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Building a Growth Factory—

Summary

Notes:

key components of growth factory

- growth blueprint: growth types, goals and guidelines

- production systems for transforming ideas into growth


businesses

- governance and controls that help the factory function at scale

- leadership, talent and culture — right people in the right roles


doing and saying the right things

Desired states of some of these components:

production systems > idea supply chain: mechanisms to source


internal and external ideas at or beyond the fringes of the
company or industry

governance and controls > resource allocation systems:


dedicated pool of human and financial systems for innovation,
with allocation reviewed regularly
governance and controls > continuous improvement systems:
small teams that innovate the innovation process itself spotting
and removing bottlenecks

GROWTH TYPES:

before starting a growth factory, a company must clearly define


the growth types it is looking for.

for P&G:

- commercial: increase usage of existing products. ex: using old


spice marketing campaign

- sustaining: make existing solutions better, faster, cleaner,


cheaper, ..er

- transformational: step changes whose dramatic improvements


reframe a category

- disruptive: new brands or businesses that win through


simplicity or affordability

citi group:

- core: improvements to existing products in existing markets or


process efficiencies (ex: improving service levels or security)
- adjacent: extend existing product to new markets or use
existing capabilities (assets, relationships) to bring new
solutions to market.

- disruptive: new to the world innovations that reframe markets


and create new ones

GROWTH GOALS

different levels of targets:

- overall company targets — short term and long term

- specific targets for each growth type — how much they


contribute to overall targets

- operational targets: split out growth goals by business units or


geographies

- list of strategic opportunity areas that offer the most growth


potential (customer segments, big problems to solve, critical
tech to pursue, game changing regulatory developments)

this also helps define what areas not to target.

citi defines strategic opportunities based on trends like


globalization, social media, consumerization of IT.

after setting goals, do share goals throughout the organization


so there is a shared understanding of it. make a simple doc
summarizing strategic choices and measures used to track
progress.

portfolio tracking system to monitor the right things and course


correct and review at the right time — might identify focus on
too many small things, nothing big. or trying things too long
into the future etc. tracking systems help identify gaps in the
current pipeline.

GROWTH GUIDELINES:

it’s tough to map out future market with precision but have a set
of guidelines on what opportunities to pursue, which ones to
prioritize and which ones are completely off the table so nobody
wastes time.

identify relevant dimensions that define new growth


opportunities — type of target customers, distribution channels,
target geographies, brand strategy, annual revenues and profit
margins required from any new initiative, speed of execution,
organizational fit, risk tolerance.

and then write down: obvious yes, obvious no and what’s under
management consideration.

disciplined innovators are more explicit about what they won’t


do than what they will do.

growth guidelines are not easy to put down but well worth the
time because they define resource allocation, identify capability
gaps that need addressing etc.
Innovation process

multiple steps with decision gates in between:

- spot opportunities: from market or an engineer.

- design solutions. great innovators design solutions that


address entire customer experience and design a business
model around it that satisfies the customer’s needs.

- test and learn. any idea will be partially right and partially
wrong. test and experiment — the most critical uncertainties
first.

- scale.

p&g — men’s market vexed them for long. with broad target
market in mind, spent more than 2000 hours in the
marketplace to understand the unique realities of the target
customer and then introduced a product that was uniquely
suited to the audience.

Robust innovation processes should be:

- explicit. written down in detail or culturally ingrained.


- gated. from one stage to next, killed or go back to a previous
stage.

- customized. different growth types will all follow the above 4


step process but customized for each growth type. disruptive
growth type will lean towards more market learning than other
growth types.

- flexible. different growth types might need several loops for a


particular stage or more intensity for a particular stage.

- integrated. the steps are not discrete. when identifying


opportunities, you are also thinking solutions and
implementation. that’s completely fine.

Idea supply chain

steady supply of high potential ideas from a broad set of


sources.

common problems with idea supply chain in companies:

- ideas in company stagnant. people coming up with same idea


again and again.

- company tapping only a fraction of collective creative


potential.
- good ideas don’t get funneled to most appropriate place for
incubation.

mechanisms that help with these:

- hunt at the periphery — evolving customer needs and


emerging disruptive solutions.

- crowdsource and collaborate.

companies need to have a way to get outside their industry


domain to immerse themselves in an external ecosystem of
innovators and entrepreneurs.

p&g conducts more than 20,000 market studies a year.

citi ventures team met with 600 startups in 2011 and invested in
8 of them.

Corporate collaboration mechanisms should:

- allow more employees to participate

- improve quality of ideas

- pathway for small ideas that otherwise would not get


implemented
citi ideas has time bound challenges for this — suggest new
ideas, build on existing ideas and rate the idea of others.
265,000 of its employees participated in its first global idea
challenge in 2011.

Maximizing success for these programs requires:

- active leadership engagement

- clear problem definition. vague problems get vague difficult-


to-implement suggestions.

- defined and ready path to execution. cynicism sets in if ideas


don’t get implemented. have a predetermined execution vehicle.

such a system also reveals different pockets in an org working


on the same problem who can then collaborate.

a good idea repository includes ideas company decided to shelve


with a clear why. also later you can look back at it and see if
anything has changed to make that idea more exciting now (a lot
of ideas are just ahead of their time)

larger companies also have a physical presence to tap into


industry innovation hotspots and teams to hunt for ideas.

also have externally focused activities for idea sourcing as close


to the market as possible as opposed to being in the HQs.
- a growth group should have some degrees of separation from
the core — geography, processes, talent and resource allocation
systems — otherwise it will churn out same ideas and products
as core business.

- but still have purposeful linkage with core business otherwise


when you toss over a growth idea to core business to scale, the
not invented here syndrome can come in or a lot of the
knowledge earned will get lost.

- a growth group should draw more of its energy externally.

Example of rapid prototyping of an idea:

p&g was developing a probiotic supplement to alleviate irritable


bowel syndrome — 30M people in US alone have it.

high potential but also big investment and risk since a new
brand and also technical kinks.

but critical success factor in market research was whether


consumer would take the supplement everyday?

during research, consumers said they would not — but because


they hadn’t experienced the benefits, reasonable chance their
predictions weren’t accurate. launched controlled pilot by
offering it in a few cities online — asked some salespeople to
push people towards it — and pilot worked out well.

[random note: p&g’s baby care HQ contains a room with


oversized items so innovators can have a toddler’s perspective]
experimentation has to be done very scientifically. develop a
hypothesis, define structured experiment to test it, analyze the
results. there will also be dozens of micro adjustments a day to
maximize learning creatively overcoming obstacles or finding
scrappy ways to solve problems.

experiments often surface unanticipated learnings — there


should be knowledge management systems to record this
otherwise soft learnings are very easy to lose.

have mechanisms to place little bets in the market — learnings


from market facing activities should always be given more value
than academic learning from historical analysis

Governance and controls

four systems for this:

- idea governance systems — distinct management and


measurement approach for different types of ideas.

- portfolio tracking systems.

- resource allocation systems. between projects and broader


growth types.

- continuous improvement systems to remove innovation


bottlenecks.
hitting growth goals requires both predictable success and
larger ideas.

the best innovators follow a disciplined approach. p&g even has


a manual for transformative/disruptive ideas. overarching
principles as well as detailed procedures and templates to
describe opportunities, identify requirements for success,
monitor progress, make go/no go decisions.

IBM has a new growth group whose milestones are based on


learning and assumption management than RoI.

Good idea governance systems answer:

- what metrics determine whether to fund an investment


proposal?

- what is the decision making mechanism?

- how is funding managed?

do not have the same group evaluate all kind of ideas and
definitely not during a single meeting. cannot flip filters to
evaluate fundamentally different ideas.

Ideal groups are:


- not a replication of the executive committee (so it’s not a
replica of the core business thinking)

- at least one outside representative

- one representative with experience of investing in low


knowledge, high assumption circumstances

- small group to facilitate quick decisions

idea governance systems work best when different budgets for


each type of growth.

do not have overly data driven approach for new to the world
ideas because they are filled with assumptions

Portfolio tracking systems

- comprehensive, cover all growth projects.

- real time data, so timely information to make decisions

- key quantitative and qualitative data

- at least somewhat automated so updated with intervention.

value they provide:


- ensure company’s growth strategy matches resource allocation

- identify projects requiring course correction earlier. the first


and the right plan bear little resemblance.

- get the right resources to the right projects. a lot of resources


stuck because of zombie/walking dead projects — transparent
tracking systems help redeploy those resources or accelerate
higher potential effort.

p&g has sophisticated portfolio systems — projections for every


active idea, estimates of financial potential and the human and
capital investments that will be required.

actively prune projects — make shutting something down


unemotional and ensures resources remain focused on higher
potential activities.

Leadership, talent and culture

- lean forward leaders — role models of desired behavior

- innovation talent with the right experience in right roles

- measurements and reward systems that support risk taking

- development programs to teach enabling mindsets and spread


common language
senior leader needs to demonstrate their intent with words and
actions.

a purely rational approach to innovation is self limiting. needs


to be an emotional component as well that makes them
contribute in ways far greater than themselves.

continuously communicate and demonstrate how each


innovation fulfills your purpose to movie continued effort.

jeff stibel created a failure wall in his company. memorable


quotes about failure with personal examples describing
individual failures and lessons learned — he himself supplied 3
of these and signed his name on them. set the culture to be
failure-tolerant. these symbolic gestures go a long way.

you cannot expect your core operators, the ones you have
counted on to always deliver results, to build new growth
businesses.

Behaviors of successful innovators:

- associating. seeing connections between seemingly unrelated


ideas.

- observing the world intently to gain insights about new ways of


doing things.

- questioning the status quo.


- constructing and executing experiments to surface unexpected
insights.

- networking to discover diverse ideas and perspectives.

innovation capabilities follow a power law distribution —


substantial gap between average and above average performers,
and even greater gap between elite and above average. sufficient
talent density can come from just a few elite innovators or from
broader group with less experience but capable of being
developed.

facilitate intersections where different disciplines and mindsets


collide — people from diverse backgrounds. citi has people from
target, apple, eBay, EA etc.

have small teams so they focus on a few but the most promising
initiatives.

Penrosian slack: strategy doesn’t drive resource allocation in the


way that resource allocation drives strategy. slack capacity
always gets filled. company’s strategy gets pulled by the
activities to fill the slack capacity.

if often plagues innovation efforts. a legal representative with


time on his hands identifies regulatory and IP related areas, QA
QA related areas — nobody is doing anything wrong but
working on so many simultaneous things slows progress to a
crawl.
members with innovation experience can make sound judgment
calls when data is inconclusive or absent.

rewards don’t have to be monetary: novel career paths with a


failure tolerant culture. in fact some research shows tying
monetary benefits negatively impacts the work.

For innovation, instead of tracking results, track behaviors


because you can do everything right but still fail — examples of
behaviors:

- quick and cheap ways of address critical assumptions. progress


trumps perfection in innovation.

- developing fresh market insights especially for small sample


but high impact approaches such as ethnography

- innovation bipolarity — from passionate advocate of idea to


offering realistic viewpoints of the challenges in the way of
success.

- finding the best resource to solve a problem, whether under


the company or not.

- simplifying complicated ideas to build broader buy in

- showing skills in selling ideas to stakeholders, colleagues and


customers
- regularly seeking intersections or interacting with people of
different perspectives

- demonstrating a bias towards creating data rather than getting


it

- trusting intuition to make decisions when data is unclear

- demonstrating willingness to pull plug on a flawed idea early

public recognition

most of p&g’s innovation related rewards are soft. inclusion to a


society/fellow.

a media company has an academy award style award ceremony


where people celebrate internal success story

do not have an over reliance on micro incentives such as $500


for submitting an idea

innovation doesn’t only come from scientists and engineers — in


fact most powerful forms are business model innovations — new
ways to create, capture and deliver value. Apple — iTunes, app
store.

holistic or integrative thinking critical for successful innovation.