Richard Fouts

A member of the Gartner Blog Network

Richard Fouts
Research Vice President
2 years at Gartner
23 years IT industry

Richard Fouts guides digital marketers on best practices for evaluating and deploying emerging digital marketing techniques to ensure marketers make fully informed decisions about their marketing investments. With extensive experience in brand management and marketing communications ... Read Full Bio

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Should You Launch an Internal Startup?

by Richard Fouts  |  April 3, 2014  |  3 Comments

Gartner expects digital business disruption to heat up over the next 2 to 3 years. If your organization’s legacy model is being aggressively challenged by nimble startups – you need to act now.

But, you can’t summarily abandon your legacy business model

….in favor of one altered for a digital world, overnight (although many stakeholders, especially board members, may apply this type of pressure). An all-out replacement may be tempting, especially if a disruption is causing losses in revenue and share. But premature abandonment is sure to dilute the value proposition you’ve taken years to build and refine.

Think of transformation as two efforts happening in parallel tracks.

The first track realigns your legacy model to an altered marketplace leveraging the value proposition that has worked for you. The second track works to develop new sources of growth through a new startup business unit or service line.

This dual-track approach was used by Xerox, the New York Times, NBC, FedEx and Nike.Launching a startup business inside a traditional business challenges old ways of doing things, but it also leverages legacy values, strengths and resources that can add value and insight to any new business,

These resources, particularly marketing, HR and product management, are readily available to support an internal startup through your existing shared services models. But keep in mind, the extra load can be stressful. Hence, leadership is the key to helping people set priorities. Most companies engaged in this dual-track approach use the CEO to drive tough decisions when resource tradeoffs must be made, causing legacy businesses to wait a bit longer for support they typically get faster.

Looks outside your industry for inspiration

My coverage of consulting firms reveals several instances where this approach is being used to generate new growth. For example, Razorfish is working with Delta Airlines, Peet’s Coffee and Audi. SapientNitro with Target, Ralph Lauren and the Boston Red Sox.

If you follow their lead, you’ll likely insist your consultant staff people that deeply understand your sector. You’re not wrong to insist this, but you also need to give consultants the freedom to reframe business problems and opportunities in completely new ways.

Be open to staffing your initiative with an expert who may have a moderate understanding of your sector, with a high degree of empathy and expertise in the piece of the value chain you want to impact; e.g., customer service, delivery, loyalty or the user experience. Immerse this person in what a satisfied customer in your business looks like versus the existing process and structure currently in place to deliver it.

For example, marketers at B2B publishing giant Thomson Reuters adopted the mindset of P&G (a company known for following its customers around stores and observing them in their kitchens) to understand precisely how brokers and bond traders use its products to make investment recommendations, resulting in several changes to how products are now developed, priced and distributed.

Conduct the “worst nightmare” exercise

….where the team imagines how a new competitor, from an adjacent market, with no legacy to manage, would challenge your existing customer value proposition. What is this new competitor providing that your existing customer base finds irresistible? What does it do faster, with more accuracy, and with more relevance due to insightful customer context? Use your imagination to craft as many scenarios as you can. Then vote on them to create a prioritized list of competitive attributes you want to instill in your own organization. Lead this exercise with one of Peter Drucker’s famous quotes, “It is cheaper and more profitable to obsolete yourself than have your competitor do it for you.”

 

 

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