One of the key attributes of an invincible company is the ability to manage the Explore and Exploit portfolio with an equal amount of strategic focus and energy. But Explore and Exploit are very different. The same practices you use to exploit existing businesses cannot be used to explore new ideas. You can read more about the differences between Explore and Exploit here.
Finding the Balance Between Explore and Exploit
One of the reasons why companies fail to manage the balance between Explore and Exploit is that these different portfolios do not have an equal status in the company. In almost all companies, the Exploit portfolio dominates. If companies want the ability for constant reinvention they need to allocate sufficient resources, bandwidth, and budget to the Explore portfolio. In order to be able to make those allocations, you need innovation leaders with power and influence in the organization.
However, in many large organizations we work with, innovation still lacks legitimacy and power. We see a lot of innovation leaders who are two to three levels down in the organization chart. Often, they are the sub-department of a leader who is the sub-department of another leader - guess how much impact that can create! This is the legitimacy and power challenge many innovation teams face.
When Innovation Lack Power and Legitimacy
When innovation does not have a high enough status within the organization, innovation projects are always placed at the bottom of everyone’s priority list. This sends a very strong signal to the whole company and often leads to severe consequences with long term impact:
We saw this first hand when talking to one of the heads of innovation at a large pharmaceutical company. He remarked that people within the larger organization often approach his team members and ask why they are risking their careers by working for him. Taking innovation roles in this company is perceived as making a risky move that might damage a person’s reputation and kill their career.
The Chief Entrepreneur
To have an impact, innovation needs to feature at the very top of the organizational chart. Either the CEO, a co-CEO, or an executive reporting directly to the board needs to be responsible for growth and innovation. They also need to dedicate serious bandwidth, time, and resources on innovation. We refer to this person as the Chief Entrepreneur, who along with a dedicated team, is responsible for creating and managing the exploration of future opportunities, while traditional executives take care of the existing business.
The Chief Entrepreneur is responsible for managing a portfolio of entrepreneurs who experiment with new business models and value propositions. This should be someone with a track record and passion for taking calculated risks to create new growth. To make this really work, we believe that the Chief Entrepreneur should be as powerful as the CEO. In fact, in some organizations like Amazon, the CEO is the Chief Entrepreneur. In others, there is a co-CEO who focuses just on growth and transformation, like Jessica Tan at Ping An Group. You can learn more about a Chief Entrepreneur’s role and responsibilities here.
Who does innovation report to in your organization? And how far removed is innovation from the board? Let us know in the comments section below.