Podcast Transcript: How to drive innovation within large organizations

Intro

Meet the people behind today’s leading innovations — from the boardroom to the halls of government. Join Jeff Saviano, a global innovation leader at EY, to hear from the trailblazers reshaping our world. You’re listening to Better Innovation.

Jeff Saviano

Hey Better Innovation, it’s Jeff. Well, here we are. We are back with Season 6. I know it’s hard to believe it’s already been 6 years of Better Innovation but here we are. And you know what? It’s all because of you, our faithful listeners. You share with us your ideas season after season. We are so appreciative of all that you give to Better Innovation. I’m really excited for all that’s to come in Season 6. We have exceptional guests lined up already. There are conversations ahead that will boggle the mind in the best possible way. Our objective of this podcast is to become your source of inspiration for your innovation goals and endeavors. We want to bring to you the compelling stories from leaders in this field. So, each episode will follow a different theme that relates to the unique innovation journey of each of our guests. So that’s one change we want to promote this year – we’re going to have a theme for each of our shows. Maybe sometimes a collection of a few shows rather than having one theme for the entire season. And we do all this to provide you with a diverse range of learnings and insights to guide your innovation journeys. I’m thrilled to kick off today with our guest who is the author of Lean Startup in large organizations, Jim Euchner. Jim has had such an impressive and wide-ranging career. Not only is he an accomplished author, but he is also the Editor in Chief at the Research Technology Management Journal. He’s the co-founder of the MIT Innovation Lab along with many, many other achievements and stops along the way. He’s worked in the field of intelligent systems for more than 25 years. Jim was previously the vice president of global innovation at Goodyear Tire and Rubber Company and he also held similar roles at Bell Atlantic. Today’s episode focuses on the theme of having the courage and curiosity and vision to drive innovation within large organizations. You’ll hear that Jim has succeeded in doing this time and time again throughout his career. Here we go, you’re going to love it. Jim Euchner.

Saviano

Hey, Jim, welcome to the show.

Jim Euchner

Thank you very much, Jeff. Thanks for having me.

Saviano

Jim, you have had such an impressive career path. We could travel in so many different directions today. But what about this? Let's kick things off with you telling us about your story. Jim, how did you get to where you are today?

Euchner

Okay. I've had a career that has been in various aspects of innovation in mostly in large companies. Sometimes it's been in R&D, sometimes in IT, sometimes in strategy. But that's been the general trajectory. But basically, the career is really about some success, some failure, some learning from the failure, really trying to find out what other people were doing about the issues and then try to understand and move forward.

I started my career at Oracle Oil and Gas Company in the R&D department. And one of the things, big things I learned there was when we developed the first expert system, which designed cement for oil wells, and it was very good at replicating what lead experts in cement design did. And when we took it out to the field, to the engineer who would use it, he was basically not interested in using it. And we understood from that, that it's not just the technical success that matters. What we were doing with him was creating a problem where he, who had very little deep expertise in cementing, was being asked to choose between a vendor who was making a recommendation and a system that was making a recommendation and basically created for him a social problem.

So, that's where I started learning that technology is situated and you need to think about the human side of technology and thinking about different aspects of the human side of technology is a thread that's informed everything I've done. And I think it's been most, most important to the success of the projects we've deployed.

Saviano

Okay, Jim, that's a great example for us to start with. And I think it really shows not only the complexity of how to affect solutions within a big company, but also, as you mentioned, the human element, right? Innovators and people within the business world, people trying to accomplish various objectives. We're going to get in too many of those issues today. And, of course, sometimes large enterprises like perhaps the example that you use, they're not perceived as being the most innovative. And of course, in the eighties and nineties, they were viewed oftentimes as the thought leaders on issues around technology and innovation. So, if you could, Jim, take us through your experiences when you were at companies like Nine X or Pitney Bowes in the eighties and nineties, what was the state of those industries from an innovation standpoint? Were the organizations already starting to think in digital terms or how did your teams help them along that journey?

Euchner

Yeah, so one of the interesting things for me in the course of my career is how much disruption there's been of industries that I've been part of, and in fact industries that seem to have almost no relation to one another have ended up even competing with one another and collaborating. So, the TELCOs in the eighties were going through massive changes and into the nineties. Cellular was displacing landline and it has continued to do so. Data was replacing voice. So, there was a switch between what was over the air and what was what was landline. And in the TELCO, I worked in that had to be funded, that transition had to be funded and a big part of my role there was helping to use technology to increase efficiency in the core business. And then that money was invested in the new growth businesses. I think strategically the TELCOs made a lot of very difficult transitions, very successfully, but it was wrenching at times. And you know, part of the work I did helped to automate things, which was wrenching for individuals as well. At Pitney Bowes, I was there at a time when the mail, the use of single piece mail was declining 60% a year. That was the core profit engine of the company. In fact, there was the Internet that Nine X was helping to drive that was displacing what was happening at Pitney Bowes there. There, it was clear we had to have other businesses in order to grow. There were a lot of opportunities. But one of the challenges in a company like that is that almost none of them look good when compared to reinvesting in the core business. The core business was just so profitable that new businesses seemed both more risky and less profitable. So, a lot of what my you know, what we did there was put things on the table. I think a lot of them were right, but it was hard for the company to pull the trigger.

Saviano

Those are just massive industry shifts that perhaps one way to look at it is that they were triggered by technology innovation and a few years ago we had Steve Sasson on this show. Steve invented the digital camera when he was at Kodak, and he told us that disruption story, Jim, which was fascinating to me about a company that knew what they had. They understood the power of the technology, but frankly, they were just making so much money in the old business model. It was hard to turn away from that. And I think even in these early examples that you're giving, companies have existing business models, it's working, it's hard to self-disrupt. And that's a theme that we'll come back to. I'm so curious, Jim, how did your experiences helping these large companies adapt to their digital landscape changes? How did those experience, experiences inform your outlook on innovation?

Euchner

Well, the main, main things I've learned about innovation through the experiences of working with these companies is the importance of starting with the user, whoever that is, whether it's operational efficiency or it's a new product or it's a new business. And so, my experience is where we succeeded, where we failed. They led me to trying to understand more firsthand from the users. And so, we hired our first anthropologist at Nine X back in 1994 because we wanted to understand what was preventing people from adopting solutions. That seemed to work from a technical perspective. And we began using design methods at Pitney Bowes again in the nineties because we needed to understand users from a much deeper perspective than we had understood before. So, the two big themes for me are, one, the importance of understanding deeply the people who will use whatever it is you're trying to develop. And then the second thing is understanding the organizational context and the natural resistance that happens. And the two are not, you know, they seem dissimilar, but customer insight really helps to overcome a lot of organizational resistance because it's real, it's grounded, it's compelling.

Saviano

Right. I love that user focus. And another way of looking at it, it's an early example of customer centric design.

Euchner

Yes.

Saviano

Right. And the hiring of an anthropologist. You were way ahead of your time. That's a fascinating application. And there are so many great innovation theories. We've had the benefit. Well, we'll talk a lot about lean startup, but also theories like jobs to be done that came out of Harvard and Clayton Christensen and the importance of focusing on the customer journey. And I think many times with innovation teams, there's a risk of it becoming about those teams and less about the customer. So, I loved, you have introduced an important concept early in our conversation. How do we start with the customer in mind? Let's fast forward, Jim, if we can, to Goodyear, the good year, years. And I understand that you managed a technology portfolio at Goodyear. It spans tech like Internet of Things, sensor technologies and big data in many different forms. Can you tell our listeners about how your experiences at the company affected its digital adoption?

Euchner

Okay. my role there was launching new businesses, so moving outside of the core tire business, digital technologies at Goodyear are used in manufacturing, they're used in design. There's a lot of simulation that accompanies the physical design of products. So, digital technologies are used also in process innovation. What I was responsible for was trying to develop and grow businesses outside the core. Some of those businesses were services led businesses. So, one was a business where we monitored tires of commercial trucks in real time using Internet of Things. The data was transformed it up to the cloud, which wouldn't have been possible even a few years earlier. Predictive analytics were used to predict when a tire might fail. Two days in advance, and then that information had to be absorbed by and used by the people in the field, which again gets back to the human element, which we can talk more about.

Saviano

Jim, let's fast forward to Goodyear. I understand when you were there, you were managing a large technology portfolio, spans many different domains, like, for example, the Internet of Things, sensor technologies and various forms of big data. Can you tell our listeners about your experience at the company and how it progressed along its digital adoption?

Euchner

Okay, sure. The digital adoption for Goodyear is happening and was happening in many domains in the factories, in product design, in, in processes. My responsibility was for launching new businesses outside the core tire business and, and that required the use of many technologies. It always started with what is the problem we're trying to solve. And then we would leverage assets in the rest of the company to bring that technology to bear to solve problems. So, an example of a digital solution that's now launched globally was one that monitors tires, the pressure and temperature of tires on commercial trucks in real time. And it uses that data which is sent up to the cloud together with predictive analytics, to predict two days in advance, on average, when there might be an issue with the tire due to poor tire pressure maintenance. The interesting thing about this is this the solution obviously worked, but that's only half the problem. There's also how you make it work for fleets. Well, we tested this. We first tested it with two fleets. One of them responded to every alert and eliminated virtually eliminated their roadside failures, which are a big deal for a commercial fleet. The other basically didn't. And so, one of our research projects became, how can we understand what causes people to accept advice or not accept advice? Is it the way it's presented, who is it who it's presented to or is it just the sector or the process maturity of the customer that matters? So again, we get brought into the human side and the organizational side and making an innovation work.

Saviano

And Jim, another great example of a challenge faced innovating within a big company. You said something really important. I want to just pinpoint it. And then we're going to we're going to pause on it. We'll come back to this idea of how do you leverage assets of the performance engine, the business. And that were a point that you raised in the book that I found. I found quite interesting. Before we go down that avenue, though, I'd love to just go a bit deeper on the pros and cons of doing what you do at a large company rather than a startup. And then, of course, conversely, what are the advantages of innovating within a startup that perhaps isn't relevant within a big company? Tell us about your experiences with both types of organizations.

Euchner

The most of my experience is within large companies. Although, I worked pretty extensively with startups along the way, the biggest advantages of a large company are its assets. You have resources, you have technical resources, you have legal resources, you have sales resources, you have a brand and the brand often opens doors to customers for you. You have channels, so you have access to customers that can take a long time for a startup to build up. So, there are a lot of advantages of a large company. The advantages of a startup usually are a lot of freedom, a lot of energy, a very strong belief in the mission and commitment to the mission. The startup and in the book I talk about it. In each case, the things that the startup has that, you know, the lean startup helps in particular to innovate. And then they're in large companies, their assets they have. But there are ways in which lean startup is difficult in a large company.

Saviano

You can look at it, I suppose, Jim, as the benefits and burdens. Let's just stick with a big company for a minute. Right? There are certain benefits of innovating within a big company. I love how you phrased it. You could consider the brands. I look at our work at EY and the benefit that we get from doing it under the EY brand umbrella. But there's also there's also the burdens at times and we'll get into some of those challenges that exist. Another way of looking at another framework are rights and obligations for every right that an innovation team feels like it has within a big company. There's also an obligation, right, to the bigger brands and to the bigger mission of the company. Is that a fair way of looking at it?

Euchner

I think it is. I think it helps to think in those terms because it helps always when you're inside a large company to try to put yourself in the shoes of the people with whom you're working and who you might depend on. And one way of thinking about it is that you have obligations to them. They may have obligations to you, they may not. And another is just to think about what are their, what are their interests. The big thing to keep in mind for large companies is that they're optimized for what they do. Over time, they get more efficient, but they also get less resilient because efficiency and resilience sometimes conflict with one another and things become embedded in the culture. So, there's sort of unstated beliefs about how we do things around here, which may be, you know, what's the identity of the company? Are you a product company or beyond that? You know, sometimes I've been in companies where people say, well, service is a bad business. That's just a deep belief based on historical experience. Or we should never we should stick to our knitting. That sometimes is driven by past experiences, says where the company moved outside and didn't have success. But there are these deeply held beliefs that are often unvoiced, often even on discussable, and they influence how people behave from the executives down to the people in the functions you're working with.

Saviano

Jim, I have to say that you come across as somebody who loves what you do. Is that, that fair? Is that a fair impression that I'm taking from not only this conversation, but some of the prep that we have. You really seem to love this notion of not just building businesses but embracing the complexity of doing it within big companies.

Euchner

Yeah, that's true. I mean, I love it and I do it so much with clients now. I love doing it on the inside because on the inside you're fully accountable for it. It's challenging, but that's what makes it fun.

Saviano

Oh, that's great. Well, it's a great Segway into talking about the book that you published earlier this year. You've answered the question, what do you do during a pandemic? You write a book. It's published. I imagine you probably wrote a lot of it during the pandemic. Is that right?

Euchner

That's absolutely right. Yeah, that's how I used the time.

Saviano

The book you published this year is called Lean Startup in Large Organizations. Let's start with the basics, Jim. What's the book about and why did you write it?

Euchner

Well, the book is about in large. It's about how you innovate in a customer centered way, in a learning way, inside large organizations. And it builds on lean startup because I think Lean Startup is it works. It's the most effective approach, you know, sort of systemic or a holistic approach to innovating when you're moving outside of your core business, when you're going beyond process innovation or beyond new product innovation. And it helps you move from the conditions of extreme uncertainty, as Erik Reece calls it, up to the point where you know enough that you're willing to make a bet. So, it works. The challenge is that it induces reactions inside corporations, and it's not really one for one, but each of the practices tends to cause a reaction inside a corporation. So, each of the seven practices requires the need for a complementary practice, not a different practice, but one added to what Lean Startup does in order to have success.

Saviano

And Jim, I wonder if the use of the word organizations within the title of the book was deliberate and that a lot of your own personal experiences, whether it's at the companies that you've talked about, Pitney Bowes or Goodyear, obviously these are private sector commercial enterprises, but lean startup does not only apply to the private sector. And, you know, we've talked to others, including Steve Blanc, about that, that there is an application to NGOs, there's an application to non-profits. Am I right to read into your choice of word organizations that this is not just limited to the private sector?

Euchner

Yes, you're absolutely right. Because, organizations behave in a very consistent manner. I did some work years ago with the New York City Department of Probation that was trying to innovate the probation experience. The same issues occur there. The same resistance is the same reluctance to engage all the stakeholders, including in this case, probationers, the same sort of resistance to changing the basic model for doing something if it's been around for a while, there's risk associated with that. So, I think the same principles play out. Now obviously, they play out a little bit differently because the metrics and the motivations and are different. The drivers are different, but the basic principles still apply.

Saviano

That's terrific, Jim. That helps it helps our audience so much to understand some of the issues that we'll talk about. The question that I've been dying to ask you and frankly, we could have just asked one question today, and the only question we asked is this one. Well, why is innovation within big organizations so difficult? And take it from somebody who is within a large organization. It can be a challenge. Why is it so hard, Jim?

Euchner

Well, I think at root it's because the companies are optimized for what they do and all the, what innovation does almost by definition is disrupt what they do. And I and the particular practices that are effective can be can disrupt in very specific segments. So, for example, a big principle of lean startup is the lean learning loop and the pivot. It's, you know, the experiment that helps you learn either about the customer or about the technical feasibility of a solution or the value created or the channel you'll use. At the core of it is a business experiment, a lean learning loop. Every time you try to do an experiment with real customers, it creates anxiety inside the corporation, sales wonders whether you mislead or create expectations in the customer that you can't meet, legal worries that you'll create a liability issue or you'll disclose intellectual property before it's protected. The procurement people worry that you'll commit to a business and disclose information about the business that will inhibit your ability to negotiate good contracts. In other words, as you do the core of the lean startup, the business experiment, or the Lean Learning Loop, you get a lot of anxiety inside the corporation and learning how to manage that and in a way that addresses the concerns people have is key. The first step is, of course, recognizing that they're legitimate concerns. The second is that to tell people understand that they can be managed and they're not often nearly as much of a concern as was anticipated.

Saviano

And Jim, I love the use of the word anxiety. I think it's I think it's perfect. It's a perfect way to describe it. And clearly, we love lean startup theory here at Better Innovation and across our audience. We were so lucky to have Steve Blank, who is, of course, the founder of lean theory. Steve has been on the show a few times. It'd be helpful, Jim, if you could give our audience a quick refresher on the critical elements of lean, especially those that survive within the corporate setting. I suppose many of our audience understands what Lean Startup is, but if you could give a quick refresher on that.

Euchner

Sure, sure. I like to think of it as three practices and then three questions that you're trying to answer. So, the three practices are the lean learning loop together with the pivot. That pivot decision that we've discussed. A core is the minimum viable product. Again, the minimum viable product is something that's critical to learning from people in their real world, but often with large companies, especially where there's a liability concern or a safety issue like there is with a tire company, you have to break it into pieces. And I use instead of a big MPP sort of a little ‘mpp’ a minimum viable prototype, something that you use to learn just what you need to learn in that situation. So, there's the core, this idea that you want to get something in people's hands and get their reaction to it, not to some description of it, but to it. And the idea that you may need to break that into prototypes that are used in experiments. So, the second is it was the first bundle, the lean learning loop, the pivot or persist and the minimum viable product or how you innovate. The three big questions are, the value hypothesis. So how are you going to create value for customers, the business hypothesis, how are you going to go to market? And the growth hypothesis, how are we going to get to scale? And each of those also creates resistance, but usually more of an executive level. So, the value hypothesis gets to the issue. If you follow customers wherever they go, if you follow their needs, it may lead you into spaces you didn't expect to go, and they may even challenge the identity of the firm. And that's the that's the resistance there. The business hypothesis is the business model that you use. And there's tremendous resistance for good reason to just nearly launching new business models. They're expensive to launch, on the other hand, and it's like, Slywotzky. Adrian Slywotzky pointed this out. There could be a five times difference in value capture for the same concept delivered by two different business models. So, the concern is you're going to ruin the core business by cannibalize it. And then the third is the growth hypothesis, and that's the hypothesis that, you know, how will you grow this business. Here, the big concern is you're going to start sapping resources from the core and you'll make it harder for us to meet our numbers, basically.

Saviano

And of course, Steve didn't design lean startup theory for a big organization. Right. Let's face it, he designed it for as the name implies, designed it for a startup, for a small organization. In fact, I love the way Steve puts it that a startup is not just a smaller version of a big company. They're inherently extremely different in how they govern, how they design new products and how they are funded, what have you, many, many different dimensions. It's not enough to just parachute. You can't just take these great ideas Jim right, and parachute lean theory into to a big mammoth organization. Why is that? Why doesn't that work? Let's start with the why first.

Euchner

Okay, sure. As Steve Blank said his first, I was the one you just talked about that is small companies, not just a little version of a bigger company. His second is that new ventures in corporations are not just startups that happen to be hosted inside of a company. The context makes all the difference. And so that that's the first thing to recognize. It is the practices that make it work are, there are principles that apply across companies, but there are practices that need to be customized to the individual company. And a large part of what I've written about in the book is how you can use sort of theory to devise principles that work in your corporation. And I talk about six or seven practices that I know work because I've tried them and I've tried them in more than one company, but I also know from working with different people, you have to take the principles and then adapt them to your setting. I'd be glad to talk about any you'd like to.

Saviano

Well, we often we often look to the business, the core business. One way to refer to that is the performance engine. Yes. Refer to that in the book that way. And that's how we refer to the core business as well. If you examine the intersection between these lean innovation teams and how they work with the core business, how they work with the performance engine, sometimes there's conflicts. It can be a bit of a challenge and you get into many examples in the book. I'd like to talk about a few of the key concept parts, Jim, from your work, if that's okay, let's start with this idea of separate but connected theory. I love this separate but connected theory in the context of how innovation teams align with the performance.

Euchner

Okay, sure. That's Govindarajan. Vijay Govindarajan and Chris Trimble are the ones who originated that idea at Dartmouth and I, and I find it very useful in practice. So, it's good practical theory. It's important to large companies to think in these terms because on the one hand, if they're going to succeed against startups, they almost have to leverage some assets. They have to have some competitive advantage that they're bringing to the market to overcome the natural, you know, difference in pace and commitment and even funding these days. But using these assets often results in conflict because you're using it can make it less efficient for the people who are responsible for its efficiency. The separate but connected model which comes into play at the point that you're incubating the business, is the idea that there's a NewCo, a business that you want to innovate and there's the performance business, the performance engine, and that you ought to think carefully at the time you go to business about what's the relationship between the two. Some people say leave them completely separate and then you'll lose the asset. So, people embed them and then almost always they die. It's as though they just get smothered or killed outright. So, the idea here is to take the two and one by one go through what the negotiated relationships ought to be. How do we go to market? Well, I say, well, we have two sales forces or one who will get the credit for the sale will be allocated differently depending on what gets sold. What we have use the common procurement function or different procurement function. How do we at Goodyear we were leveraging this service network. What will be the relationship there? What would be the terms of payment to the service network for the work that's going to be done? Who will own the data on the customer? Who will lead, who will follow all of those issues get negotiated upfront? My experience is that if people don't think about this, they default to one of the other two solutions. At Goodyear, we actually brought Chris Trimble, who from Dartmouth in and we did the business case. We did, while we were thinking of launching that services business, I mentioned to you before, we took all the leaders globally of the commercial truck business and we did a business case of New York Times Digital. We went through what New York; did they separate the print from the digital. Do they keep it together? Why? We went through the case. It unlocks people from their own problems and their own biases. Eventually they concluded, well, they have to have a model where they're separate, but the content is connected. Then we step back and say, What does that mean for us? And they all agree that's what we need to do in our case. So, it's a theory that is very practical. But people reading a chapter of a book probably get it. going through other experiences will help you come to the right conclusion about it.

Saviano

I want to start with that theory because it's perhaps the question that we get most often from either our clients or even our own internal innovations. How do we set them up for success? And isn't that really what we're trying to do? We're trying to reduce any risk that's possible. Also protecting the performance engine as well. It's so interesting, when we launched our innovation teams, we got very similar advice, phrased a little bit differently, the importance of being separate but not isolated. I think that probably says the same thing, right? Separate but not isolated. I love the way that you described it, because either end of the spectrum, either of those extremes just doesn't work. Right. If it's too separate. We've seen what problems come about. If it's too separate, then, you know, the way that we've explained Jim, when the idea is to then re-enter the business, I think of like a rocket ship coming back to Earth. The re-entry is really hard that the more separate the innovation teams have been, perhaps there is animosity and there's going to be antibodies for how that idea will come back into the business. So, that's one problem and one extreme, the other extreme, the other side is if it's if it's too embedded, then perhaps it just gets chewed up by the day to day and the performance engine. So, it's such an important concept. I love the way that you've explained it. I wanted to make sure that we started with that. Another of the alignment theories of we call these alignment theories to the performance engine is this notion of graduated engagement. That was a new phraseology for me, Jim graduated engagement. What do you mean by that?

Euchner

Yes. So, we learned that the hard way over time as we were trying to move things quickly at Goodyear and we were finding that they often got stymied in a process in IT or resource allocation, in engineering or a conflict with the salesforce or with the IP lawyers. And what we eventually realized, well, eventually we hired someone in the procurement function to be our liaison to the procurement function. And what we found was that she was able to make people in procurement aware early on of what was going on so it could be on the radar screen, but able to put in context the fact that there was very little risk right now that would happen if we went ahead and bought some stuff off the shelf and tried it out in the market. The idea of graduated engagement is that at the early stages you keep the functions informed so they don't. Their worst nightmare is about what you're trying to do to them don't come true, and yet you don't engage them in the actual work of integration and at till you're in the incubation stage, which is usually long enough to make that happen. So, for example, in IT, I can understand why someone in I.T. would be freaked out if everybody wanted to use a nonstandard operating environment. Their view is eventually it's all going to be deployed and I'm going to be responsible for it. And it might not even work that well. Well, if you can keep people informed and then you guarantee that when you get into incubation, you'll start thinking about what's the right operating environment for bringing this to scale. You take away a lot of the anxiety there and even there's an enticement, Oh, there's new stuff I'm going to learn. But I know learn it in a relatively low risk way. And that happens with IP, with procurement, with legal liability, with engineering, with IT across the board. So, we tried to formalize that. It's different from typical approaches which are, well, we'll just escalate, if you don't cooperate will escalate innovation's important and it's different from a fast track which is there's a select group of people who get to bypass everybody else in order to get their answers quicker. It's about engaging people at the right point, at the right time.

Saviano

This is Better Innovation. I'm Jeff Saviano. We're here with Jim Eichner talking about his recent book, Lean Startup in Large Organizations. And Jim, you know, can I just say that, that one aspect of your work that I really do appreciate is the respect that you give to people in the business and the performance engine. And there were various sections of the book I went back to and read a few times because I was just so struck with the empathy that and I don't think you perhaps use that word in the book, but I came away feeling that you have a great deal of empathy towards the leaders and the people within the organization, within the performance engine. It's respectful, it's empathetic and it's balanced. And frankly, I've heard many people explain that relationship and start with one of conflict and animosity and why can't they do what I want them to do? Almost like the performance engine, people report to the innovation teams and let's face it, that just doesn't work, does it? And so, I just wanted to call that out because I actually think it's the most important element of the book. And, and my biggest takeaway is the empathy that you have and the success that you've had at various stops in your career because you respected the performance engine and you're very thoughtful about how the innovation teams align with them. And, you know, what are the other questions I've been dying to ask you is I'll bet that you've achieved success working with the business because of that empathy. And I'd love for you to talk about empathy. And if I'm reading too much into that or if that's an important element.

Euchner

No, I think it's an important element. I don't think I was always as empathetic or understanding as I should have been, but at least I probably learned along the way and I hired people who also valued that view. The idea is that I just understand people a probably behaving the way you would behave if you were in their shoes. You know, it's they're doing the same thing you would do. So, if you can understand that, then you can say, okay, how can I, how can I address that? And just the fact of trying to and to understand it often changes the tone of the discussion and then trying to jointly problem solve, now that usually these people have a few problems, one of them is what you're going to do and the other is how do they explain that to their boss? So, if you can help them understand that by working with you, they're not taking a huge risk that they ought not to take, that they can, that there are means and commitments and agreements that will help achieve their objectives long term. Generally, it works. It's sort of a game theory, and I’ve discussed that a little bit in the book. It's the idea of I, you know, what is the natural game theoretic reason of behavior people have? And if you don't help reduce the risk, in other words, shift the payoff matrix, it's going to be no.

Saviano

And then yeah, and every act will promote a counter reaction. And this sense of game theory is trying to look ahead and prognosticate and trying to guess sometimes perhaps, but having a hypothesis of how in this context, how will the performance engine respond to various changes. One of the examples you gave in the book I loved was about a contract clause. So, here's a could be a small innovation team, probably an odd first instance, a contract that the company could be worth, you know, $10,000, not a lot of money in the grand scheme of things. And the contract lawyer is negotiating a big multimillion dollar deal. And it's hard to pull away from that. And it's so I think the respect for and the empathy for what the performance engine, what those people are going through. Okay, here's one more. One more organizational alignment theory. And you mentioned this in some of your early examples, Jim, asset based, alignment, right? Asset based alignment. Why is it so important for innovation teams to think about leveraging existing assets within the core business?

Euchner

I mean, in short, it's just it gives you a right to win. It also probably enables you to innovate differently than others who are trying to innovate in the same space. My experience is, and you may have very similar experience whenever there's a great idea, more than one person has it. If you have an idea that you want to bring to market, it's often the case that if you look at Crunchbase, you'll find someone who's closely related to that trying to solve the same problem. If you look at the assets you have, you may choose to partner with someone you may use to build on your own, but you invent something that gives you an advantage that other people can't bring to the to the table. That's the bottom line.

Saviano

And it also made me think of we've had a guest on our show, David Schoenfeld. David is a professor at Northwestern, and he wrote a great book about frictions, the four frictions or headwinds. So, he's become the friction guru as all of us are focused on growth. And let's face it, as innovators, we're always focused on new functionality, new feature sets, as David explains that the fuel that really propels a new idea. His approach is don't forget about the need to approach the barriers that exist. And how do you and here especially how do you align to the business and how do you coach teams to get over those barriers? I'm just I'm just curious if you've seen David's work and how do you feel about that friction-based approach aligned to this theory as well?

Euchner

Yeah, I've seen his work. I had the chance to interview him for the journal that I hired.

Saviano

Isn’t he great?

Euchner

Yeah, he's very good. And his focus is very much on when you think about an innovation, think about who the users will be and what else is going on in their lives, what might make it hard for them to adopt something. And it can be a wide range and I think it's a real contribution to get people to not just accept those things, but to actively try to seek out what they are. I would say an analog to working inside a large company is you're doing the same thing with the functions and with the other stakeholders inside the business. That's one of the reasons that stuff that's completely separate from the core has a problem. It hasn't understood who has to help adopt it inside the corporation. So, but yeah, I think that's good work.

Saviano

We've come in and out of this issue of business model discovery and execution, come in and out of it even in today's discussion, I think it's so critical to any new business venture. In the book. Jim, you introduce a new business model framework called the business Model Pyramid. Explain what you mean by a business model pyramid and how can it help our listeners along their business model journeys?

Euchner

Okay, good. Yeah, it's we devised it because it tries to make sure that you're including all the things you need to include in order to go into incubation. And I find and I still find this working with clients is that people very much want to jump from a concept or a customer value proposition to a prototype and get into pilot. And in some sense, that is a lean startup concept. Take a very small prototype and learn that way. I find that with maybe it's primarily within new businesses, but I think it's probably true. Even within startups. You want to at least answer some key questions along the way and the ones that I think people don't ask enough are first, how much value are my creating? I know many people defer that we can't know until we have to be in market. People won't tell you. There are ways of understanding and estimating value creation. That's the foundation of the pyramid. The second is looking at business model alternatives. I find again, people latch on to the first one they think of. And my, the second thing is the first one is usually a kissing cousin to whatever your business model already is. If you do that, you're going to leave a lot of money on the table. Or maybe you'll create a business that can't succeed. Once you do that, you have to do. And Schonfeld talks about some of this. Ron Adner talks about a lot of it as well. Understand what the risks are, not just the execution risks in Adner's term, the things you have to do, but who has to co-innovate with you, especially in this world rife with ecosystems, and also who has to adopt your innovation in the whole innovation chain. So, doing a risk analysis and then to use Steve Blank and Eric Reece's concept, do the experiments, take the risk out. Do the simple experiments, do all those things before you incubate? Because if you incubate, what will happen? I've seen many times people have great success with a first customer and never get beyond the first customer because they only answered the questions the first customer. And so that's the idea of the pyramid.

Saviano

They're a great business model, alternative business model exercises that we've used. Just imagine picture in your mind's eye, a grid. And the columns are the various elements of a business model. It could be a channel solution, which is the customer, could be the customers themselves, could be the partners that you aligned to. Those are the columns and the rows are the various alternatives within that particular channel. So, even in the customers you target could be by sector or by geography. The channel could be a software as a service channel, could be something different. And just imagine as you draw those trend lines from across those columns and sort of choose which of the elements of the business model. And I thought about that when reading the book, Jim, in reading about the business model pyramid, because then maybe this is, this is my own belief, but I feel that there's so much attention on new products or service innovation. But business model innovation is so critical. And I was hoping that you would include it and you did. And I think that's great. We've mentioned that we've had this connection to Steve Blank on the show. We've also been really fortunate to have had Alex Auster Walter, who is the originator of the business model Canvas technique that you also discussed in the book. Steve and Alex have been on the show a few times. You've worked with both Steve and Alex. They're such, these are like the innovation rockstars in our world, right? I'd love to hear about your alignment to Steve and Alex and why you're so invested in their theories that they came up with. What is it about them or their theories that that you have latched on to Jim?

Euchner

Yeah, I everything that I've done is built on the shoulders of giants, I'll say that. So, I, you know, my fortunate position, having been both an editor of a journal and working in the inside companies, has been that I could try things, I could find out where they didn't work. I interviewed Alex, I interviewed Steve, I interviewed Eric Reese, many others. And I was always trying to say, okay, I see what the book is, but here are some issues I'm having. How do we work around these things? And then I tried to adapt around that. So, I find Steve, I think he writes the best innovation blog that I know of. He's very insightful consistently. And, and so I always enjoy reading or he's open, I enjoy talking with him as well. His admonition to get out of the building is the most important lesson someone can take from him. But, you know, he's also he pushes the pace. He makes sure you have evidence as to whether I like the fact that he found a way to communicate a very complex concept, the business model, in a way that, you know, almost you can present a business model and explain the canvas and people will understand it.

Saviano

And yeah, in its simplicity, I can tell you no exaggeration, Jim, there are thousands of business model canvases that are floating around EY because of Alex's contribution. An, I have a thinking of one leader at EY in particular who has said that that won't listen to a new idea unless it is accompanied by a business model Canvas. I think it's the brilliance of the simplicity that can break through the nine elements of a business model in a way that people can understand. And it's been such a valuable contribution to the field.

Euchner

Yeah, I think so too. I think the one comment I would make about it is that business models, there are only a few in the end, maybe 45 or 50 coherent business model archetype. You can't completely mix and match ideas and end up with something coherent. So, I would add to the business model canvas this idea that go out in the world and look Adrian Slywotzky did this look at what the archetypal business models are and understand how they can be adapted to your situation because they've proven themselves over time and almost any business model, you'll find it across many industries. So, I still would say having said that, I think the ability to use the canvas to communicate is invaluable and to also push your own thinking outside of your comfort zone.

Saviano

And of course, it's also the I would totally agree with those points, Jim. It's the intersection of the business model, Canvas and Lean Theory and how Steve and Alex have integrated their concepts together. I think makes each of them more powerful. Well, from somebody who leads service line innovation at EY, I can tell you that it takes a lot of courage for innovation teams, for all the good work that our teams are doing. A lot of courage to forge a path that may stray from the established business and the established practices within the organization, many cases that have existed for decades. I'm curious Jim. Was there a specific moment or was there an event, something in your career that inspired you to take this leap and to innovate within big organizations? How did you get started in this work?

Euchner

I think it's you know, I wanted stuff to work in the real world. And if it didn't and the current practices were not successful, then I wanted to try something different. I think I was very fortunate in the bosses that I had through the years who tended to also want things to work in the real world and to be tolerant of trying new things, whether it was hiring an anthropologist or doing work design with people from the functions or, you know, incubating a new business in a different way. So, you know, it's a combination of some luck and that having people you work for who support you isn't something everybody can count on. But in the end, my view was you're going to take a risk one way or the other. You can risk not succeeding by not doing what you need to do, or maybe you're risking your career.

I will say this, I want to write a column on this someday. Most of the people I know who have been really successful innovators at some point along their line, they did put their career on the line and many of them lost their jobs as a result of it. They didn't lose their job because they weren't effective. They lost their job because they were in some way insubordinate. They were not willing to admit to or accede to the way things were done. So, I think you will, as an innovator, at some point, you'll either have to make a choice. I want to make it work in a big way or I want job security. And oftentimes you just can't have both.

Saviano

I was going to ask you for a piece of advice for young leaders or entrepreneurs who are listening today, and maybe that's just it. Maybe that is one of the running themes throughout the various experiences that you've had. Is that. Is that fair?

Euchner

Yeah, I think it is. I mean, those are the two things I would say. One is and this, this I learned later in my career that I wish I had was the importance of building relationships with people, even when you didn't yet need them, and even after your engagement with your transactional engagements, we're passed. Building relationships and maintaining them is really important and they don't teach it to you in engineering school and, and it, you know, consulting firms, I think, do a better job of teaching this than large companies do. And the second is just be willing to take chances for the growth of your organization. Right. So, if you think about it, that's why I'm taking this chance for me. Well, I don't think that's a good way of thinking about it. Think about this is what I need to do in order to be successful. Let me consider whether I'm really, if this really needs to be done and then be willing to commit to it. And by the way, few things feel so spectacular at the end of your career, but.

Saviano

I love it. Jim, really good advice. Focus on relationships. Relationships again, back to this idea of empathy and an understanding that people in the business have priorities and objectives and how do you find win-win scenarios. Jim It's been such a great conversation today. We could talk about this forever. One way that we love to close out our show is we have three quick questions.

Euchner

Okay.

Saviano

As if we have not been having as much fun. This is this is a fun way that we like to close out our interviews. What do you say? You up for it?

Euchner

I am. that sounds good.

Saviano

All right, let's do it. Here we go. First question, what's a book? Could be a book for business or pleasure. A book that has had the greatest impact on you.

Euchner

Well, from pleasure and business combined, the book is a Catch 22 by Joseph Heller, and it's because it's a book about organizations and organization dysfunction. And you read it and, you know, it's a comic tragedy about war. But if you, if you think about it, the same things are happening, the same patterns are happening inside businesses. So, it's a way of understanding in a deep way, sort of organizational culture and dynamics and absurdity.

Saviano

Yeah. The book question on the show and, and I love when, when it's a classic, how do you apply a classic to the work that we do. I love it.

Okay, next question. What piece of advice would you give to a younger version of yourself? You've mentioned a few of those today already, but any piece of advice, Jim.

Euchner

Ask you, I think in addition to building the relationships and being willing to take chances, it's just. Yeah, just learning, being aggressive about learning. In most companies if you're in a large company, well, if you're proactive about wanting to learn something either in a course or a workshop or a conference or taking the time, you have that opportunity. And if you use that and apply it, you're really learning. And so being aggressive because the world is so different even after five years. My experience in my early career was expert systems. Now neural nets and deep learning are driving. There's a lot of continuity, but a lot of change, so you've got to keep learning.

Saviano

Especially in this field. I suppose if you were teaching medieval history, perhaps there's less to refresh on. But things are changing overnight. Sometimes we go to sleep, we wake up and there's been something huge that's happened in Europe that influences the work that we do. It changes really fast.

Euchner

Yeah, I just pick up on the medieval history because I actually have a friend whose daughter teaches medieval history and I and she does daily tik-tok videos where she's tried to make medieval history interesting and relevant to a younger generation. Probably never thought about it at all. So, there's even innovation in that space.

Saviano

I'm sure there is a great example. All right, Jim, last question. What area is domains or even an industry do you feel are ripe for innovation in the next call it 3 to 5 years?

Euchner

Yeah. I mean, you have to almost say everything because digital technology is so pervasive. I think automotive is a space that there are so many things happening at once with electric vehicles, with autonomous vehicles, with connected vehicles, with different concepts of ride sharing and how business models will affect the profitability. I think that's going to change tremendously, and it's not exactly clear who the winners and losers will be or even which models will win. I think manufacturing companies, anybody who is making a product has to be thinking about how do I not become commoditized? And how can I use digital technologies in particular to perhaps convert my product or service, which is the focus of the work I've done with Aston University, or use different business models to both create more value and capture more value. I also expect health care to be dramatically changed because and the education system, all those, so these are so diverse but I think I don't think large 50,000 $60,000 a year educations can persist when there are brand companies that are offering it for six over the Internet. I, you know, health care is going to have to become digitalized. So, I just feel like you almost can't find an industry where there won't be interesting stuff happening.

Saviano

And Jim, you mentioned how you were standing on the shoulders of giants with leaders like Steve Blank and Alex Austerwalder. I really appreciate your contribution to the field and just please know that there will be many others who will stand on your shoulders as well. This is a great contribution. We appreciate it. Thank you for spending some time with our Better Innovation audience today Jim. really enjoyed the conversation. Thank you so much.

Euchner

I did as well. Thank you for the opportunity.