Summary. To enable real innovative growth, boards and company leaders must structure top organizational roles to give innovative efforts the resources and attention they need. In the authors’ work on business model innovation with over 100 large and medium-sized companies, they found that companies looking for transformation have two good options: an entrepreneurial CEO or a... more
Innovation thrives when it has power and status within an organization. To enable real innovative growth — and rapid response in the face of such crises such as Covid-19 — boards and company leaders must structure top organizational roles to give innovative efforts the resources and attention they need. In our work on business model innovation with over 100 large and medium-sized companies, we’ve found that companies looking for transformation have two good options: an entrepreneurial CEO or a powerful chief entrepreneur.
Too often, companies have heads of innovation who report to a senior vice president, who in turn reports to a C-level executive like a chief technology officer. This is sufficient for optimizing a company’s current business model, but it’s not enough for a company seeking radical reinvention.
We worked with a head of innovation who ran an innovation lab at a large South African bank, for example. His teams developed breakthrough offerings that had some early traction with customers, but he couldn’t take these ideas to scale without his leadership’s buy-in. Despite his efforts, their attention was pulled elsewhere and ultimately his team’s ideas went nowhere. Does this sound familiar?
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The Entrepreneurial CEO
The first alternative to this approach is to hire an entrepreneurial CEO — a leader who is actively involved in developing and managing a portfolio of new ventures. While most leaders understand that they need to both manage the current business and explore future opportunities, an entrepreneurial CEO spends a substantial amount of their time — typically over one-third — leading innovation. The CEO’s high engagement provides a clear signal to the rest of the company about the importance of innovation generally. But they’re also critical to innovative efforts because they have the power to make key decisions and allocate key resources, power that often evades an innovation head placed further down on the org chart.
For example, consider Ernest L. Cu, who is the entrepreneurial CEO of Globe, the leading Filipino telecoms company. Cu views innovation as the “life blood” of Globe and he dedicates over 30% of his leadership time to meeting with innovation teams, reviewing the progress of innovation projects and ensuring that the innovation teams are properly resourced.
Beyond signaling the importance of innovation to the company, his active role allows Cu to remove the barriers that get in the way of the implementation of new ideas. For example, when an innovation team at Globe was working to launch Gcash, their e-wallet for mobile payments, it became clear that the team needed access to the company’s 84 million mobile customers. Cu found out that it was difficult for the team to get permission for that access because they were viewed as “… a nuisance little business that doesn’t really make any money.” In response, Cu took a leader from the core business who understood the company well and moved them to GCash to drive its growth. This cross-pollination helped GCash get access to the resources it needed to scale. G-Cash is now the leading e-wallet for mobile transactions in the Philippines with over 20 million users. If Cu hadn’t spent the time to understand what was holding GCash up, the team might never have gotten the high-level resource re-allocation it needed to succeed.
Even with an entrepreneurial CEO in place, however, their attention can be pulled in other directions. The board can drive the CEO’s entrepreneurial behavior by requiring that they report on two portfolios — one for the core business and another for innovation. The board can also track the percentage of revenue coming from new products and services launched within the last three years. 3M, for example, has set stretch goals for their leaders that require up to 30% of revenue to come from new product launched in the last 3 years.
Still, even an entrepreneurial CEO cannot be 100% focused on innovation; a big part of their attention is always taken up by running the core business. And many CEOs simply lack entrepreneurial skills. In these situations, the company should consider appointing a Chief Entrepreneur instead.
The Chief Entrepreneur
In 2008, Peter Ma, Founder and Chairman of the Chinese company Ping An, believed his company would get disrupted if he didn’t shift it from being a financial conglomerate to a technology company. To drive this change, Ma appointed as Co-CEO Jessica Tan who was given the mandate and responsibility of driving innovation under the title of group executive director. But in effect, Jessica Tan became Ping An’s chief entrepreneur.
This change allowed Ping An to build a strong innovation portfolio that transcended industry boundaries in five distinct technology-related areas beyond banking and insurance. For example, the company launched Good Doctor which became the world’s largest healthcare platform with over 300 million users. Since 2010, Ping An has moved from being ranked 383 on the Fortune Global 500 to 21st in 2020.
Importantly, from our work we’ve come to believe that the chief entrepreneur should be equal in power and rank to a non-entrepreneurial CEO. We have observed that heads of innovation which report to a non-entrepreneurial CEO are worse off when compared to those which report to an entrepreneurial CEO because, in the former case, innovation remains a second-class citizen. Equality in rank also allows the chief entrepreneur to be able to make decisions to allocate resources as leaders as Cu was able to do.
The major disadvantage of this arrangement, of course, is the likelihood of tension between the CEO and the chief entrepreneur. This is especially the case where innovation teams depend on resources from the core business to scale their ideas. This arrangement works well when the CEO doesn’t see the chief entrepreneur as an enemy but as an ally. The board can help reduce friction by clearly delineating where each leader’s role begins and ends. They should also take care to define the success threshold at which the new businesses driven by the chief entrepreneur can transition to the core business to be managed by the CEO.
The tensions between running a core business and building for a future will always persist. But to get serious about growth and change, companies need to bring responsibility for innovation into the hands of top-level leaders so they can address those tensions head on — while giving innovation the attention it needs.
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