Throughout the years, I had 9 beloved BMW models all the way from 1602 (my first car) to X5. Yet over the last three years my wife and I fully switched to electric. We swapped our Mercedes and BMWs for Teslas (S and 3) and have not looked back. For anyone who had had a chance to drive a Tesla, it was obvious that the future was coming fast, and it would spell trouble for the Germans.
Nevertheless, German auto execs (not only BMW) arrogantly continued ignoring the trends, lobbying for better Blue Diesel, got caught up in emissions scandals and continued adding features to an ageing technology platform instead of putting all their efforts into disrupting themselves.
BMW even launched a corporate VC team, BMW I Ventures, which invested in a few dozen startups mostly around manufacturing, autonomous driving, shared models and peripheral technologies. What was fundamentally missing? Core business disruption, which should have been an all-hands-on-deck gathering. My guess is that Krüger had a few things to say about what was allowed to be disrupted or that the CVC team was not set up properly to influence the direction of the core tech business units.
The result of all that ignorance? Continued attrition of BMW passenger sales of 14.5% year on year in the US while Tesla model 3 market share of BMW continues to explode outselling BMW’s best-selling 3 series sedans. The market cap dropped from a lofty $85.6bn in June 2015 to a recent $45bn four years later. That’s $40bn in market value erased, or 1.1% of Germany’s GDP. To make things worse, the other segment, light trucks (X3 and X5) is about to come under attack from upcoming Model Y in 2020. My guess: the carnage is not over yet.
After spending a 15-plus years in the corporate venture capital and Silicon Valley startups, this has all been too predictable. The slow destruction of the iconic brands and companies like BMW could have been avoided by paying attention to the history lessons. Household names and great companies like Kodak, Pan Am, Xerox, Blockbuster, Nokia, Atari, Polaroid, RIM/Blackberry, Sears, Borders, Palm, Circuit City, Toys R US and now BMW all had a common illness which led to their demise: inability to innovate and reinvent themselves in a rapidly changing world. Clayton Christiansen’s ‘Innovators Dilemma’ should have been a required reading for world’s corporations. Yet, sadly, the history repeats itself again and again.
As I am watching another high-flying company self-destruct, I can think at least 10 tenets for every fellow CEO and her or his board to consider when faced with innovation struggle:
- Large corporates were startups once; keep the founders around – it is easy to forget that every large company was an innovative startup at one point. At some point, you bring in corporate executives who can take the figured-out business model and focus on operational efficiency, maximising profits and hiring people who can run the business efficiently, profitably and predictably. But that childish exuberance, quest for new questions and foolish innovation should always remain as part of the corporate culture for any company wishing to thrive in the future. That is why having the original founders as part of the creative team instead of pushing them out is a good idea. As Steve Jobs well put… “ Stay hungry, stay foolish “ or keep the foolish ones around.
- Recognise the echo chamber when you are in one – unlike the startups, large companies behave like the business adults. They have largely solved the question of repeatable business model and are focused on becoming efficient machines of operational excellence. They measure short-term operational metrics with little to no view of fundamental risks and shifts in the industry. As a result, innovators with alternative views, radical disruptors and entrepreneurs are quickly weeded out of the echo chambers and over time, there is no one left to challenge the status quo.
- Hire and keep disruptors – a good leader needs people who will challenge the norm, who will have those uncomfortable questions and will not agree for the sake of fitting in. Keep those misfits who ask why and ensure their perspective is heard and considered.
- Build the culture of innovation – value and reward innovation, risk taking, entrepreneurial spirit and demand speed of change. Do not punish failure – learn from those who tried and failed. One of the reasons Silicon Valley continues to thrive is its ubiquitous social acceptance of trying and failing. We call those people… ‘experienced’. We celebrate their journeys and crave for their new adventures. This should be perfected in the global corporate world, where open innovation is encouraged and rewarded, while trying and failing becomes a lesson and a platform for more opportunities.
- Embed innovators on every level – large corporates frequently create innovation groups and sequester them in separate units (XYZ Labs, Strategic Marketing, Corporate Venture and so on). Although recognising the need for innovation and launching a CVC unit is a step forward, it is imperative that the innovation is embedded throughout the organization, both in P&L business units as well as in service entities like finance and marketing. Having innovation champions throughout the company should signal that innovation and disruption is everyone’s job, not just a few mavericks who scout for radical ideas outside the company only to be shut down by corporate ‘antibodies’ who “know better and have tried something like that before”
- Careful what you measure – If you hire operation-driven people and incentivise them to achieve short term objectives, that is exactly what you will get: a predictable behaviour where good corporate soldiers execute the playbook on the table and stay within well-defined parameters. The only way to get a different, more entrepreneurial behavior is to embed an element of growth and innovation in people’s objectives and compensation plans. Alternatively, you will lose them to startups or your more entrepreneurial competitors.
- Be paranoid – continuously monitor the trends. Always look over your shoulder. The world is changing fast and a potentially devastating innovation is always around the corner. The moment you get complacent, you are in trouble. How often you hear that a company is a global leader in their industry and does not have real ‘competitors’. That is a sure way that trouble may be brewing. You can start humming ‘When A Cowboy Trades His Spurs For Wings’ from the Coen Brothers film “The Ballad of Buster Scruggs”. There is always a ‘faster gun’ out there around the corner.
- Allow your business units to participate in M&A – frequently I see competition for resources as zero-sum game within corporates. Business units (BU)operate on limited budgets and have to make a decision to hire another engineer to meet quarterly goals versus invest in innovation and look outside for potentially disruptive solutions. Instead, create an active partnership where BUs can use their expertise and budget to identify and closely collaborate with finance and M&A teams. Make acquisitions something that is co-funded with BUs, celebrated and embraced and not a threat to cushy corporate existence and safe paycheck.
- Acquire upstarts, let them operate, observe… and learn – “Resistance may be futile – yet frequently wrong”. There is tendency to “Borg” the startups into submission once acquired which kills their creativity for the sake of compliance. Remember that the startups have done well on their own typically with limited resources and capital. Imagine what they could now do with a corporate parent, additional resources and the market power of a larger company. Don’t over-react and squash the innovation, observe, learn. Let creative people operate independently longer and use the lessons as an opportunity to train your corporate operators on how to be more innovative and entrepreneurial. Rotate people through their organisation.
- Continuously challenge status quo and disrupt yourself – a friend of mine once said that: “If you don’t guide your children, someone else will”. In the corporate world the mantra should be “If you don’t disrupt yourself, someone else will.” There should be a constant effort built into every business unit to seek new ways of solving existing problems while looking for new problems to solve. Seek to disrupt yourself and if not, acquire someone who is about to. Keep doing it. Repeat. Again, and again.
As history has shown, the lack of continued innovation and disruption is a certain path to corporate mortality and loss of shareholder value. Any effective CEO should embed innovation seeds throughout their organisations and hold them accountable for growth, disruption even if it means hurting their own legacy products or business models.
A corporate venture and innovation CVC group is a good start. Not only it should be run by experienced innovators, investors and operators but it should include teams who come outside the company and even industry. Like the DNA pool, such broad perspective is essential to successful strategy.
As my friends at Global Corporate Venturing can attest, many corporates have stepped up to the plate and set up their CVC units. But the corporate CVC units should not be the only source of innovation or merely a checklist for boards and investors on how the company follows Silicon Valley. Best CVC units should be power brokers with the ‘licence to innovate, invest and acquire’ with designated well-motivated innovation agents throughout its enterprise. It would be interesting to hear from my colleagues at BMW iVentures on how this disruption dialogue, investment criteria and business unit dialogue went over the last five years – perhaps a good MBA case study.
But that is a topic for another chapter. Now I am off to watch another disruption the Tesla Model X with Raven update taking on Lamborghini Urus. Stay vigilant friends.