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To stay ahead of the curve, organisations need to innovate.
But how do you structure innovation if you run a large corporation? Where do you put the money? Who’s in charge? How do you get sales to not be a blocker?
Jim A Euchner is an expert in how to innovate inside large corporations having been Vice President of Global Innovation at Goodyear Tire & Rubber Company, where he led the development of new businesses and helped launch five businesses on three continents.
How do you take Lean Startup methodology and apply it to big business? That’s the topic Jim A. Euchner, former Vice President of Global Innovation at Goodyear Tire & Rubber Company, and current Editor in Chief of Research Technology Management, a peer reviewed journal for practitioners of innovation, discusses in this episode of The Melting Pot.
Having been tasked at Goodyear to build new revenue streams and new business outside of the core tyre business, Jim began doing some experimental work.
“I don’t know when I first heard the term “Lean Startup’. It may have been from a former colleague who said you ought to look into this. And I did. We started experimenting with it as a way of accelerating our learning inside Goodyear, building data that could help sell the innovation inside.”
The problem Jim quickly ran into was that inside the organisation not everyone understood nor fully supported the idea of innovation. Sales didn’t want them to steal customers. Legal were concerned about compromising intellectual property. Procurement, marketing, engineering, everyone has their concerns about trying something ‘new’.
“One of the things I got interested in is, if you want to do Lean Startup, what do you have to do in addition to make people comfortable with it inside a corporate setting?”
The thing is, Goodyear was already turning over $15 billion annually. So what sort of business did Jim need to create to get the organisation to sit up and take notice?
“Well, you know, people had aspirations, but I think there was an understanding that you don’t get to $100 million without going through $10 million, and don’t get to $10 million without going through $2 million.”
In other words, they weren’t looking for an end state, they were looking for viable potential opportunities.
“I’ve seen a lot of companies end up failing because they think that if you don’t get to $100 million in a few years, it’s not a business, it’s not good for you. In fact, look at many, many startups – they were small until they got big.”
With innovation, you have to have breadth. VCs aren’t going to simply give their money away to people they think will fail. They give their money to people they believe are going to win. Yet still, only one in 20 wins. So at Goodyear, says Jim, they had to start a lot of businesses to get one of them to ever be $100 million.
The major factor with innovation is resource allocation. In a large organisation you need to syphon off money from the core business to invest in innovation. And not everyone is going to be happy sharing their budget with something that’s not a guaranteed win.
Amazon’s a great example of a company that does Lean Startup very well, says Jim. They are very comfortable with innovation – they’re willing to take short term hits to hit the big time. And they do by leveraging their assets into new opportunities to create new business. It’s all very experimental, but they make a huge bet to win.
“Another difference is they’re willing to take an asset from one business, leverage it to grow a different business, even if it has challenges, even if it creates some challenges for the core.”
One area where Jim innovated at Goodyear was in commercial trucking, in an area where they already had traction for long haul fleets.
They introduced a service that was based on predictive analytics using real time information from tyre pressures in the vehicle to predict when there was a risk of a roadside failure. They could predict enough in advance that they could tell the driver either, you’ve got an emergency: stop immediately, or finish what you’re doing, deliver your load, and then make sure you care for this particular issue. Or it’s just routine maintenance.
This business created significant value, not only in the direct value of avoiding a roadside repair, but also in better customer satisfaction.
But how did it come about?
“The first thing was, someone had the idea. We had no idea how much value it created, it was in fact an idea from a technical perspective that had been around for a while. One of the things we did was just an experiment.”
Through this experiment the team identified that only one of their two fleets paid any attention to the alerts they were receiving about the low tyre pressure. The messages just weren’t refined enough. They needed to say what to do, rather than just alert drivers to any issues. And actually, they needed to alert the dispatcher, not the driver directly.
“So we learned a lot. We also captured all the data, and we used the data together with some machine learning to see if we could predict this and more advanced, and we found we could.”
They also learned that if they got it right and delivered something valuable, clients would be interested.
“We went to market to learn: what did it take to sell? What were the ancillary costs? What relationships did we have to have with the customer? With our own service network and so forth?”
There were so many challenges along the way, says Jim: in doing the experiments, the legal liability, procurement concerns about sharing too much value of the business with suppliers, concerns from the salespeople about how to go to market and what their role would be. All of these things had to be worked through.
“People had to get comfortable with the economics, there are a lot of things that at first present themselves as just resistance, then you understand, oh, it’s resistance with a reason. And you understand the reason, then you can do an experiment to gather data. And then you can bring people on board.”
The thing about innovation, as mentioned earlier, is you don’t know which ideas are going to stick, you have to run multiple experiments at the same time.
“We were running a lot of different programmes in parallel at the same time, we were learning and some things if it didn’t work, we might pivot. Or we might decide we’d learn that this won’t work and then we would stop and the team would move on to a different project.”
You can’t make a bet on just one area and expect that you’ve got a winner, you’ve got to make lots of bets. You’ve also got to be clear about the data you’re getting, and if the data is telling you this isn’t going to work, then you’ve got to accept the data.
According to Jim, people fail to do two things that are essential:
Just before you invest in it, make the simplest prototype, learn what people like about it, what they don’t like about it, whether they think it’s a stupid idea, or whether they get excited about it.
Get a good estimate, or at least a range of how much value it creates for the customer. You can’t create a business if you don’t know how much value you’re creating. If you’re creating just enough value to cover the costs, it’s going to be very hard to invest in a new channel or new business model, you need to know where you’re creating value and why customers care.
At Goodyear, they set up a separate division for incubation, so it didn’t fit into the regular accounting system. If the reliability is different, then if you’re in an incubation with limited risk, you can figure out in real time how you’re going to manage the new liability issues.
But you do need to break the mindset of the core product business or you’ll end up creating service businesses that aren’t very profitable, warns Jim.
Finally, advises Jim, innovation should be reported to the CEO. They’re the person who decides where the resource allocations go, they’re the impartial ones who will see your project fly.
“People who you see resisting, they’re doing their jobs, they are responding the same way you would respond if you were in their jobs. They’re just trying to meet the objectives that are theirs, whether they’re in sales, or marketing, or procurement, or whatever.”
Dominic Monkhouse is a proven architect of business growth with a demonstrable track record. As managing director, he scaled two UK technology companies from zero revenue to £30 million in five years. Since 2014, Dominic has worked as a CEO and executive team coach, helping ambitious CEOs and their leadership teams reach their full potential and achieve sustainable growth. He is the host of “The Melting Pot with Dominic Monkhouse” where he talks with some extraordinary thought leaders, fellow business authors, and CEOs to absorb their wisdom. Dominic is the author of F**K PLAN B: How to scale your technology business faster and achieve plan A, an exciting blueprint for cultural change and business transformation.
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