(Part 2 of 'How to Innovate in a Regulated Industry. Check out Part 1 here)

Take a Portfolio Approach

The risk of taking few large safe bets in today’s environment far outweighs that of taking many small risky bets. The fact is though, we need to maintain a balance. We should never compromise the core business at the expense of the new and reconfigure all of our processes, policies, values and infrastructure to support “move fast and break things” unless we want to bring on the death of the company.

Taking many small bets helps to mimic the venture capital approach which is that for every ten investments, expect maybe one or two to deliver the desired returns and the majority to completely fail. Thus, taking small bets gives us more room to fail small but also increases the likelihood that we can win big with the few. If venture capitalists, whose job it is to invest in early stage companies, concede that they don’t get it right all the time (only 10% of the time in fact), then why should it be different for corporate executives whose job it has not traditionally been to develop new ventures and innovative business models? It’s not.

If we want to succeed every time, we can do that, but we do so while conceding that we will never deliver anything great. We will only succeed in stretching our existing S-curve as far as it will go, as did Kodak, Nokia and Borders before us. Perhaps John F Kennedy said it best when he lamented that “there are risks and costs to action, but they are far less than the long range risks of comfortable inaction”.

An environment needs to be created under which delivery of the existing and discovery of the new can co-exist. This should extend to the processes, values and infrastructure that support each approach.

While it’s difficult to experiment and move quickly in a large, often bureaucratic organisation that has implemented processes to protect and execute on a winning business model, there are many things that successful Fortune 500 companies are doing to counteract this.

Open innovation campaigns, idea contests, hackathons and innovation outposts (or corporate incubators), corporate startup partnerships and venture funds, or a combination thereof, are just some of the different methods that companies can use to successfully explore potentially disruptive business models in a fast, safe to fail environment.

A growing number of companies are looking outside the building and looking to pair their significant networks and experience with that of the structure, values, processes and talents of startups to help deliver mutually beneficial outcomes. Open innovation and the corporate startup partnership helps large organisations leverage their strengths without the burdensome bureaucracy they may operate in, without an impact on reputation, without a need to host on expensive internal systems and without regulatory pressures to worry about.

What about our brand?!

It is perfectly responsible to ask about the damaging effects of testing half baked ideas and products with the market, which is why we need to be careful about how we go about it. Remember, it’s not about finished products, it’s about validated assumptions.

How to get around it?

Test on small isolated groups that match the target market assumptionsTest with a new brandTest with full transparency the product is in beta mode and offer it for free purely for the purposes of soliciting early customer feedback (Intuit Labs do this with their “roughcuts” program)