I have just finished reading my second book this year (so I am nearly on schedule with my personal one-book-per-month-rule) and thought of giving you a glimpse of it . The book is called Startup way by Eric Ries. Many of you will know the famous book called “The Lean Startup” by Eric Ries and actually the Startup Way is continuing this story. Focusing on the models and ideas of Lean Startup, Eric Ries provides practical examples about the challenges while implementing them into (big) corporates. Eric has been consulting GE after publishing Lean Startup and helped the company to transform. Thus, why many parts of the book are about GE’s story.
All in all, Eric Ries is describing that corporates have to empower Entrepreneurship as a separate function internally, create internal startups on an ongoing basis that are looking for new breakthroughs with a result to rewrite the company’s DNA over and over. It is a great insightful read with many practical examples. In this blog post, however, I want to focus on the steps of how to transform a traditional company. Eric describes this process as three steps: laying the foundation, rapid scaling and deep implementation.
Phase 1: Laying the foundation
The overall goal of this phase is it to obtain a critical mass for the transformation of the company. A relatively small number of teams should be started that look for new breakthrough ideas. It is important that these teams are cross functional teams, thus, they have all important skills in their group and also each team member can function as an ambassador to bring the learnings back into more parts of the organisation. The teams will receive initial funding and support of leadership is crucial for each team as these people have to remove internal obstacles (company guidelines, restrictions etc.) whenever required. The validated learnings of each team will be the driver of phase two.
Phase 2: Rapid Scaling
This stage is all about developing the early successes into a whole movement inside the corporate. Many new problems will arise in stage three, so the organisation needs to be fully informed about the progress. The program has to increase in size of teams and also spread to more functions. This also implies to internal functions that might not be so involved in developing new prototypes, but awareness is key to avoid backlashes. Also, all exceptions that had to be made by supervisors in phase one should be summarised and it should be analysed if internal rules have to be adjusted for the transition. Support of leadership should be taken to a higher level as well.
Growth boards and metered funding are the most important steps in phase two. Metered funding gives teams the freedom to spend the money on whatever they want but it implies the strict criteria what needs to be fulfilled to unlock more cash. Usually in corporates funding is granted at the beginning of a project and is not questioned until it’s “too late”. Additionally, growth boards are groups of people who decide about the next round of funding – comparable to a startup board. It is a single point of accountability that pushes team members to think about their progress and question whether they have really achieved validated learning. This setup creates scarcity of funding, requires a focus on KPIs and a direct relationship between the financing of a project and its progress is developed.
Phase 3: Deep implementation
The final stage is about building an organization that is capable of continuous transformation.
In this stage the transformation has to tackle the company’s hardest deep systems: compensation, promotion, finance (“Innovation Account”), resource allocation supply chain and legal. Eric Ries lists a few companies as an example and the ongoing transformation at Airbnb serves as the role model (read the book for more details).
What about banks?
As anyone who has every worked in a corporation will know easily, this is a massive and in many cases painful transition. This is probably especially applicable for these corporates that are used to their own comfort zone. In general, I believe many corporates will not be able to go through such a transition for many reasons and thus will never be able to achieve massive growth on a consistent basis. They will rather (knowingly) slowly die than go through this pain. All of this is such a good description of banks and their behaviour. Due to entry barriers and regulations, banks have been in a comfort zone for a very long time. The change in customer demands accompanied with regulation that is forcing them to open up, is requiring them to start such a transition. The book is making it very clear, that having a single innovation lab (or whatever you call it) is not the right strategy. Innovation and developing new prototypes is not the task of one individual department but in final stage of the whole corporation. Most of this is (partially) quite well known to the relevant people, but execution is key here. Taking a look on the European banking market I would definitely not be able to name more than 2-3 banks that have started such a journey. It will be interesting if more banks realise organisational change is required now more than ever or if they prefer to squeeze the last Euros out of their products and knowingly slowly continue to walk the plank.