Launching New Startups in Big Corporations

Many industries are being disrupted by new and innovative technologies and many more are awaiting to be disrupted in the next 5-10 years.

This anticipation has obviously resulted in many corporations attempting to create their own innovative products, so as not to be disrupted by a third party technology or a startup. It’s quite common these days to see Telcos, Banks and Insurance companies organizing hackathons, and trying to generate innovative ideas that could be used in their respective industries.

Generating new ideas is the easy part. But as discussed in my previous post, trying to develop totally new products in a corporate setting is very challenging to say the least.

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3 Corporate Hurdles that Kill New Initiatives

There are at least three main corporate hurdles for a successful new product incubation within a large corporate setting, these are corporate structure, approval processes and procurement processes. Oftentimes, corporations make a mistake of starting a new product without addressing any of these three pain points.

1. Corporate Structure

In big corporations, normally the product manager (or product owner or brand manager) for a particular product is located within a Marketing Group. Actual product development in terms of coding happens within the IT Group (or IT can further outsource the development work to a third party). Once the product is operational, i.e out there in the market, it will be managed within the corporation by different parties that are responsible for different areas. For example:

  • Product Owner (Marketing) – responsible for the product (s/he will be reporting to Head of Department, in return HoD will be reporting to Head of Division, HoDiv will be reporting to CMO). While Product Owner is the person who is responsible for the product, s/he still needs to run major decisions by his/her management, which slows down the overall decision making process.
  • Creative Agency (Vendor) – responsible for user interface design and overall marketing activities. This means UI Design (and other product related marketing work) gets outsourced to an outside agency, this again slows down the overall product development process.
  • UX (Marketing/IT) – responsible for user experience i.e wireframing, user research, information architecture etc. (Corporations that do not have internal UX team, normally outsource this part to a Creative Agency too)
  • Development Team (IT) – responsible for coding, i.e; improving the product, new feature development, mobile app development etc.
  • Operations Team (IT) – responsible to make sure that product is running well 24/7 (IT Operations are partially or fully outsourced to a third parties)
  • Technical Partners (Vendors to IT Group) – these could be partners that manage hardware and infrastructure, outsource partners for coding, or testing.

Given the above structure, it’s important to note that these individuals and teams (besides the Product Manager) are shared resources. These resources are not resources that are only assigned to a particular product, instead they are shared by all the other products and services of the corporation. This means, if a particular resource is busy at any time, the new requests have to wait until the resource finishes the tasks at hand. And that slows down product development, yet again.

2. Approval Processes

It’s quite clear that given the corporate structure above, it would be enough to slow down the overall approval process. However, corporations have additional committees and specific processes for certain types of approvals. To make it worse, sometimes some of these committees only meet at certain days of the week.

Approval processes can be for various things, for example;

  • approval for branding and UI design (depending on how important the product is, it can go up to CEO level for approval).
  • approval for budget – (depending on how important the product is, and especially if you are requesting for a new product budget in the middle of the year, then surely you have to meet CFO and provide necessary justifications),
  • approval for source code deployments (if your hardware is managed by third party companies, and if your new product shares hardware with existing products and services of the company, then deployment process can be quite frustrating.
  • approval for strategy change (if you need to pivot, it will be a challenge to get an agreement from the top management. It will be easier if the new idea is a ‘baby’ of the CEO, since s/he can make the calls for strategic decisions. On the other hand, if the new idea was picked from the staff – non C-level baby – then pivoting or changing the strategy will be a quite challenging task, since that would mean rounds of meetings, committees and convincing different parties on the new direction, reports, justifications, presentations..etc. ).

3. Procurement Process

Since, the new ideas are treated as a ‘project’ within the corporation, it has to follow the existing processes to get the budget approved by the top management. Getting a yearly budget approved by the top management is half the battle. Because product teams cannot simply use the approved budget anytime they want.

Instead, in order to use the budget, product team needs to follow the procurement process. That means for every expense that the Product Manager is planning towards the product development s/he need to raise an internal ‘request’ to Procurement Department. Every request requires accompanying paperwork and necessary approvals from the management. Procurement process can take up to 2 months, if you are lucky, you can get the PO (Purchase Order) out by 2-3 weeks.

If you ask a fish to climb a tree..

fishtree

Corporate Structure, Approval and Procurement Processes are not, in and of itself, something negative or destructive. Quite the contrary, they serve an important purpose within large corporations, particularly making existing day-to-day operations more efficient and orderly. And they are very effective in doing that!

It becomes something destructive, when you try to implement the same structure and processes that was primarily designed for large corporations to be applied to new startups.

Recommendations

In order to have a conducive environment for new ideas/startups to grow and flourish within big corporations, the above three main points need to be addressed.

1. Corporate Structure -> Product Teams

Product Teams – instead of using the existing Corporate Structure and shared resources for a new products/startups, product teams should be established. Product teams resource wise, should be self-sufficient as much as possible. Ideally, it should have its own product, ux, technical, marketing, and sales resources. It should be led by the Product Manager, who is ultimately the mini-CEO of the new startup. The product team should be colocated, whether in the same building with the parent company or in a new new office.

Product teams should manage all the important aspects of the product development in house. This will allow the team to control the quality of the product, respond to market needs faster and employ agile product development methodology. Non-core aspects of the product development can still be outsourced to third parties.

2. Approval Processes -> Product Manager

Approvals should ultimately lie with the Product Manager. Product Manager should be given authority to call the shots, but s/he must be accountable for the product success or failure. If top management doesn’t trust the product manager’s capability in managing and driving the product/startup, then they should hire someone that they can trust and rally behind.

Top management can still oversee the Product Manager through regular progress update meetings, but overall, day-to-day operations and product roadmap execution should be led by Product Manager.

3. Procurement Process -> Pre-approved Budget

Total budget that a parent company is willing to invest should be determined for the startup in advance and should be allocated on yearly or by phase/milestone basis. And the product manager should be able to utilize the funds as necessary without going through the procurement process of the parent company. This doesn’t mean that there should be no check and balances regarding the budget expenditure, but instead, to make the process efficient the approval process should be reduced to Product Manager and Project Director/Sponsor level only. Again, Top Management can oversee and scrutinize the spending in their regular project status update meetings as necessary.

Summary

If you are from a big corporation and reading this, then you should know what I’m talking about. There are probably more reasons, but I think these are the main three pain points. Of course, politics, ego,  9-to-5 attitude, wrong person being assigned as product manager, wrongly set KPIs, too generous SLAs… all do not help either.

I would love to hear your feedbacks and comments. Please do share your personal stories in the comments below.

  • Mikaeel Najillah

    Very informative! “If you ask a fish to climb a tree..” this one is actually happening to the school. 🙂