Organizing for Success in High-Growth Emerging Business Opportunities

Summary from the Front End of Innovation Confernce in Boston, May 2008.

The issue Mr. Giersch proposed to the crowd was how to capitalize on emerging business opportunities within a large firm. His findings, he hoped, can serve as a model for other organizations. Having been with IBM for 35 years, he claimed to be intimately connected with the organization that created and solved the problems.

Historically, IBM had taken several paths to explore and exploit new business opportunities. In 1992, the focus was process centered. It did not address all the issues and did not create new business. It resulted in what Giersch called “a near death experience” for the organization. With plummeting revenues and profits, a reorganization brought Lou Gerstner to the helm and a total reorganization. In 1995, with the restructure in place, funding for innovation had vaporized.

A system was put in place to fund some projects, but with no reporting or oversight to manage the process. Funding came from corporate, not from the individual business units. With no systems in place to support new project development, a browser project failed to capitalize on a great market opportunity.

The journey to Emerging Business Opportunities began on September 12, 1999 with an email from CEO, Lou Gerstner in response to a decision to shut down further pursuit of a biotech initiative. The email demanded an accounting of the root causes of another major missed opportunity.

Process and funding approaches to new business opportunities both addressed only part of the problem. An Emerging Business Opportunity (EBO) strategy required a change management approach to turn things around. Today, IBM is a $99 billon company with about $10 billion in profit and an R&D budget of $6 billion.

The key events that led to this turnaround were based on the response to Gerstner’s email. He gave the leadership team not days, but 3 months to craft their response and recommendations. In effect, he gave them time and freedom to do something new. The journey enabled a change process to develop. The team first analyzed benchmarks, case studies and caselets. That spawned work sessions which isolated the root causes of missed opportunities. A key finding was a lack of knowledge, stewardship or involvement by senior management.

One of the first decisions was that core business, growth business and emerging business should all be measured differently. One set of metrics was ineffective for calculating all project success.

Recommendations for change included:
Declaration of strategic intent communicated from the top, sending a clear message of the value being placed on EBO. A senior leader was named Vice Chair to oversee the initiative.
A short list of high visibility projects of emerging business initiatives was selected.
These were housed within appropriate business groups.
Each had dedicated A-Team leadership and was under the sponsorship of a senior VP.
A special support structure was created specifically to aid these projects.
Funding, from corporate and the business units would be protected and monitored.
Disciplined mechanisms would control initiatives.
Measurements would be created appropriate the nature of the initiatives.
Regular review and oversight from senior management would be required.
The short list would be nurtured. Projects would be graduated or killed based on performance. New projects would replace the unsuccessful ones.

The overall goals were to develop opportunities that had potential to become billion dollar business units. Categories included new markets, new business models and new disruptive technologies. Linux is one successful example of this new approach,  recognized as a transformative system with the power to disrupt existing technology.

Results of the EBO strategy today contribute $10-20 billion to IBM’s revenue stream. Lessons learned fall into two categories. In the startup category, these included burning bridges to previous strategies, making thorough and honest assessments of root causes, getting broad buy in at the top and starting with a small group of hand picked initiatives.

The second category lists lessons for sustaining the EBO process. These include: Active senior level sponsorship; Dedicated A-Team leadership; Disciplined mechanisms; Resources fenced and watched; Quick starts and stops for the right reasons; Continued evolution of the process; Communications connecting business units and initiatives.

Gaps are signals that change is required. The role of leadership is to prepare the organization and build the case for change.

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