Lean Start-up seems to be the most promising innovation method to start a new business. The core focus is on combining the pain point of customers/prospects (“jobs-to-be-done”) with the development of an appropriate operating business model to deliver the solution. Also in established companies, management teams are focusing on implementing the Lean Start-up approach. The main question remains, is Lean Start-up the right way and sufficient for future success in established companies?

Innovation activities in established companies have to focus on the Three Horizons

According to Baghai et. al (1999), Eckert (2016a) re-defined the scope of the “Three Horizon-model”:

Horizon One (H1) represents parts of a company focused on the current competitive advantage/distinction. In H1, innovation activities are based on the current Vision, the existing Business Model Prototype and the current Operating Business Model.
The focus of Horizon Two (H2) is on building emerging businesses. In H2, activities are focused on extending the existing Operating Business Model by changing some selected business model canvases. Vision and Business Model Prototype remain unchanged.
Horizon Three (H3) is about creating viable options for the future. In H3, a company tries to work out a new Vision, a new Business Model Prototype (Minimum Business Model Canvas) and as a consequence a new Operating Business Model (Extended Business Model Prototype).

Innovation focus in Horizon One: customer-driven innovation approach

In H1, the main focus is on incremental product innovation. To improve success from innovation, management teams have to ensure that the innovation process is becoming faster and more customer-focused. Reducing the lead time means reducing the utilization of the engineers and to improve the cross-training of the people in relevant knowledge areas.

An integrated (online) customer network is becoming much more important. Software is used to automatically evaluate R&D prototypes (e.g. Audi) based on responses from customers (Accenture 2013). Customers were able to deliver an input on their ideal product solution, e.g. based on how much money they were willing to spend and the features they want to have. In other words, you have to focus on the “job-to-be-done”.

In this case, the Vision of the company, the Minimum Business Model Canvas and the Operating Business Model remain stable and unchanged.

Innovation focus in Horizon Two: Lean Start-up based innovation approach

In H2, the management team looks for new business opportunities – outside the current product portfolio but within the traditional market and/or within the traditional customer base. In this case the main focus of Lean Start-up is on an incremental improvement of the current products or services combined with a new Operating Business Model through new technologies to reduce inefficiencies in the current value chain.

To do so, a management team has to develop a new vision for the company. Based on this new vision, the focus is on the pain points (“job-to-be-done”) of the current or future customers. Important is that the Business Model Prototype/the Minimum Business Model Canvas remains stable.

Alibaba, the Chinese internet company, is a successful user of this H2-innovation approach. The company began in 1999 as a B2B website for small companies. Then, Alibaba worked out a new vision for the company while using an experimental Lean Start-up approach to develop new products and a new Operating Business Model (Eckert 2016).

Innovation focus in Horizon Three: Business Model Prototype (BMP)-based innovation approach

The German Car2Go car leasing service provider is the result of a BMP-based innovation approach. Based on a new and disruptive vision and a new product idea, Car2Go is based on a new Business Model Prototype and (as a consequence) on a new Operating Business Model.

In H3, the management team looks for new business opportunities outside the current product portfolio based on the new vision of the company (e.g. car manufacturer vs. mobility service provider).

H3-innovations have to be based on a new vision and a new Business Model Prototype. As a consequence, there is an additional need for a new Operating Business Model.

Result: Different responsibilities in established companies

Innovations in H1 are a traditional task for the current R&D departments in established companies. A management team has to ensure that there are the right competencies (inside or outside the company) available. Additionally it is necessary to reduce the lead time through online based real-time interactions with the customers.

Innovations in H2 are a major task for a company’s business development department in established companies. A management team has to ensure that there is a common understanding of the new vision while the Minimum Business Model Canvas (Business Model Prototype) remains unchanged. Based on this vision, the focus is on identifying new jobs-to-be-done in combination with a new Operating Business Model.

Innovations in H3 are a major task for a business innovation factory in established companies. The major task is on identifying disruptive changes in the market space. Based on these changes, a management team has to provide the freedom to develop combined new visions, Business Model Prototypes and new Operating Business Models.

Lessons Learned for management teams of established companies

Management teams have to be aware of what kind of innovation and what kind of Horizon is in scope:

Most companies are focusing on H1- and H2-innovations.
H1-innovations are improving the current product offerings using real-time approaches to stay in contact with customers and prospects.
H2-innovations can be used pro-actively to attack, develop and improve the current Operating Business Model. The Minimum Business Model Canvas (Business Model Prototype) and therefore the brand image of the company. The strategic competencies and the strategic processes remain unchanged.
H3-innovations are a breach of the current Vision, the current Business Model Prototype as well as the current Operating Business Model. If you are attacking your current Operating Business Model with a H3-innovation, there will be only one winner.

see additionally “Making Corporate Innovation Work in Established Companies” on this page: http://www.hyperwettbewerb.com/new-blog/2016/9/15/making-corporate-innovation-work-in-established-companies

References:

Accenture (2013), Fast and furious: How digital technologies are changing the way we work. Intelligent processes, enabled by digital technology, create a virtuous cycle of constant improvement fed by continuous feedback, 2013, https://www.accenture.com/us-en/insight-outlook-how-digital-technologies-are-changing-the-way-we-work

Baghai, M., Coley, St, and White, D. (1999), The Alchemy of Growth, Orion Business Books, London.

Eckert, R. (2016), Business Innovation Management. Geschäftsmodellinnovationen und multidimensionale Innovationen im digitalen Hyperwettbewerb. (German), to be published end of 2016

Eckert, R. (2016a), Making Corporate Innovation Work in Established Companies, posted on September 15, 201, http://www.hyperwettbewerb.com./new-blog/2016/9/15/making-corporate-innovation-work-in-established-companies.