A client situation I often find is misalignment between how value is generated in the core and how the more radical innovation is structured. In one recent case the business appeared to make the majority of its money from selling products to middle class women, 30 to 45 years old. They had a couple of digital initiatives, which I'd classify as 'top left' - they did access a new type of customer with a new model, but were being delivered in a traditional operating structure.
One of these was a high end D2C retail site aimed at rich, typically older men; the other an experiential site that showed 'power users' of the products how to use them in a more sophisticated way. The latter had no sales functionality although it did enable links into 3rd party e-commerce.
There were no hybrids and the innovative businesses were located in different countries to each other and to the core.
We discussed a number of issues, in order of appearance:
- It was not obvious how the (unclear) goals of the innovative initiatives supported enhancement of the core business as they were aimed at totally different customers. This could be okay if they were aimed at accessing a lucrative new customer type, but it wasn't apparent that this was the case
- The portfolio was too small and each of the two initiatives in the innovative area had cost bases more appropriate to proven, scale businesses. There were no clear investment gates to decide to double down, pivot or kill the initiatives
- The portfolio had multiple points of leadership so prioritisation was very hard
- Talent in the innovative businesses wasn't appropriate, but had instead been transferred from the core and had to learn how to trade the new businesses from scratch. They weren't set up for success
- No structures existed to take learnings from the new initiatives into the core or to trial them on larger groups prior to that
Our discussion centred around setting objectives and investment gates for the existing portfolio and how to add new innovative initiatives that broaden the base of learning around the future needs of today's core customers. The other interesting part was around whether there was any need for an innovative way of delivering the new initiatives so that the business can learn about radically more productive operating models...
I'll leave that there because I don't want to give away too much information. My closing comment would be that the 1-5 portfolio issues are not in any way unique to this business. When you draw initiatives out on the framework and try and link them together with simple measures, like customer type or profitability you can quickly see where the surgery is required and have a really sensible discussion about how to restructure.