Can large corporations be “Lean”?

by Anonymous

I have constantly found myself thinking through the new lean startup concepts throughout this class and wondering how they could be successfully applied to large organizations.

The definition of a startup and a large corporation are completely different in every critical way: access to capital, human resources, brand awareness etc. And yet, large corporations are constantly trying to find ways to “incubate”, develop, promote and support lean startup methodologies. Over the past few years, I have seen how two large companies have tried to create a “lean” environment within their companies. The common trade-offs are:

Uncertainty vs. Scaling: Startups ideally try to reduce the amount of uncertainty through minimum viable products (MVPs), while corporations require accountable business plans and projections that force premature scaling and disincentives pivoting. Effectively there are rarely corporate structures or environments that even permit anything beyond setting a vision in the Hypothesis Driven Entrepreneurship Process. 

Testing vs. Brand: Does testing hurt a brand? As companies grow, so does their customer base, as does the size of their funnel, and ultimately their brand presence. This tension can be seen in multiple ways:

• Smoke tests are a wonderful inexpensive way to gauge customer demand for a new product, although large companies are hesitant to endorse false advertisement. 
• Constrained functionality can tarnish a brand and corporations are often unwilling to engage customers with a half baked product. 
• Frequent pivoting after a product idea has been launched at a large corporation often indicates weakness to the public and investors. In short, corporations feel they can’t afford to “fail”. 

Large companies have constantly failed at creating lean environments. As a result, they have resorted to purchasing companies for a huge premium after ideas or concepts have already proven a “product-market fit” and fail to continue encouraging lean methodology. That’s when you start seeing write-offs for early stage acquisitions that failed to grow, pivot or adapt after acquisition. Does that mean corporations can’t be lean? I would still like to believe there is hope. Corporations would need to constantly test unbranded products and cut off their reliance on branding to drive hype and validation. Most importantly, corporations must create an environment that allows and encourages failure.

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Using Lean Startup Practices for New Business Development in Big Corporations*

by Qingxi Wang

The core of lean startup practices is hypothesis testing process, a systematic approach for validating a new business’ proposed business model. With appropriate adaption, this systematic approach could and should be used for new business development in big corporations. Meanwhile, there is likely to be significant extra challenges during the process.

There are generally three main stages in developing a new business in a big corporation – concept stage, design stage and launching stage. During the concept stage, a new idea is proposed and basic technical and economic analysis is done. In the design stage, a business plan is drawn, which includes the team structure, operational process and solutions, sales model and detailed economic analysis. After winning some buy-in of the business plan, the new business might be launched. During the launching stage, hypothesis for the new business model need to be tested. A systematic approach for validating and revising assumptions in order to find a viable business model, the lean startup practices, would shorten the time to reach break-even and increase the probability of the new business’ success.

So what are the major differences between lean startup and developing new business in big corporations? I will focus on the resource constraints and organizational heritage here.

On the one hand, the key feature of startups is constraint of resources such as capital, talents, production capacity, distribution channels, etc. A big corporation may be well equipped with many of these, if not all, and may be able to ramp up any shortcomings of these in a comparatively short period of time. Unfortunately, these endowments oftentimes disguise a big corporation to waste a lot of investments unnecessarily before finding a viable business model. However, in certain circumstances, big corporations should leverage their rich resources. If there is strong first mover advantage, large benefit of economy of scale, large potential for network effect, or potential incoming competitor, a big corporation may want to invest fast and heavily in a new business, on the condition that there is decent chance of finding a viable business model or the potential long term profit increase for the corporation is large. Admittedly, there is risk for the big corporation to incur losses. However, a big corporation is able to take such risk. Even if the big corporation loses, it would still have another chance to continue to play; if it wins, the gain is big. At a casino, a rich player with more chips can make a bigger bet than a poor player with same cards. Besides, a big corporation can also manage this risk by investing in a portfolio of new businesses and diversify the risk.

On the other hand, because of the existing culture, organizational structures, process, and talent pool, big corporations may encounter many challenges to have new businesses emerge and develop. The established priorities, budgeting process, performance metrics, incentive structures, short term focus, and lack of experiences and skills oftentimes kill new businesses in big corporations. One solution is to have a separate unit, which is free from the existing system, to incubate new businesses. During the incubating process, systematic hypothesis testing approach of lean startup can be used. After a competitive business model is found by this separate unit, the new business may be returned to the corporation system.

*Reference: materials from classes of Launching Technology Ventures, General Management: Processes and Action, and Building and Sustaining Successful Businesses.

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Does Lean work at big corporations?

by Ashvini Thammaiah


As someone who’s not going to spend much time at a startup in the near future, I find it interesting to think about how well Lean methodologies can be applied at big corporations.  From my experience at larger companies and my understanding of the methodologies, I think it would be difficult to implement Lean methodologies well given the current systems in place at larger companies.


Product Development
Large corporations may try to apply the iterative short work cycles of the Agile methodology in their product development.  However, the decision making processes at large corporations severely mute the power of this methodology.  Given the financial planning systems and the need to product quarterly results, large corporations tend to be risk averse and resist deviating from plans made during their annual planning period.  Any changes that are attempted go through numerous meetings to get buy in from all the different key decision-makers across divisions.  Just the mere delays brought about by the amount of time it takes to get the players in the same room, can cause the product development to slow down.  


Talent
Unlike startups, employees at large corporations tend to have more of a fixed salary compensation structure rather than one heavily dependent on equity so employees may not be as aligned with the needs of the company as they would be at a startup.  Also, since big corporations tend to be more stable than startups, there may be a feeling that an employee’s individual work doesn’t have a significant impact on the overall sustainability of the company given the sheer size of the corporation (free-rider problem).  Finally, since most people who come from other companies will be used to traditional corporate budgets, they may not be scrappy with resources.  Thus, the incentives and cultures at big corporations are different than those at startups and so may attract people who aren’t as effective with being lean.  


Customer Interaction
While many large corporations do surveys and talk to current customers, it’s tough for them to use more accurate information gathering methods, such as smoke tests.  Large companies have to be concerned with their image and the effect that any actions may have on their existing business.  To get around this, companies can ask their employees to test out new products but that can lead to imperfect information.  An example of this is Google Buzz failing with mainstream consumers even after being tweaked in Google’s Sandbox.  Also, given that many firms have established sales divisions, talking to customers directly can be difficult.  If the sales team is involved, additional time and effort is expended coordinating additional people.  However, if they are left out of the conversation, it can be seen as stepping on their toes.


While large corporations have much they could benefit from the Lean methodology, I don’t think that most will be able to implement it in an effective manner without changes to how they run their business currently.  Given the challenge, it seems like some companies are creating separate internal innovation groups or investing in startups, which can be more lean given their independence from the large corporation.

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