Growth

Grow & Kill

As a strategy for growth corporate venturing is not new – I remember loads of conversations around it at the back end of the dotcom boom in the early 2000’s. But there is a new urgency and aspiration behind some of today’s thinking. If you believe that it’s just too hard to take the legacy organisation and transform it into a butterfly then corporate venturing is one way to explore the alternatives. And it’s not a massive step from there to say that if successful, the old organisation becomes the cash cow which funds the growth of the new – which in turn cannabalises the historic success.

cannabalisation

So simple to write on paper but in reality so much harder. As many find (from Kodak and Blockbuster onwards) the lure of the old, ‘guaranteed’ revenue stream is a constant distraction from investment in the new. And there are multiple pitfalls in the contrasting styles of old and new business models.

Corporate venturing is of course nothing new – and there are many differing models from the hands-off, pure investment play to the internal intrapreneurial activities. The latter can be anything from an innovation portfolio to a fully integrated strategy. And one of the newest models is in the collaboration space – interestingly often best portrayed in the public sector with a public sector (or quasi-public sector) body initiating activities amongst local (geographic or virtual) communities. What underpins the differences (although not always fully articulated) is the rationale for the venture.

There are at least 4 obvious drivers for corporate venturing – financial (to generate returns from an investment portfolio), R&D (to provide coverage over and above the specific focus of the organisation), increased impact/reach (frequently a public sector driver to achieve more than existing resources/knowledge/reach make possible) and strategic. Grow & Kill is clearly in the latter category – but there may be other strategic rationale for having a venture portfolio which are linked to specific functions within the business (new markets, new products, new channels for example) rather than an all encompassing agenda.

The issue with Grow & Kill really lies in the distinction between a genuine desire and strategy to cannabalise the legacy business vs an appetite and approach for complementarity (which may still be underwritten by an aspiration for cannabalisation). The latter is clearly much more comfortable as an approach – trying something new and yet protective of the old but has within it many pitfalls, not least the allocation of investment, remuneration practices, organisational environments, and the decision on when / how to integrate the new.

Many of those apply equally to the cannabalisation route, but the overt strategic approach makes the need to deal with those up front a no brainer. In ideal world the new venture operates a much faster pace, frequently adopting Agile working practices, occupies a very different work environment, one which makes self-managed teams and project oriented work much easier as well as sending a very clear signal that this is different business. People will be looking to be remunerated differently and for many recognition of their contribution in the speed and outcomes will be a big driver. The question in an agile environment is less about performance measurement frequently and more about how to deal with experimentation – what happens when experiments do not succeed but are valuable learning exercises for example?

And employees (or contractors) are not the only concerned stakeholders – the attitude of investors, especially for those in the public markets is critical. Even those alert to the threats and risks to conventional business models can be less tolerant of unproven new directions.

But for many established organisations, whether it is articulated or not, the direction of their transformation programmes may make a grow & kill strategy more of a consideration, as the programmes inevitably become broader and deeper.

Platforms

So much has been written about platforms organisations, and their value in the markets is becoming increasingly dominant.

platforms value

The analysis of platform companies often focuses on the business model and it is indeed a very different one from conventional businesses. However, what is less often considered is the mindset behind the model. This contrasts fundamentally with how organisations have viewed their role in the past. The distinction is between control of scarcity (traditional) and leverage of abundance (platforms), and the role of the organisation in achieving that goal.

Most organisations have seen the necessity of command and control over a particular set of assets (physical property, people, IP, a product or service portfolio) as fundamental to their success – control which dictates who has access to those assets, for what price and via what channels. Hence decisions about sale or lease, mass or niche marketing, on or offline sales. And as growth has become more elusive, the control has been reinforced by increasing focus – on individual markets, competitive advantage, a specific market need etc.

Platform businesses have a very different perspective – in essence they perceive their role to be to maximise the market opportunity – in some cases (such as Amazon or Uber) on both the demand and supply sides. They then become the route through which the entire market accesses something – be it data (Google), property to rent (Airbnb) or transactions (Alibaba).

The consequence of such an approach is that the platform enables growth in multiple directions without materially changing the cost base. Uber is not about only the people who want a ‘taxi’ late at night, it’s about the generation that doesn’t want to buy a car, park a car or drive a car (for environmental or other reasons), or those who want an income (supplemental or otherwise), or who want convenience. The platform provides a solution to all of these and more – without change. And as Airbnb (and of course, Amazon, Apple, Google, Tencent and Alibaba too) is demonstrating enhancing the offering is equally simple. So not only is Airbnb targeting the SME market, it’s also offering ‘experiences’ – led by the existing customer base.

In all of this, the underlying mindset is not about focus, it’s about abundance. It’s not about control, it’s about opportunity and maximising it. Many established organisations have a dominant position in the market place – they understand their value networks up and down stream, and have a strong brand presence. All of which would be valuable as platform plays. But the mindset is looking for growth from a predictable, controllable, focused market or product set or route already understood.

So how might this change? Some of it is in terms of definition and perspective – being clear about whose agenda is driving change. All of these platform organisations share an obsession with understanding not just what their markets say they want and need, but what they are doing and almost more importantly why they are doing it. That’s like a supermarket asking ‘why are you shopping?’ The answer today feels like an assumption based on a lot of data about what and how (the shopping basket and whether it’s online/offline, delivered, collected etc) but behind it lie a raft of interesting ‘why’ type questions – Why a weekly shop? Why you? Does the when matter and what does it say why you shop? Why shop for food rather than go out? Then the question arises – is the platform the shopping or the activities driving it? Or is the platform the supply side – ease and cost benefit of collating goods? In his blog Edge Perspectives John Hagel talks about today’s world the contextual age – where opportunity and growth lie in deep understanding of, and responding to, the context rather than the transaction.

John Hagel also talks about transformation as the shift from caterpillar to butterfly – rather than the ability to do what’s already being done cheaper, faster, more efficiently. Thinking from a platform mindset is one angle of that kind of transformation for growth, whether the net result is to become one, partner with one or adopt some of the mechanics.

For a long time economists have used long term population growth as a proxy for GDP growth – and when you consider the historic rise in global populations – especially post the industrial revolution in the 1800’s – it is easy to think that this is headed in only one direction. As the graph shows, nothing could be further from the truth if the annual growth rate is considered.

World Population 1750-2015 and projections until 2100

updated-world-population-growth-1750-2100-768x538

Source: Our World in Data

Of course this is all very long term – but it does serve to complement short term concerns about the impact of Brexit, the rise of protectionism and other mooted barriers to growth opportunities. And the concern over future growth reflects an implied view of historic growth – that the market opportunity will somehow suggest itself. From the industrial revolution onwards, through increasing globalisation and the economic rise of Australasia and South America, opportunities have continued to flow over the last couple of centuries. But several years ago a KPMG review of the fund management business pointed out that irrespective of whether or not Gen Y ever developed the investment habits of their baby boomer parents, their financial situation and hence their investment opportunity was likely to be very different from that of the second half of the twentieth century. A salutary reminder that markets shift, and a point not restricted to the investment sector.

But that doesn’t mean that growth isn’t available – simply that different mechanics are needed to achieve it. I can’t think of a clearer instance of the problems of assuming that the future of any business lies in incrementing yesterday’s model than in the question of growth.

If the barrier on overall success factors is structurally related – what about growth? To my mind this is much more a mindset issue. At the risk of oversimplifying, the opportunities provided by the rise of globalisation, benign trading conditions and the increasing affluence of the second part of the twentieth century has to some extent bred a risk aversion mindset – it seems to me that to think of growth, the market opportunity needs to be familiar, incremental (even if it is in a new geographic area) and above all proven and predictable. Two of the most famous examples of corporate failures – eg Kodak and Blockbuster both illustrate this reluctance to truly deviate from the known and proven. That mindset by the way is not necessarily limited to an organisation’s leadership – many public markets, investor communities and funders appear to have built their models on similar assumptions.

OK, so what? All of that is much better documented elsewhere. But to my mind it’s this risk aversion that makes growth today seem more problematic than perhaps it should be (I am however not suggesting that any growth is ‘easy’!). At least 3 potential strategies (and there are, and will be, others) are available but all require a different perspective as start point – one much more prepared to see the historic success as the least likely to succeed in tomorrow’s world and more prepared to consider unproven alternatives:

Growth