alreadysatisfactory situation somehow better, but perhaps involving some negativetrade-off (for example, cheaper electricity in the home, which carries theaggravation of the change process). The company is not much attracted to thelarge number of opportunities that promise minor improvements, nor thosethat promise salvation well into the future—rather, they look for the one ortwo that can resolve important customer needs starting tomorrow. QinetiQNanomaterials (see the case in chapter 4) is a venture that aims to resolve theproblem of reliable supply that has so far constrained the growth of nano-technology applications. It is an idea that combines huge market potentialwith customers who are prepared to part with money right now.

Companies such as Dell and Ikea created huge businesses by resolvingcustomer need for flexible and inexpensive personal computers, and stylishand modern furnishings at affordable prices, respectively. Direct Lineachieved the same with motor insurance. Virgin Atlantic and, more recently,Ryanair have enjoyed success by focusing on resolving the customer need forlow-cost flights. It is no accident that many of these examples involveresolving needs through lower costs, this being one of the most persuasivereasons for customers to buy. BT Contact Central (see the case in chapter 4),is an example of meeting this type of customer need; in this case for a CRMsystem capable of operating in a multimedia environment without the cost,time lag and delivery risk of a bespoke system.

Lower cost, greater convenience and product or service enhancements are keymotivators, but other less obvious propositions such as reassurance can alsobe powerful. A great example of meeting the need for reassurance is providedby the example of HomeServe, an unregulated subsidiary of SouthStaffordshire Water (see the case in chapter 4). The founders noticed theproblem that their customers endured when a plumbing emergency occurs inthe home and reasoned that people would be prepared to pay to resolve thatpain—having to find a reliable plumber at short notice, combined with thehigh and unexpected demand for money. The founders realised that the fearof being affected by an emergency meant that customers over-estimated thelikelihood of one actually occurring, an incongruity that provided a source ofvalue. By simultaneously gathering together customer contracts and

Chapter 3: Key success factors


plumbing service contracts in a given area a business was created that enabledthe plumbing contractors to receive the same premium rates for work done,while leaving an attractive surplus value as profit. Customers were contentbecause in exchange for a small regular premium, they were protected againstthe effects of an unwelcome surprise.

Relentless focus on customers is not about giving money away to them. AsRidderstrale17 points out, despite the talk of the benefits of the capitalistsystem and the need for competition, what every successful businessmandreams of achieving is a ‘temporary monopoly’ in which for a certain nicheof customers the company’s product or service is the only rational choice. Itis only in that situation that companies can achieve above-average profits.Being different is a start. Being different in ways that customers will pay extrafor is better. Doing that cheaper than alternative solutions to the sameproblem is better still.

HomeServe has grown from a start-up to a turnover of £150m in the courseof 10 years, partnering with all the major UK utilities and growing throughthe addition of new but related service lines dealing with other types ofemergency in the home.

Success factor 2: A leader and team with a passion toachieve

Finding ‘painkillers’ for customers, to borrow the QinetiQ terminology, is anactivity that does not distinguish greatly between the different businessmodels of innovation. It can be achieved almost equally by a traditionalbusiness development team, a corporate venture unit, or by a teamestablished around a single idea. The key skill involved is marketing.However, the skills, passion and commitment of the people associated withan opportunity are at least an equal determinant of its successful outcome.Companies who rely on traditional business development for innovationoften find it harder to match people with the right entrepreneurial skills tothe opportunities—too much weight is often given to credentials within thehistoric core. At worst, traditional business development is reduced to anelaborate game, in which disembodied ideas are processed up and down thedecision chain, without hope on the part of the proposers or expectation onthe part of the gatekeepers that any will be implemented with determination.

Sometimes, though, companies get the choice of leaders and team right, evenif they rely to some extent on serendipity. For much of the 1990s, AbbeyNational (see the case study in chapter 4) was riding high: the first buildingsociety to demutualise, for example, and the first to get seriously intobancassurance. These innovations had not been the result of venturing buthad come from traditional business development. Only as the dotcom fevertook hold did Abbey National resort to a venture unit, setting up theadvanced development group (ADG) to identify opportunities arising fromnew technology, particularly the internet. The ADG put forward a proposalfor an internet bank. It was just one of a number of ideas, but the only onethat captured the imagination of the board. As often happens whencompanies are less than committed to venturing, once the first big idea tookhold, it was managed as if it had arisen through traditional businessdevelopment. All resources were focused on that idea, and it was only amatter of time before the ADG was dissolved.

The internet bank idea at Abbey National would eventually turn out to becahoot. Once it had been approved for development, the company turned toTim Murley to lead it through to delivery. Although he was a career banker,Mr Murley had a reputation for speaking his mind and getting things done.In some ways a maverick, but with a heart known to be in the right place, he

“Tim [the CEO] balanced being inside theorganisation and being outside it verycarefully, to allow him to operate with

sufficient freedom to meet histimescale.”

–Philip Ramsell, Corporate Development,Abbey National


proved to be an inspired choice. Despite the challenge of having to learnabout entrepreneurship at the same time as practising it, he created energyand drive within his team that was unfamiliar to Abbey National. He achievedthe delicate balance that was needed to ensure unusual operational autonomyfor the cahoot development team while working his network to retain theconfidence of the board.

Steve Copley who later became CEO at SSTUK (see the case study in chapter4) faced a similar challenge in leading the development of a number oftelecom businesses for BG Group, which in 1999 comprised the internationalgas and oil interests of the former British Gas and the UK gas transmissionand distribution business of Transco. The telecom business initiative wasdirected by BG Corporate Development, but relied almost wholly on assetsbelonging to Transco and within the regulatory ring-fence. The developmentof a telecom business promised little more than disruption andinconvenience to Transco. The businesses could not have been deliveredwithout the operating credentials that Mr Copley had from working inTransco, combined with the drive to break through the barriers that arose andthe networking skills to keep management on board.

In the case of HomeServe (see the case study in chapter 4), founders RichardHarpin (now CEO) and Jeremy Middleton (now non-executive director)gained approval for their venture following a piece of consultancy work thatthey had been invited to carry out for South Staffordshire Water. It wasessentially an external idea as far as the water company was concerned. MrHarpin was appointed to lead the development of the business. He recruiteda team as the business began to prosper. While there was no rule to preventit, in practice nobody was taken across from the water business. In commonwith SSTUK and cahoot, HomeServe enjoyed the benefits of leaders withpowerful achievement motivation. In contrast, it did not require credentialsin the core business to succeed.

Passion and uncommon commitment of the leader and team are essential forsuccessful innovation. Companies who are fortunate enough to have peoplelike Mr Murley and Mr Copley, and who can release them for innovation,have a greater choice of approaches available.

Success factor 3: A common language forcommunicating and charting progress

Chapter 2 introduced the idea of innovation as a system, with componentsincluding the ideas pipeline, project delivery, business adoption and gettingthe right people and partners, and an outer eco-system. Although thecorporate eco-system is effectively ‘a given’ for an individual initiative, it isessential that ventures teams and their gatekeepers are able to communicateeffectively about the ‘inner areas’.

As described in the introduction to this chapter, one of the most well knownmodels to facilitate this is the Bell-Mason venture development framework(VDF), which highlights 12 dimensions to chart the progress of a venture. Atthe venture launch, all 12 dimensions of the VDF should be mature and inbalance. By considering all 12 dimensions from the beginning, milestonescan be agreed in each, helping the venture team and/or gatekeepers to planfor future needs.

In the absence of a common language such as that provided by the VDF,companies unsurprisingly revert to using the language of their core business.Innovation initiatives can end up trying to shoehorn themselves into annualbudgeting cycles and investment appraisal processes in which they have tofight for funds on the same terms as incremental investments in the core

“The dynamics and the pressures are sogreat; we realise that we are head,

shoulders and feet above the parapet. Noone is under any illusion that they can

hide in the team.”–Paul Reip, MD QinetiQ Nanomaterials




business. These processes are unsuited to the speed, uncertainty and rate ofevolution of the majority of innovation initiatives. Furthermore, thelanguage of the core business does not cover all 12 dimensions of the VDF, soimportant issues may not be addressed until (too) late in their development.Many venture units report the frustration of constantly recycling businessplans and other papers to meet corporate criteria, while they are unable toengage effectively on their business issues.

Rather than use an off-the-peg language, some companies develop their own,taking account of the specific styles of innovation that they have chosen toadopt. In 2000, when Hal Kruth joined QinetiQ from Stanford ResearchInstitute to direct the newly-created QinetiQ Ventures (see the case study inchapter 4), he introduced a language that became known as ‘NABC Plus’(needs, approach, benefits, competition—plus another 8 factors!). Thisborrowed heavily from the venture capital world, but was adapted to fit theneeds of QinetiQ, which was a company just emerging from the public sector,with a strong culture of caution in the face of risk.

The approach was based on observing things which don’t work inorganisations, and which would not work at QinetiQ, such as:• believing that value propositions are self-evident• trying to create a compelling value proposition alone• not preparing and iterating beforehand with teams, partners and coaches• being worried about being wrong.

Figure 7 describes the NABC Plus approach, which involves asking andanswering increasingly penetrating questions about the value proposition asthe value of the investment rises. An NABC is never finished—iterationdevelops compelling value propositions. The core ‘nugget’ is an intellectulasset whose components are the key capabilities necessary to solve importantcustomer problems.

Figure 7: QinetiQ ‘NABC Plus’ process

Source: Adapted from QinetiQ

The NABC Plus process was described by Paul Reip, managing director ofQinetiQ Nanomaterials, as a “technical and market due diligence”, which,once completed, meant that most of the bases had been covered, and most ofthe possible questions answered. One of the most notable features of theprocess is the depth and number of questions to be addressed by the ventureteam. The questions can only be answered with an uncommon degree ofcommitment and energy from the team.

“We had ‘daily prayers’ at nine o’clock.What were yesterday’s problems? How

are we going to sort them out? Thatworked fairly well in terms of getting

things done.”–Tim Murley, MD, cahoot

Harvest

Summer

Spring

Seed corn

Progressively more detail, investments and value

NeedsWhat is the customer need?What is their problem?What is their opportunity?

ApproachWhat is your innovative, compellingapproach that effectively addressesthe customer's needs?

BenefitsWhat are the benefits of your approach for the customer?Effective solutions provide meaningful concrete returns(Value=Benefits/£)

CompetitionDoes your solution offer a sustainablecompetitive advantage relative toavailable alternatives?

N

AB

C


Questions under the heading of ‘needs’ include:• What is the huge customer pain for which a painkiller is necessary?• What is going on in the world that is being constrained by this problem?• How are large sums of money now being spent needlessly?• What is the total size of the revenue opportunity implied by this problem?

Questions under the heading of ‘approach’ include:• What do you propose to do?• How will the approach be embodied?• If I looked at your business/system/product in 6/12/24 months what

would I see?• Where do the parts of your offering come from?• Where/how will the approach sit in the customer’s context?• What is the ‘secret sauce’? What is the ‘magic’? • What unique elements is QinetiQ bringing to the approach?

Questions about ‘benefits’ address the value proposition for customers andthe evidence that they will buy. Questions about ‘competition’ look at whatalternatives the customer has, and why the approach being adopted in theproposal is ‘ten times better’ than established competition.

The remaining headings are:• sustainable competitive advantage• team• revenue and profit opportunity• business model (strategy)• development plan• financing plan• why this is good for the company• next steps (action plan).

Each of these sections has similarly demanding checklists, therebyestablishing an expectation on the part of both the venture management andthe gatekeepers. It’s a lot of hard work, but it seems to be worth it. Mr Reip isconvinced that the plan for QinetiQ Nanomaterials was much stronger as aresult of the process. And it gave the PLC board the confidence to approve theinvestment at the first time of asking.

Success factor 4: Relevant and quantifiable assets andskills to contribute

One of the most common reasons for companies to set up venturing units aspart of their innovation strategy is the desire to harvest the value of assets andskills in new ways. For asset-rich companies such as utilities, the ability to‘sweat’ their assets is a critical success factor. In many cases the harvestingactivity does not involve venturing per se; most infrastructure businesseshave a property arm that re-mediates (if necessary) and disposes of surplusland. Companies with significant banks of intellectual property (IP) oftenhave teams to extract value from inventions that the company cannotleverage fully through licensing deals and IP sales.

Using venturing to harvest value from assets and skills usually arises eitherbecause the assets concerned are not freely tradable in the same way as landand IP, or because the company wishes to use them to create a new businessrather than simply sell the rights. Extreme examples include companies likeVirgin and easyGroup whose key contribution to new ventures is often theasset that is their brand. Virgin is frequently described as a ‘branded venturecapitalist’.




A common pitfall for companies is over-confidence in the relevance of theirassets and skills for application in new businesses. This was particularlyevident during the dotcom boom, when everything seemed possible, but itremains a worthwhile caution even today. Hal Kruth at QinetiQ is clear aboutthe pitfall: “A hot area and capabilities are only the first step. They mayidentify an interesting space, but they do not tell us much about the actualneeds of customers in that space and the value propositions that wouldappeal to them.”

The burden of proof of the value of assets and skills is actually quite high, asis illustrated by HomeServe, the South Staffordshire Water venture. Asdescribed earlier (and more fully in the case study in chapter 4), the businessconcept is quite simple: providing insurance policies to cover domesticemergencies and assisting customers in the event of any problems. Several ofthe other utilities the HomeServe team talked to as they developed theirbusiness were tempted to believe that they could do the same themselves—after all they had the customer contacts, the call centres and servicecapabilities, so how difficult could it be? In fact, the HomeServe team wereable to demonstrate that because it was their core business, and not that ofthe utility, they were able to deliver the benefits more effectively and at muchlower investment and cost than if the utility opted to develop its own service.

So, how can companies recognise when they have sufficiently relevant assetsand skills to contribute? There is of course no single answer to this, becauseit depends on factors such as industry characteristics, the competitiveposition of the firm and the degree of risk acceptable to shareholders. On theother hand, it is often possible to recognise it when it happens! BT ContactCentral (BTCC) is a great example—a venture in BT Retail that specialises insupplying multimedia call centres more quickly and at a fraction of the costof traditional bespoke systems (see the case study in chapter 4). Relevantskills? Paul White, CEO of BTCC, had personally built around 200 call centresfor BT and its customers before embarking on the new venture, entering thearena with an in-depth understanding of customer requirements, thetechnology and the competition. Relevant assets? “The channel”, as MrWhite describes the BT Retail selling machine—thousands of sales people and100 fully-trained specialists calling on customers, helping generate leads forBTCC. It helps, of course, to have a value proposition that is as powerful asBTCC, and senior leadership that helps to deliver the organisation—the ‘asset’is only ‘contributed’ if it can be deployed to the benefit of the venture.

It was not all plain sailing at BTCC. Although BT has a connections andinstallation capability, the competing priorities of that delivery team did notmatch BTCC’s need to ‘delight’ early customers with the speed andcompleteness of installation. BTCC thus had to develop its own tailoredcapability for delivery.

In the development of SSTUK by Lattice Group (see the case study in chapter4), the fact that there were relevant assets for mobile telecom infrastructurewas never really in doubt. Transco (then part of Lattice) had around 20,000operational sites around the UK, and a few hundred of them already had radiomasts or telemetry equipment on them. Quantifying the assets though,proved a considerable challenge. The operational sites were along gaspipelines, but now radio planners needed exact grid references to assess theirvalue. Is there space on the site for a mobile mast? Could separate accessarrangements be made? Again, nobody had asked before for site plans. A keypart of the successful development of SSTUK was the establishment of a groupto process the sites into tradable assets.

“We’re intending to make a verysignificant impact on the market and

we’re going to massively leverage BT’schannel capabilities, and we hope we’reall going to get rich in the course of it.”

–Paul White, CEO BT Contact Central


The need for relevant and quantifiable assets and skills to contribute has animplied message about the sorts of places where companies should look forthis kind of venture innovation: close to the core. Stray too far, and the oddsof success diminish rapidly.

Success factor 5: Internal and external networking

“I’ve given more presentations on this than I ever thought I’d have to,” saysPaul Reip, looking back over the development of QinetiQ Nanomaterials,“but that first grasp at it turned out to be a very valid one.” It is clear fromtalking to senior executives such as Mr Reip, that networking, bothinternally and externally, is a common behaviour pattern. First there is theneed to get the company interested; then there is the need to guide theproject through the corporate turbulence (business cycles, competitivepressures, management changes and so on); and finally, the business has tobe made to work!

Corporate entrepreneurs need to begin by practising modest communication,according to Pinchot and Pellman.18 They should avoid turning earlydecisions into a judgement of the revolutionary potential of the idea byaligning instead with the natural desire of managers to learn more about anidea that sounds interesting. Early networking is best aimed at engagingcolleagues on ways in which the idea can be improved and deliberatelyseeking out flaws, so they can be resolved explicitly. Having a commonlanguage such as the NABC Plus process at QinetiQ greatly assists, because itcreates an expectation that people will ask for help to answer toughquestions, and that help will be forthcoming.

The corporate entrepreneur has an advantage over completely external start-ups, in having a ready-made network of colleagues with whom ideas can bedeveloped, without affecting their proprietary status. This resource enablesideas to be refined and provides the basis for a network of internal supporterswho can be called upon as the project unfolds, for example to provideintroductions to potential customers, distributors and suppliers. The purposeof making connections is to help answer three basic questions that companieswill ask before committing significant resources to an idea:• Is it real?• Can we win?• Is it worth winning?

Ultimately, these questions can only be answered by networking externally,and ventures that have become successful have often been very quick toengage outside. The development of SSTUK by Lattice Group is a goodexample (see the case study in chapter 4). When the idea of a towers and sitesventure was first proposed, it was seen as a potentially interesting way toexploit ‘lazy’ land assets owned by Transco: land that was required for gasoperational purposes, but which was not heavily used. The managementagreed that they wanted to learn more about the opportunity.

Initially, networking was internal, taking advantage of the knowledge of asmall group that had been renting space on existing structures and trying tounderstand the number of sites that were available and the value that mightbe obtained for them. Connections were made to the property business, theasset management group, the regulatory management team and operationalmanagement. It soon became clear that the scope of the business could notbe determined wholly internally, so external property advisers, telecomexperts and radio planners were consulted. Even with these skills on board,the three questions could not be answered in full.

“It’s all about execution; it’s gettingtogether the right people, who can turnthe strategy into reality. We had terrific

support from our partners as well.’–Tim Murley, MD, cahoot




Lattice had decided early on that it wished to find a joint venture partner todevelop the business. The potential of the land bank on offer was a bigattraction, so it was not difficult to enter negotiations, which quickly becamequite serious. Far from being put off by the immaturity of the Latticeproposition, potential partners engaged with enthusiasm, helping to focusthe internal team on the drivers of value and injecting realism into theshaping of the business. Many early connections were made, detailednegotiations were carried out with a handful and the deal was agreed withSpectraSite, a US company. The breadth of external connections not onlyhelped with framing the business plan, but also provided confidence to theLattice CEO and the sub-committee of the main board that had been formedto oversee its development. The venture was delivered from idea totransaction in little over six months.

Not all innovation leads to joint ventures of course, but gaining and using anexternal perspective seems to be a frequent success factor. Large companiessuch as BT and Unilever who have a significant deal flow of business ideas areable to engage with venture capitalists, helping to bring the focus, disciplineand transactional expertise that is often missing in major corporations. Thiscan be applied both to innovation portfolio management and specifically toindividual ventures. Many companies also take advantage of externalnetworks such as that operated by Henley-Incubator, which brings togethercorporate entrepreneurs from different sectors to address common issues andshare experiences. The Chinese have known for a long time the power ofnetworking connections; ‘Guangxi’, as they call them. It seems that successfulentrepreneurs have learned the secret too.

“In October 1999 we had what we calledthe ‘pizza night’, when we locked the

partners away and told them that no-onewas leaving until we’d agreed what we

were building.”–Tim Murley, MD, cahoot


Case studies

This chapter analyses five new ventures, highlighting ideas that can be usedboth to develop an innovation strategy and to assist in its implementation,including:• BG and Lattice Group (SSTUK)• South Staffordshire Water Group (HomeServe)• Abbey National (cahoot)• QinetiQ Nanomaterials• BT Retail (BT Contact Central).

When asked how they will know when success has been delivered, it istempting for managers simply to say “I’ll know it when I see it.” Within thisreport, South Staffordshire Water’s HomeServe venture is in this category of‘obvious winners’. More often, however, the boundary between ‘success’ and‘failure’ is much less clear, with external factors muddying the picture of theperformance of the innovation team. There are many examples of greatbusiness ideas that have been executed well, but have mistimed their arrival,just as there are examples of rather ordinary ventures that have succeededthrough more fortunate timing.

Being able to determine the extent to which an innovation initiative hassucceeded or failed is more than a scorecard issue for the team, important asthat may be. It is also the basis upon which the organisation can learn andincorporate new knowledge to improve its innovation process and futuresuccess rate.

Another lesson emerging from the senior executives participating in thisresearch is that one should not be looking for a moment of ‘euphoria’. Moreoften than not, the feeling in the team is one of anti-climax, a mixture ofrelief, combined with insecurity about the next phase. The completion oflegal agreements for the enabling transactions for both SSTUK and QinetiQNanomaterials gave rise to just such feelings. To some extent, this is a by-product of the process of reaching legal agreements that requires negotiatingteams to step back from their co-operative, win-win working mode and tocontemplate and provide for all the things that can and often do go wrong inlater life.

The experience of cahoot at Abbey National provides another example. Therapid development of the internet bank came from an extraordinary andconcentrated team effort. Team solidarity was strengthened further byhaving to cope with the technical problems on the launch and by striving toovercome them in the subsequent months. When finally, in 2002, the cornerseemed to have been turned, the team were rather deflated to find thatsenior management’s new aspiration was ‘More of the same please’. Whathad been intended as a pat on the back was received as ‘Well, you won’t bewanting people like us then’. And the team composition has graduallychanged, with more people coming in who are adept at managing a ‘businessas usual’ situation.

Chapter 4:


BG and Lattice Group (SSTUK)

Key lessons

• Having the end in mind transforms challenges and setbacks into valuable learning experiences.

• Even when the process is right, market risk can intervene.• Networking helps define the proposition, identify key drivers and develop

a realistic business plan.

SSTUK, an infrastructure business providing masts and sites for mobiletelephony and private radio clients, was established as a joint venturebetween BG and SpectraSite (of the US) in June 2000. It became a wholly-owned subsidiary of Lattice Group in 2001, before joining with Gridcom in2002 as part of the wider merger that formed National Grid Transco. This casefollows the evolution of the business through to the merger with Gridcom,which established it as a core part of the new business.

The BG Group was an unusual sort of company in 1999. A part of the formerBritish Gas, it had demerged its customer-facing business to create Centrica,along with the rights to the British Gas brand in the UK market. It thereforecomprised: a large regulated gas network business, Transco; much smallerexploration and international marketing units; and some ancillarybusinesses including research and development, property management andnatural gas vehicles.

The search for growth

In 1999 talk was all about growth, yet when the board of BG reviewed theiroptions, there seemed few ways to respond. The regulated Transco businessaccounted for 80% of the workforce and had only modest growth prospects.The exploration business had a good pipeline of projects and a better growthprofile, but it remained small. Finally, a solution seemed to emerge—theexploration and international marketing businesses were combined for sizeand synergy and a corporate development directorate was established, underStephen Brandon, with the aim of exploiting the assets and skills of the wholegroup in new businesses.

There were two main initiatives in the search for new businesses. MikeKesztenbaum was recruited as director of new ventures to create and nurturea portfolio of new ventures based around the ancillary businesses, and SteveCopley, group director of planning, took the initiative to try to build aportfolio of telecom businesses based on the assets of the regulated Transcoutility. “We could see what National Grid were achieving with Energis at thetime, and we realised that we had the only remaining national footprint ofproperty assets suitable for telecom exploitation,” explained Mr Copley.

By the end of 1999 the telecom team, consisting mostly of seasoned internalstaff with existing connections, was resourced and working in earnest on anumber of new ventures. They aimed to:• create significant new businesses• exploit existing assets and skills in new ways• use expert consultants• convince business counterparts whose attitudes ranged from sceptical to

hostile.


Chapter 4: Case studies


One of the ventures they developed was to become SSTUK, an infrastructurebusiness providing masts and sites for mobile telephony and private radioclients.

Strong beginnings

SSTUK had a number of advantages during its development period. Thetelecom market was in a strong growth phase, Energis existed as a kind of rolemodel and the characteristics of the sector held out the prospect of rapidvalue crystallisation. This meant that the board was receptive and the CEO,David Varney, was keen to champion the project. They also benefited fromthe existence of a mast-sharing activity that had grown up inside Transco,which acted as a source of some expertise and an early pilot. The pre-existingsmall-scale activity helped to maximise the chances of success of newbusiness development. Significantly the management team also recognisedthat they did not have all the skills that would be needed to run a masts andsites business, which could compete with the two major players in theindustry, so from the beginning they sought a partner, probably to create ajoint venture.

Although born as a solution to a skills gap, the decision to aim for a jointventure provided many advantages. The need to represent BG’s assets topotential partners provided an imperative to break through the difficulties ofclassifying and valuing the 20,000 or so potential land sites around the UKand of negotiating terms for their conditional release from inside theregulatory ring-fence. The feedback from early partner negotiations providedvaluable market insight for the building of business plans and external inputfrom merchant banks, lawyers, property and telecom experts ensured that theworst excesses of group-think were avoided.

Setbacks and uncertainty

As with any business development, the complexities emerged with increasingknowledge. One of the major challenges was managing expectations. On oneside, top management were eyeing the future potential of 3G technology andthe huge number of Transco sites, and doing some stretching calculations ofthe value of the portfolio. On the other side, operating staff warned of thelogistical challenges presented by the need to process sites through landregistry and to provide physical separation from gas assets. With help fromearly partner engagement, the possible and the practical started to convergeand the business began to take shape. At that point, deal teams wereestablished to refine the propositions offered by each potential partner. In theend the management team did the deal with SpectraSite. As a new entrant tothe UK, they had more to gain from the BG portfolio than the incumbentswho had land banks of their own. “They also offered us the one thing that wewanted at the time, which was a balanced JV,” commented Mr Copley. “Theothers wanted the option to dilute us out over time, whereas we wanted tocreate a business for the future.”

Even with the deal agreed they were far from home and dry: they still had toget it down on paper in front of the lawyers and, as they negotiated the legalagreements, they discovered that ‘partners’ on one day turned part-timeadversaries the next. Without both sides having the end in mind, the dealwould probably have foundered. As it turned out, legal agreements weresigned in June 2000, barely six months after the venture team had beenformed, and business operations began later that summer. The initialleadership team was composed principally of SpectraSite nominees who hadthe necessary operational knowledge.


Later the same year, in October 2000, Lattice Group was formed by demergerfrom BG, taking with it Transco and the UK-based telecom ventures,including SSTUK. The links with the corporate development directorate weresevered. Mr Copley led the infant business through this difficult period;initially, this was in a non-executive capacity, but he later joined the ventureas CEO in early 2001. “The early days were very tough,” according to MrCopley. “The euphoria of the 3G auction gave way to concerns about thebursting of the high-tech bubble, and getting sites processed proved every bitas difficult as we had been warned. We also compounded our own problemswith an ill-fated attempt to start up a similar venture in France soon after wehad started in the UK.” Worse was to come—the bursting of the high-techbubble took its toll of the SpectraSite share price and their ability to raisefinance. Ultimately they were forced to retrench from the UK, selling theirshare of SSTUK to Lattice Group in October 2001.

Learning from setbacks

The nadir that was represented by the withdrawal of SpectraSite, however,contained the seeds of better things to come. Many of the skills thatSpectraSite had brought to the venture had been assimilated by the local staffand, more by accident than design, Lattice had achieved one of its earlyambitions to establish a new business over which it then had 100% control.The business was not yet profitable, but it had proven its operating model,and when Mr Copley took over as CEO he was convinced that there was scopeto grow revenues, reduce costs and carve out a positive future.

Not that life would prove easy, of course. “Just as we finished the initialrestructuring following the departure of SpectraSite, along came the spectre ofa merger between National Grid and Lattice Group,” explains Mr Copley.“They had a similar business to us, called Gridcom, and it was clear that afurther round of restructuring would come our way if the deal went through.This promised scale benefits to the business, but did little to resolve naturalstaff anxieties.”

At the time of the merger, SSTUK had 1,000 operational sites, putting it inthird position in the market, and 500 employees. Although SSTUK was abigger business than Gridcom, trademark registration issues meant that thelatter name was chosen for the combined entity when the National GridTransco merger was completed in October 2002. So, three years after itsformation, the SSTUK name disappeared.

South Staffordshire Water Group (HomeServe)

Key lessons

• Go for a business with great organic growth potential.• Focus on customer needs to identify significant opportunities that may not

need huge investment and that start quickly.• To fulfil their potential, new ventures have to be focused and driven

extremely hard.

A lot of utility companies have struggled to develop significant newbusinesses over the years. South Staffordshire Water Group (SSW) is one thathas got it right. In fact, so successful have they been that the whole group isnow listed in the support services sector by the Financial Times. A significantpart of that transformation is thanks to HomeServe, whose strategy is to




supply an insured repair solution covering all major domestic emergencies. Ithas become the UK’s leading provider of home warranties and repairnetworks, with over 7m policies and 2,000 repairers. HomeServe has enjoyedeight years of growth in excess of 25% per annum and turnover in 2002exceeded £150m. How did they do it? Relentless focus on a real customerneed was a key message according to Jeremy Middleton, co-founder and non-executive director of HomeServe.

The initial business, Home Service—now one of three HomeServebusinesses—was started in 1991 to provide insurance or warranties againstplumbing, electrical and gas emergencies. It covers the area that is not metunder normal domestic household insurance, which will pay for any damagedone but will not actually pay for the fixing of the leak. Home Serviceprovides a service more like the AA, in association with utility companies asaffinity partners.

In 2002 HomeServe bought a company called The Regency Group, based inWeston-Super-Mare, which provides a similar type of emergency for fabricsand soft furnishings. They also acquired Highway, which is an emergencyoperation working in glass repairs for conservatories, windows and so forth.

Richard Harpin, the chief executive, leads an executive team, which includes achief executive for each of the three businesses. Non-executive board membersof HomeServe include Jeremy Middleton and the chief executive and financedirector of South Staffordshire Water (SSW). The business is very well establishedin the UK, but there is still good growth potential. The target is to grow thebottom line compound by 15-20% pa. With the acquisitions of The RegencyGroup (for £45m) and Highway (for £28m), there are good cross-sellingopportunities. HomeServe is also in the early stages of proving the business inFrance in a joint venture with Vivendi, called Domeo. The company has beentrading for a year and is now the market leader. This has brought confidence toHomeServe, who are now considering going into other countries.

Early beginnings

Originally SSW was thinking of getting into the plumbing market. It was partof a policy to develop unregulated income, and a number of ventures hadbeen developed on a small scale. Mr Middleton initially became involvedwith the company as a consultant, to help assess whether plumbing would bea good idea. “We realised that it would be a tough business, advertising tobring in plumbing business, and it would be a lot easier to sign people up onpolicies insuring them against emergency problems so that when the problemcame you automatically had the work,” explained Mr Middleton. “There wasan opportunity for a quality emergency response business operatingnationally through third parties. That is the business we therefore agreed toset up for them as a joint venture.”

Since 1987, Mr Harpin and Mr Middleton had been running an emergencyservice operation in the north east of England; it was one of the reasons theywere employed as consultants in the first place. They realised that a majorityof emergencies called for plumbing services, so they took the existingbusiness and gave SSW 50% of the equity, in exchange for a certain level offunding. From the beginning, Home Service was set up as a separate business.Although SSW brought a number of large company disciplines that wereuseful, it was certainly not an entrepreneurial culture. As Mr Middletonrecalls, “There was a certain amount of conflict between the people we triedto recruit, the rates at which we tried to recruit them and the way in whichwe operated. I would say it was a business within a business in the early days.”The business would not have had the right culture and SSW would not have

backed it, he believes, without Mr Harpin to run it. Almost all the staff of theHomeServe businesses have been recruited externally.

Addressing the challenges

The main challenges that Home Service faced were marketing issues, and themain successes were also marketing ones. The initial marketing activity hadsuccessfully communicated the fact that although customers owned theirown water supply pipes, they were not covered for damage. Then, underpressure from the regulator, all the water companies suddenly agreed to do itfor free. Home Service thought that they might not be able to sell policies. Itturned out that they could.

Home Service had to rethink its business model. It had started out as anemergency plumbing business, but it did not hit its targets; then the teamcame up with the Home Service concept, which quickly proved itself. Anattractive return from the initial investment was delivered, so Home Servicejust did more and more. The task that took most time was to persuade otherutilities that they should sign affinity deals. They work with most utilitiesnow because they have proven that they can do it, but in the early days it wasnot that simple: some thought they could do it themselves and also therewere other competitors.

In each area Home Service tried to persuade potential partners to let them runa test. When the results came in, in line with what was predicted, they wouldgenerally allow Home Service to develop further. The business conducteddirect mail campaigns in an area, won customers and then secured theemergency service providers and handled the emergencies on the back of it. Ittook a lot of time and application to persuade partners that they were capable.

Home Service made a strategic decision not to grow its own brand, but to backthe partner brand. That was important, so that partners did not feel threatened.Home Service argued that they could provide a better service to customersbecause it was their core business and it was not the core business of the utilitycompanies. “If they were smart, they realised that it was never going to beworth their while to do it. Better to get it done right, great customer service andmake a reasonable amount of money,” explained Mr Middleton.

During the development, Home Service constantly ran focus groups andother research activities to identify what people liked and what they did not,and they also closely monitored feedback to the call centres. Detailedconsumer and customer feedback allowed them to develop a strongeroffering. Originally policies did not cover problems with a second toilet, forexample, because it was not considered an ‘emergency’ if you had a secondone. Customers did not always see it that way, so the offering was revised toprovide additional cover.

Developing the network of service providers was another critical successfactor for the business, so that the right level of capability was available tohandle the emergencies that arose. “We go through a great deal of contactwith them to try and understand their needs,” explained Mr Middleton. “Wehave account managers, we hold conferences, we try to share the learning inpartnership with them and we just try to work as closely as possible.”

Strong support from the parent business

Home Service enjoyed strong support from SSW, which was important,particularly in the early stages. “In the first two years we lost money ratherthan made it,” explained Mr Middleton, “but the water company stuck with



us. They might have got cold feet when we were not hitting targets.” In fact,the accumulated losses prior to breakeven were only about £0.5m, which issmall in relation to a business that now has an annual turnover of over £150m.“I think they have been an excellent parent for the business, because theyhave been a good source of finance and because they have been loyal,” saysMr Middleton. “SSW has a good reputation in the marketplace and it is usefulto be associated with a big company. Particularly when we have been tryingto do deals with other utilities, they have been very useful. There is a fit forthem in that their brand name is quite suitable in this area. A lot of it is aboutrunning customer call centres. SSW is pretty good at that.”

Looking back over its development, a number of factors can be identifiedwhich enabled the business to succeed and to continue to attract the supportof its key investor:• it was low capex• it had great organic growth potential• the management were allowed to run the business themselves (it is not a

water company business, so a new management team was brought in torun it)

• the management team were tied in and motivated so that they did notleave

• it had a close enough fit with the parent’s core skills, so they couldunderstand it and credibly offer it to the marketplace and the City.

In summary, an unmet need was fulfilled with great marketing, and thendriven extremely hard with a considerable amount of focus.

Abbey National (cahoot)

Key lessons

• Pick a leader and a team with a passion to succeed.• Manage the expectations of board-level supporters.• Provide new ventures with a high degree of autonomy.

cahoot is a standalone interactive bank within the Wealth Management andLong Term Savings division of Abbey National. It operates as a separateoffering to Abbey National Retail, interfacing with its customers through theinternet, email, a contact centre, ATMs and post office channels. It has 400staff and operates 24 hours a day, seven days a week. Trading began in June2000, the organisation having been built from scratch in less than 12 monthsduring the height of the dotcom boom. Although cahoot achieved briefnotoriety for the high-profile failure of its software on the date of launch, ithas now become well known for much more positive reasons. Prompted brandawareness of cahoot within its target customer market was measured at 58%during 2002, the number of accepted accounts stood at around 500,000 andwebsite availability was 99%. The business is on track for breakeven in 2003.

Early incubation

The origins of cahoot can be traced back to 1998, when an IT-based think-tank was set up. The Advanced Development Group (ADG), as it was called,were essentially mavericks, who looked at the advent of technology and howAbbey National could exploit it. One of the propositions that emerged was fora customer-centric online bank that was envisaged to take 21 months tobuild. In common with others at the time, Abbey National management were




not convinced that the internet would have an important impact. The mainretail division was sceptical, but management could see competitorspreparing to act. On 1 April 1999, Project Aquarius was approved by the mainboard. In fact, Project Aquarius turned out to be the only significant projectto be adopted from the ADG, demonstrating how difficult it is for incubatorunits to develop a portfolio of new businesses in the way that senior managersseem to hope.

The board made a couple of provisions in their approval, which were to provefar-reaching. First, they wanted Tim Murley to head up the project. Mr Murleywas seen as an experienced banker who would look after Abbey National’sinterests and those of the board members who would be placing a lot of trustin him. “Tim was not given any choice,” says Philip Ramsell of the corporatedevelopment division. “He was told he would be taking Project Aquariusthrough to launch, and told to get on with it.” The second ‘request’ from theboard was for the launch to be brought forward to early 2000, instead of theend of the year. This cut the projected development time in half.

Overcoming early difficulties

If that was inauspicious, it did not deter Mr Murley. Nor did the fact that hehad no staff, or that nobody had decided where to base the bank, so hecouldn’t advertise for any staff. In addition, HR had determined that cahootstaff would not be treated differently in terms of reward packages, so it wouldbe difficult to get the right skills on board. Then the core retail businessdecided that it really ought to do something in the internet world, so they setup an online venture that would compete in the internal market for talent, aswell externally. “We also had a steering group of the great and the good,” MrMurley added, “but we made sure it only ever met once, because we didn’twant it to slow us down. It was my job to keep the corporates off the guys’backs.”

Plotting a route through the obstacles, Mr Murley determined that first andforemost, cahoot was a bank, so he chose experienced bankers from withinthe organisation to move the start-up forward. After a brief review of thealternatives, a UK domicile was selected and internal and externalrecruitment began. “We decided that we would employ mavericks andunderstand that not everyone was a team player,” says Mr Murley beforegoing on to describe some of the key people. “The guy responsible for strategyfinds it difficult to deal with bureaucracy; the IT guy is not your traditionalrisk-averse IT type; the operations guy is actually a security expert whowanted to give it a go; the finance-and-risk guy did more testing for us thanany other person—not a traditional accountant at all; and the programmemanager, she brought the discipline.”

According to Mr Murley the team members “get on very well, despite the factthat they are very disparate. It’s interesting in terms of the human dynamics;a number of them had come right through from the development of thestrategy and had developed a common bond. You don’t often get the chancein a major firm to set up a business from scratch. The guys were up for this,really up for it.”

The skills required to build the online bank were not available in AbbeyNational, so it was clear that partnering would be needed. In fact, the wholebusiness was built on an outsourcing model. At the time of launch, cahoothad only 50 staff. It is only comparatively recently that some of the functions,such as the call centre, have been brought back inside.




Free rein

As cahoot began to develop, it was given a high degree of autonomy.Unusually, it was permitted to set its own risk parameters. That was importantto enable cahoot to target its chosen market segments effectively: good-riskclients within the 25-45 age bracket. Over 50% of applicants are turned down,and those aged under 21 need not apply! With independence on risk and ITand much of the operations outsourced, links with the parent company wereminimised. One link that there was—and which worked well—was with thelegal function. Another was with human resources, and their contact there.“She did the recruitment and set up all the HR policies and strategies,”explained Mr Murley, “and she was great”. It turned out that she had recentlyjoined Abbey National from outside.

Despite the freedoms that were negotiated and assumed by cahoot, theactivity was not as out of control as might be imagined. The corporategovernance people and company secretary could have stopped the work atany time if they hadn’t liked what was going on. They had the relationshipswith the Financial Services Authority (FSA) and the regulator. It was part ofMr Murley’s job to keep them sweet. Jim Smart, Mr Ramsell’s boss, recalledthat Mr Murley had continually communicated cahoot’s progress internally,seeking to build internal management support for the new businessthroughout its development and implementation.

Building the business

In the early days, the key task was to get the bank built. The approved projectwas used as an outline, but it did not include a detailed specification. InOctober 1999 there was an infamous ‘Pizza Night’ when all the partners werelocked into a room and told that nobody would leave until it was agreed whatwas being built—even though they had been building it for two monthsalready! They left with a 35-page specification, which became the bible.“November was crunch time, when we had to decide if it would work,”explained Mr Murley. “We had ‘daily prayers’ at 09.00 hours. ‘What wereyesterday’s problems? How are we going to sort them out?’ That worked fairlywell in terms of getting things done. We used every form of encouragementand threat on our partners, some of which I wouldn’t care to repeat…”

“We put a lot of emphasis on partnering, and we wanted to make sure thatwhere a partner was important for us, we were going to be their priority,”explained Mr Murley. “When we were spending lots of money, that was easy,but there was such a lot of competition that they began dodging resourcesaround. That’s when you threaten them.” There were clearly some toughmoments, but something must have gone right. cahoot remains a prominentcase example for their technology partner IBM, because there aren’t manyonline banks that survived and worked. People still come from all over theworld to see cahoot’s straight-through processing in action. Fiserv, thebanking engine, also use cahoot as a reference site, as do Paysys, now takenover by First Data.

By this stage, launch had been fixed for spring, which meant June 2000 at thelatest. The pilot had to start no later than April 2000. All planned productswere included at launch, but the pilot was shorter and less thorough thaninitially planned to meet the time frame. “If I had my time again, weshouldn’t have done that,” admitted Mr Murley. “We piloted it for just onemonth and a half.”


The period from launch in June until December 2000 was the hardest that MrMurley has endured during his career. On top of the high-profile system crashon day one came the deflation of the dotcom bubble. Despite a majoradvertising campaign at the end of the year, only 70,000 customers hadsigned up, against an objective of 100,000.

Senior management support

Fortunately, Abbey National stood behind cahoot for a bit longer, becausefrom January 2001 things took a turn for the better. With the same pricingproposition and the same advertising campaign as the year before, as muchbusiness was done in the first two months of 2001 as in the entire first sixmonths of business. By 2002, cahoot was delivering its numbers, had createdpositive PR and, quite unexpectedly, had developed a valuable brand. Over95% of the 500,000 cahoot accounts were owned by people who did nottransfer money to or from other Abbey National accounts, indicating thatcannibalisation has not been as bad as some had foreseen.

Measuring success

The City remains sceptical of online banks and complains of lack of materiality.More recently, the City has been giving Abbey National a hard time over lackof focus. Not altogether helpfully, cahoot answers the criticism of lack ofmateriality with the response that it has always been realistic about the size ofthe online market and its share is reasonable for the investment made.

The cahoot management team are not entirely satisfied; the current emphasison reaching profitability has cramped their style—more could have beendone already to develop the business and brand under different conditions.There has already been one change on the management team in which oneof the original team left and was replaced by a ‘more of the same’ stylemanager. “And he’s doing a cracking job,” affirms Mr Murley.

Customers seem happy enough and people seem to like the brand and theadvertising.

cahoot has met its numbers. The future is uncertain and there are lots of openquestions, but if that is a problem, then it is the right sort of problem to have.

QinetiQ Nanomaterials

Key lessons

• Develop a language for communicating and charting progress.• Avoid the business plan ‘gaming’ endemic to much traditional corporate

development.• Ensure senior managers really engage with the business issues.

Formed from the larger part of former state-owned defence researchestablishment the Defence Evaluation & Research Agency (DERA) in 1999,and formally converted to PLC status in July 2001, QinetiQ is a new companywith a big mission: to exploit its IP and knowledge in commercial as well astraditional military sectors. It is Europe’s largest science and technologyorganisation with an immense IP portfolio and depth of technical expertise.




Its primary business model remains contract research and associated technicalconsultancy, and the four operating divisions have been busy developingcommercial clients. However, coinciding with the incorporation of QinetiQas a PLC, an investment fund was established, to provide an alternativedevelopment route, based on venturing principles. Hal Kruth, an experiencedventurer from SRI (Stanford Research Institute), was brought in to direct itsoperations. QinetiQ Ventures was designed as a closed-end fund with theobjective of investing £25m over three years and obtaining returns and exitafter seven years. A small team of investment directors and analysts wererecruited (internally and externally) to develop and manage the portfolio.

The business of nano-materials

Nanotechnology is the extreme miniaturisation of products and materials.QinetiQ Nanomaterials Ltd (QNL) was formed to concentrate on developingnanopowders and their applications. A nanometre is one-billionth of a metre,the diameter of a water molecule. The thickness of a human hair is 100,000nanometres. Some applications already exist, such as in explosives, andothers are under development. There is huge potential, but much will dependupon the success of companies like QNL in producing commercial quantitiesof the materials.

Applications under development include:• drug delivery systems—nanoparticles can be used to determine the

location and timing of drug release inside the body• anti-corrosion coatings—better mechanical properties• cosmetics—influencing the flow characteristics and absorption rates• lubricants—tailoring viscosity and thermal expansion.

At first, the arrival of QinetiQ Ventures on the scene appeared to be a blessingin very heavy disguise. The idea that eventually became QNL originated fromconversations in June 2000, and it was already quite well developed by the timethe venture fund was ready to consider investments on its own account.Despite the fact that senior management had the distraction of the demerger ofQinetiQ from DERA, Paul Reip, managing director of QNL, and his team hadbeen able to get resources to perform an external review of the marketopportunity and successfully argue for development funding in the ‘old world’.Then along came the venture fund with a different way of looking at things.

Halfway through the first presentation to the new QinetiQ Ventures team,reaction did not seem at all positive. They didn’t want to take on technologyrisk, nor did they want to be buying into a manufacturing business. Not forthe first time, nor for the last, Dr Reip and his team had to call on theirreserves of perseverance to win the day. Not taking ‘no’ for an answer, hewent on to explain that QNL was not going to be just a manufacturingoperation, but that it was a vehicle for exploiting and developing further IP.On top of the manufacturing margins there would be consulting andlicensing income and application partnerships.

Establishing common understanding

Venturing was a new concept to QinetiQ, and the company itself was new tothe commercial world. It was clear that for ventures to progress successfully,there needed to be a common framework around which managers andscientists could engage. This needed to meet the requirements of incumbentmanagers for rigour and risk minimisation, and also those of internalentrepreneurs for high-level championing of their ventures. QinetiQ wanted

to avoid falling into the trap of business plan ‘gaming’ in which time andenergy is wasted in writing and rewriting financial projections, withoutadequate communication about the business fundamentals.

The tool that was selected by QinetiQ Ventures was called ‘NABC Plus’, whichis a systematic way of addressing the sorts of questions that are sooner or latergoing to be asked by investors, whether they are inside the corporation orexternal. ‘NABC’ stands for needs, approach, benefits and competition. ‘Plus’relates to all the remaining elements that should form part of the dialoguewith investors and the investment proposal. (A description of the tool is givenin chapter 3.)

As a list of headings, the NABC Plus approach is similar to the content of astandard business plan template. The value is not in the headings, but in thesearching questions that must be asked—and answered. Much of the work didnot form part of the investment pitch on the day, but contributed to theknowledge and confidence of the team in answering questions from theventure board, and, by meeting their concerns in advance, built a positivepredisposition to the idea and the team.

Engaging in the real business issues

By providing the framework and the rigour, engagements between investingmanagers and venture teams concentrated on the business issues. Setting upQNL involved the licensing of some technology from an independentcompany with whom the business was being developed. “The transaction assuch, other than to ask us to get a good deal, was never really gone into bythe board,” explained Dr Reip. “We set out the requirement, the benefit andthe form we expected the deal to take. It was very much part of the processand not a key component.” Most of the discussion centred on what wouldhappen the day after the deal was inked.

Internal agreement to fund QNL was made on 1 October 2001, establishing itas a wholly-owned subsidiary of QinetiQ, with equal shareholding from theFuture Systems Technology business unit and QinetiQ Ventures. The licensingdeal was signed on 19 December 2001, and the company began operations inJanuary 2002. The core QNL team remains small—a total of eight people,with another two planned—including a representative in Tokyo, but withinthe wider QinetiQ business there are 150 scientists working onnanotechnology and related fields, so there is considerable strength to call onas required.

Production moved ahead in 2002, with successful trials completed before theend of the year at the newly constructed manufacturing facility on site atFarnborough. This was made possible by a partnership agreement with BOC,the chemicals group, who supplied pure argon and other industrial gases andfacilities that are critical to the production process. The plan to developapplication IP also progressed well, with a number of proposals alreadyfunded. Most surprising of all perhaps, is the fact that by December 2002 theQNL website was receiving 30,000 hits a month, on the basis of nothing morethan participation at half a dozen conferences during the year.

Looking forward

By no means did everything go smoothly; the plant trials were delayed bythree months following the death of a partner employee involved in theconstruction and commissioning. It was an unrelated road traffic accident,but it hit both companies very hard. “We have learned over the two years of





development that the cycle of horror and deep joy is variable in both timeand height,” says Dr Reip, “and being part of a large organisation, it takes realeffort for senior staff not to become too involved. The best thing we ever didwas to form a limited company, because that changes your attitude and thatof the guys you work with. And the second best thing was to get a separateoffice with a lockable door.”

“There were times in the middle of 2001 when Mike Pitkethly and I askedourselves why on earth we had got involved in trying to develop thisbusiness,” says Dr Reip. It had not been an easy journey, but by the end of2002, enough had been achieved to make those doubts seem a distantmemory. “Venturing was a new concept. We couldn’t have done it withoutthe venture fund, and we couldn’t have done it without the right approach,without enough confidence that all the questions had been asked andanswered.” He believes they will have arrived as a business when they makea profit, but he’s already looking forward to “our second or third IP spin-out.”

BT Retail (BT Contact Central)

Key lessons

• Build the venture on relevant and quantifiable corporate assets.• Work in a market that you know, which is sufficiently large to generate

material returns.• Secure the commitment, support and enthusiasm of corporate leaders.

BT Contact Central (BTCC) is a new business being developed as part of anambitious programme of corporate venturing by BT Retail, under theguidance of Pierre Danon, its CEO. Originally conceived as a softwaresolution, BTCC provides a comprehensive customer interaction managementsystem that enables customer relationship management (CRM) to bedelivered in an integrated way through channels including phone, email,internet video, keyboard chat or SMS text messaging. The customer valueproposition is very clear—businesses can get a fully functional 20-30-seat callcentre made up of standardised and pre-integrated components in a matter ofweeks instead of months, and at a price typically less than half that of abespoke solution.

BTCC can credibly make that claim because CEO Paul White has built over200 call centres for BT and its customers. It seems to be working—BTCCended its first financial year in April 2003 with revenues of over £12m andbreaking even at the operating level. Revenues are projected to double eachyear for the next two years and BTCC remains on course to deliver well over£100m to BT through value growth of the business and pull-through ofequipment and services at other BT divisions.

BTCC is sponsored by the BT Retail Adventuring Board, which meets toreview the performance of all the ventures it has backed. BTCC is one of theearlier, more substantial and easier-to-identify ventures. Initial fundingapproval was for three years, and as long as BTCC continues to achieve itstargets, it is left to its own devices and funding continuity is assured. Besidesthe Adventuring Board, BTCC has its own shadow board including achairman from BT Retail and two independent non-executive directors.


Early development

BTCC’s history can be traced back to the beginning of 2001 when Mr Whiteapproached BT Brightstar, the business incubator of the BT ExactTechnologies research facility in Martlesham. For a while, it looked as thoughthe development route would be through selling shares to venture capitalistsin order to provide expansion funds. Early feedback was very encouraging,giving confidence that BTCC was onto something good. It was only once BTRetail realised that BTCC was close to the core business that they decided tofund it internally. The venture was ‘bought’ by BT Retail through an internaltransaction in November 2001 and operations were launched in earnest fromApril 2002.

The concept of the business at launch was to be a software company. Supplypartners were selected: Siebel Systems to provide the CRM functionality andCosmoCom to provide the multimedia capability. Products from thesesuppliers were to be pre-integrated through BTCC software, sold through BTRetail channels and installed by BT engineers. The target market was small-and medium-sized enterprises (SMEs), which were unable to afford bespokesolutions.

Finance director Nick Randall joined BTCC in October 2002, having been partof the Henley-Incubator team, to assist in the set-up and establish properfinancial and operations processes immediately after launch. Looking backover the development until the end of 2002, Mr Randall emphasises howmuch has been learned, as well as how much was achieved in that short time.Customer numbers grew from half a dozen to 35 or 40 during the period, forexample. “In pretty much every aspect of the business, some things have beendifferent to how we planned them,” says Mr Randall. He does not put thisdown to poor planning, just the way things inevitably are when you “startdoing it for real”. Some of the learning points incorporated have been:• It has not just been SMEs who want to save money on CRM systems. Large

companies, including FTSE100s, have needs for subsidiaries and the like.Clients are fewer and bigger than planned.

• Customers wanted a higher degree of customisation than expected, soBTCC had to engage more CRM consultants to deliver that. The revenueline now includes professional services as well as software sales.

• Customers needed more support on hardware procurement andinstallation than foreseen, and BTCC have had to take more direct controlof these elements to ensure complete customer satisfaction.

• More attention and cost than planned has been devoted to keeping theBTCC software products up to date with partner equipment platforms.

Leveraging assets and relationships

Fundamental to the success of the business of BTCC are the sales channels. BTCCare encouraged to develop independent channel partners, and have enjoyedconsiderable success. In July 2002, for example, a deal was struck with Getronics,the Dutch IT services firm, to focus on sales to the financial services sector whereBT has lower penetration. Siebel Systems also joined as a channel partner inNovember 2002, to address public sector opportunities. If ambitions to growoverseas are to be fulfilled, third-party partners will feature heavily in those plans.

Alongside the new channel partners, access to the well-known brand and BTRetail sales channel have been vital assets to the business in its early days. Thebenefits have not been simply one-way. “Salesmen are loving it,” claims MrWhite. “They’re saying that it’s the first time that customers are ringingthem.” Mr Randall agrees. “We have thousands of sales people knocking ondoors, touting BTCC. You couldn’t want for a better sales channel. It is a big,




big plus, and it has brought us hundreds of enquiries.” BTCC has devised andimplemented formal product training: half-day awareness workshops foraccount managers and two-day courses for the technical specialists. By July2002, over 100 specialists had been trained.

Not all BT corporate competencies turned out to be assets to the fledglingbusiness. The internal BT delivery channel partner (for customer connections andso on) was not always able to respond to the needs of BTCC in the way that washoped. Often, work was undertaken directly by BTCC in order to assure speed andtotal satisfaction. “Every customer is vital to us at this point,” explains MrRandall. “They have to be happy, delighted and ‘referencable’.” The operatingparameters of the core connections business were simply different from the needsof BTCC: the two implementation managers at BTCC work long hours, are on 24-hour call-out, are totally focused on their individual customer implementationand get highly rewarded for their extra efforts.

By the end of 2002, BTCC had about 50 staff, many of them working ascontractors to avoid the strict BT controls on headcount. Besides theirfunctional skills, staff must have a willingness to be flexible, to work veryhard, to deliver to customers and to integrate into the team. “We don’t hireeasily and we only hire the best,” asserts Mr Randall. Most often, people takenon are already known to the organisation through contract work. “We verymuch believe in ‘try before we buy’.”

Bright future

So does the future look bright for BTCC? Will it cross the ‘valley of death’ thatseparates a great idea from a successful business reality? Despite aggressiveand demanding targets, BTCC is performing well, meeting its customertargets, is on the right trend line and confidence is high. Internally, BTCC isheld as an exemplar of how to do something quickly—a role model for thewhole corporate venturing programme. Mr White has recommendations forthose who want to follow the same path:1. Have crystal clarity on the value proposition and the IPR, assets and skills

that you bring. Know what your assets and skills allow you to do that isdifferent from competitors.

2. Work in a market space that you know, and that is sufficiently large togenerate material returns. Unless you are very clever or very lucky, it is adifficult game to create a green-field market.

3. Have the support of the boss. In the case of Mr Danon at BT Retail, his publiccommitment, support and enthusiasm have helped break down barriers.

“Whilst I would like to say that the strength of my personality and myarguments were massive,” concludes Mr White, “the key thing was the ideaitself, and that’s what they went for.”

And finally…

Companies can do much to prepare themselves for innovation success bychoosing the right strategy and executing it well, but innovation wouldn’t beinnovation without the occasional success story that breaks all the rules. Mostcompanies would have rejected the development of the London Eye by BAEnterprises long before it saw the light of day. Even though the objective ofbeating the returns on the core business was not as onerous as it might havebeen for some companies, the venture ran some spectacular risks. Thetechnology was not proven, the market uptake was unpredictable and projectdelivery left little room for error. And then there was the limited lease for the site.


Some of the risks did bite, and the London Eye did not open to the public onthe target millennium date. Crucially though, public response wasenthusiastic and the lease was extended, thereby transforming the economicsof the enterprise. Sometimes, truly, you will not know that an innovation has‘arrived’ until you get there!



References

1 Drucker, Peter F. (1985) Innovation and Entrepreneurship, Practice andPrinciples, Heinemann.

2 Birchall, David (2002) Presentation to the Knowledge ManagementForum by the Leonardo Innovation Team at Henley ManagementCollege, UK.

3 Rigby, Darrell and Zook, Chris (2002) ‘Open Market Innovation’,Harvard Business Review, October.

4 Channon, Derek (1996) Strategic Innovation: Casebook, chapter 4 (DirectLine Insurance PLC), Routledge.



7 Birkinshaw, Julian, Murray, Gordon and Batenburg, Rob (2002) CorporateVenturing: The State of the Art and the Prospects for the Future, LondonBusiness School, July.

8 Laurie, Donald L. (2001) Venture Catalyst, Nicholas Brealey.

9 Lloyd-Jones, Sarah (2002) ‘The alchemical marriage – integratingopposites in innovation management’ in The alchemy of innovation,Spiro Press.

10 Tidd, Joe, Bessant, John and Pavitt, Keith (1997) Managing Innovation:Integrating Technological, Market and Organisational Change, John Wiley &Sons.

11 Pinchot, Gifford and Pellman, Ron (1999) Intrapreneuring in Action,Berrett-Koehler.

12 Barker, Alan (2002) The Alchemy of Innovation, Spiro Press.

13 Loewe, Pierre, Williamson, Peter and Wood, Robert Chapman (2001)‘Five Styles of Strategy Innovation and how to use them’, EuropeanManagement Journal, 19 (2), April.

14 Mason, Heidi and Rohner, Tim (2002) The Venture Imperative, HarvardBusiness School Press.

15 Ridderstrale, Jonas (2000) Funky Business: Talent makes Capital Dance,Bookhouse.

16 Gaule, Andrew and Spinks, Nigel (2002) Corporate Venturing: RewardingEntrepreneurial Talent, Grist.

17 Ridderstrale, Jonas (2000) Funky Business: Talent makes Capital Dance,Bookhouse.

18 Pinchot, Gifford and Pellman, Ron (1999) Intrapreneuring in Action,Berrett-Koehler.

For further details pleaseemail Andrew Gaule at:[email protected]

How Henley-Incubator can help

Many leading organisations have units that mobilise and capture new business ideas, evaluatethe business cases and then build the businesses and partnerships to launch new ventures.These new ventures are often leading-edge in their technology and involve new ways ofworking with customers or suppliers.

Henley-Incubator was created by Henley Management College to help organisations addressthe key business dilemmas involved, including:

leveraging shareholder value in organisations and within new enterprises

retaining and developing talented entrepreneurs and skilled staff

nurturing innovation in a corporate culture.

H-I Network

Henley-Incubator’s Network is the leading network for organisations that are developingvaluable new ventures and building innovative cultures. There are members from 15 leadingglobal organisations in sectors as diverse as finance, FMCG, foods, utilities, petroleum,engineering, telecoms and retail. During 2001 our thought leadership forums addressed‘Managing the incubator team’, ‘Managing venture funding’ and ‘Business evaluationmethods’ with events held at the London Eye, Henley Regatta and London’s Royal Society ofArts. Find us on the web at: www.extrapreneur.com

Research

Henley-Incubator is working with researchers and doctorate students at Henley ManagementCollege to utilise the case studies and material that is being captured in the H-I Network. Thisreport is from a series on corporate venturing.

MBA placements

Henley Management College has a range of MBA members, typically in their late-30s withyears of business experience, who are available to offer their expertise on a placement basis.Projects that have been delivered by our MBA members include working in incubator units andstart-up businesses on planning, competitor analysis, marketing and sales campaigns.

Innovative outsourcing

Because Henley-Incubator has the depth and breadth of start-up resources and expertise, manycorporates trust us to manage or support their new business innovation processes. This rangesfrom developing and managing innovation funnels, managing relationships with financialpartners and institutions, and assisting with human resource management, through to theprovision of executive directorships.

Forums and events

Henley-Incubator and other groups at Henley Management College run frequent forums andevents and these are publicised and documented at www.henley-incubator.com/events

Henley Management College

Established in 1945 and located in 30 countries, Henley Management College is a world leaderin executive development, company programmes and MBAs. With 7000 executives on Henleyprogrammes in 90 countries each year, the College helps global organisations that feature inthe top 100 companies of their country.

The College provides high quality and relevant management development, with leading-edgeinternational management knowledge and innovative multimedia delivery technology. It addsfurther value for organisations through its Future Work Forums, Henley Learning Partnershipand Henley-Incubator. Details on the web at www.henleymc.ac.uk

CORPORATE VENTURING

REWARDING

entrepreneurial TALENT

Risk and reward in new ventures

In today’s knowledge-based competitive environment, companies must mobiliseand motivate their employees’ latent entrepreneurial talent, encourage them tobring forward innovative ideas and then see them through to launch. At the sametime, firms must avoid distracting or demotivating the core business. A keyelement of this is the management of personal risk and reward systems.

How can reward systems encourage entrepreneurial behaviour in organisations?What are the problems that venture managers face in designing reward systemsto support their goals? How does personal risk affect innovation? How are theneeds of the corporate entrepreneur reconciled with the needs of the existingorganisation? What solutions are companies adopting?

Corporate Venturing: Rewarding entrepreneurial talent order formPublished date: June 2002 Price: £245 Report number: GR001 ISBN: 0-9542799-0-5 By: Andrew Gaule and Nigel Spinks

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Reward and risk can, however,only be understood in thecontext of the dynamics of thenew business developmentprocess itself. As the venturemoves through the stages ofidea creation, planning,building and launching,management focus willchange. Equally important isthe complex context withinwhich rewards and risks mustbe managed. This includes notonly the new venture unit butindividual, organisational andenvironmental dimensions.

This report underlines the importance participants attach tomaintaining a balance between risk and reward. It alsoconfirms the importance of intrinsic rewards, such aschallenge and excitement, throughout the venturing process.Whilst the salience of monetary rewards increases as the newbusiness nears launch, they are never the sole motivator.Importantly, the new business unit provides the idealopportunity to create the sort of challenging workenvironment even in a large corporation that many oftoday’s managers and executives are seeking.

This report investigates the experiences of corporate venture managers in dealingwith these issues as they seek to promote innovation, entrepreneurial spirit and tocreate new value for their organisations. Specifically it identifies a number of waysreward management can help, including:

• stimulating the bringing forward of new ideas

• promoting commitment to the new venture

• motivating the new business development team

• attracting talent into the venture from both inside and outside the parent organisation

• communicating a change in organisational values

• rewarding exceptional value creation.

Includes case studies from

• Unilever (Insense)

• Powergen (Spark)

• British Airways (London Eye)

Corporate Venturing order formFirst published: April 2003 Price: £495 Report number: GS001 ISSN: 1473-7825

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■■ Yes, I would like to subscribe to Corporate Venturing. I understand I will receive 4 issues a year, at a cost of £495

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entrepreneurship ■ innovation ■ value creation

Corporate Venturing, a new quarterlyreport from Grist, is the definitive,independent source of strategicthinking and best practice adviceon corporate entrepreneurship,innovation and value creation. In 16pages every quarter the report willprovide objective, insightful andpractical information, analysis andtools which help senior executivesto create long-term competitiveadvantage for their organisations.

Traditional strategies of incremental growth, or expansion throughmergers and acquisitions, are failing to satisfy stakeholders in largecorporations. Blue chip companies are increasingly seeking innovativenew ways to create value and deliver significant sustainable growth.Corporate Venturing helps them do that through detailed analysis of thesuccessful strategies executives are using including:

• Generating new businesses from internal ideas and assets

• Partnering with smaller organisations for mutual gain

How Corporate Venturingcan help you

Strategy Corporate Venturing identifies the strategicimperatives and key drivers which couldhave a major impact on your business,enabling you to plan ahead for prosperity.

Best practice Corporate Venturing analyses how companiesare managing the innovation and valuecreation process, to strengthen yourbusiness processes.

Company profilesCorporate Venturing details case studies ofsuccessful, failed and on-going initiatives,allowing you to assess the strengths andweaknesses of different approaches.

Latest developmentsCorporate Venturing monitors latestdevelopments across the area giving you theinside track on new ventures, new trendsand new opportunities.

Research Corporate Venturing reviews leading–edgeindependent research and other publicationsto increase your knowledge pool and itssources.

Networking Corporate Venturing provides details ofseminars, workshops, conferences, events,training and professional services to broadenyour network and help you find new partners.

Subscribe today and receive a fullsummary of the groundbreaking

MORI Captains of Industry researchon corporate venturing

CorporateVenturing

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ISBN: 0-9542799-4-8Report number: GR005

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