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Growing Innovation

Janka Krings-Klebe

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Abstract of my speech on business ecosystems and innovation superclusters at the Global Peter Drucker Forum GPDF in Vienna 2019

Unlike classic collaboration setups, open business ecosystems are not limited in their possibilities. Participating companies can combine their capabilities more quickly in order to jointly exploit new opportunities. Flexibility and speed in cross-company collaboration is what distinguishes ecosystems from other business setups. Innovation superclusters are a special kind of ecosystem, with one additional distinctive feature: They make it simple to quickly grow innovations to profitable size. Innovators in superclusters can easily partner with corporations in joint businesses. The corporations add the punch to quickly grow innovative ideas into profitable operations. They have the resources, the business capabilities, the customer base and the market access that innovators lack at the beginning.

That is the theory. In practice, corporations struggle in adapting to the speed and flexibility required in ecosystems. Their management practices and governance principles are not adequate for joint businesses. These practices are road blocks to quickly connect with promising partners and to set up joint business operations.

Companies like Haier and Amazon show the way to remove these barriers: Corporations have to internally transform their operations into a highly dynamic ecosystem, and learn to manage and govern them according to principles of adaptivity, customer needs and value add. This step is essential to develop management and governance practices that are required in highly dynamic business environments, such as innovation superclusters. Then, and not sooner, corporations can participate and profit in innovation superclusters, quickly bringing in their corporate power to grow promising innovation into big business.

Video to be published soon.

Related article:
Global Peter Drucker Forum Blog: Embracing uncertainty

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Blog image: pixabay.com

Embracing Uncertainty

Janka Krings-Klebe

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European industry is under threat from massively growing uncertainty. Trade tariffs, technological disruptions and fast-moving competitors on digital steroids cut deeply into predictions about business development. German managers report that their decisions can’t keep up with the pace of change in their business environment; they feel as if they have lost control. Uncertainty is so pervasive that it turns their former strengths, namely meticulously planning, organizing and controlling resources for highly efficient value creation, into a fundamental weakness.

Mainstream management practices aimed at intensifying the levels of planning and control don’t work in conditions of high uncertainty. In fact, they often lead to analysis paralysis, making the situation worse while the business environment accelerates away. In today’s dynamic markets, they appear as outdated as Soviet-type economic planning.

If managers cannot overcome their predisposition for detailed planning and control, this habit will kill European businesses more reliably than anything competitors or customers might do. In the face of the kind of uncertainty businesses experience today, established best-practice management has no answers. Budgeting, accounting, resource allocation and reporting practices still work in yearly cycles, rendering rapid reallocation of resources to emerging business opportunities next to impossible. Current governance norms rule out engaging with risks that appear to be unpredictable. Together, these practices make it impossible to adapt to new customer needs fast enough, spelling death for innovation. We need to reinvent them for the more dynamic and uncertain world opened up by business ecosystems.

Companies like Haier and Amazon have already demonstrated that it can be done, developing new management and governance practices aimed at creating highly dynamic structures inside their companies. This approach has transformed their companies step by step into open ecosystems where market-based structures fluidly balance available resources and capabilities with customer needs. Now their internal dynamism is so great that structures and business operations can rapidly adapt to emergent customer and market needs.

Business ecosystems such as theirs are built on principles of local autonomy, redundancy, diversity and constant experimentation. They use management and governance practices very different from those of mainstream management. Comparing their decision-making processes illustrates the differences.

In business ecosystems, the majority of decisions are made at the edges, at the point with the biggest impact, usually very close to customers – especially in uncertain or new situations. Governance models ensure that decisions in these ecosystems can and are always made as close to the edges as possible.

This is very different from today’s management mainstream, in which all but the most trivial decisions are concentrated at the top of hierarchies, far removed from customers. Only top management is permitted to take decisions involving risk. Unfortunately, in dynamic situations such as those we increasingly experience today, this course simply leads to paralysis.

Business leaders cannot hope to compete in and with dynamic ecosystems unless they take steps to make their own companies much more adaptive. The secret is to give up control at the edges, and to learn from constant experimentation how to make the most of each new challenge and opportunity.

This article is one in the Drucker Forum “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems”, taking place on November 21-22, 2019 in Vienna, Austria #GPDF19 #ecosystems
It was first published on the GPDF Blog

Blog image: pixabay.com