Deloitte in the News
Corporate Innovations: a School for Modern Entrepreneurship
November 21st, 2017
Last time, we dwelled on corporate innovations as the source (university) of empirical knowledge for your business. That may kick into high gear only if leaders of domestic companies succeed in dismissing a syndrome of “honor students”. And learn to recognize and see own problems – and remove their underlying causes.
Resource vs product
The first problem that we should acknowledge and analyze the underlying causes thereof is the “resource-based economy” of Ukraine. Our big business is largely resource based. We are an “outsourcing” country that exports a ton of steel for approximately USD 500 and imports a ton of BMW for USD 15,000. We export the work of our developers for USD 30 per hour to import subsequently a new iPhone with applications developed by them for USD 1,000. A similar situation is observed everywhere: in exports of wood materials and imports of expensive furniture, in exports of agricultural products and imports of food. Such a resource-based economy cannot be innovative by nature. It occupies a place at the bottom of value chain and is always exposed to a competitive pressure from global resource markets. It is always in debts and experiences a persistent trade balance deficit. Which has a significant impact on tax burden for business and households, quality of public services, cost of capital, prospects for and amount of pensions. In short, we are experiencing long-term great problems. And if we fail to turn our economy into the innovative one and product-based – that creates added value of large scale, we will continue blaming corruption and oligarchs for all our problems. Although, in reality, our fortune rests with us: if you want to become a millionaire, try to resolve the problems of millions of people. There are plenty of such problems in Ukraine.
Two underlying “whys” of the outsourcing problem in Ukraine
The first cause of outdated resource-based thinking in business has roots in the Soviet Union heritage. Upon its collapse, the assets of Ukraine retained old plants and fertile lands, as well as leadership represented by Soviet businessmen. They had never thought and will never think in terms of added value. Since they had never done business and taken risks within a market economy. No such economy existed in the Soviet Union, therefore, the productive and entrepreneurial thinking could be taken by post-Soviet businessmen from nowhere.
The second and main cause is lack of confidence and deficit of empathy in the society. It is impossible to create a top-quality innovative product for people when you think you know better than they do what they need. When you listen to them but do not hear, when you observe them but do not notice trends in behavior. When your “business ego” makes it impossible to see own mistakes and removes a possibility to develop. When you fail to know the underlying needs of even your children, then you will be unable to create value for your clients. And, correspondingly, build a top-quality product and sustainable business in modern technological world.
This deficit is again rooted in the Soviet past. The “disliked” children of “disliked” parents – we are unable to perceive and understand problems of other people. Since nobody has ever tried to understand and resolve our problems. Our families have never built empathy to children, as it has been considered as improper. And children grow and do not know how to do it in their social networks. As a result, absence of empathy in the society becomes an underlying cause for the lack in productive and value-based thinking required for creating new businesses.
To date, domestic companies are living through a crucial point. They have enough young people working for them, professionals of the new generation who have not been empirically affected by the Soviet past. Who have obtained modern knowledge and build relationships in their families differently. They are able to see problems of clients and work in teams. They possess modern tools for creating value (lean design and product management) and are ready to take entrepreneurship risks. Those people are ready to focus on clients and create for them top-quality innovative products. And they are willing, together with a product-based team, to receive dividends on that value. And whether management of Ukrainian companies is ready for that is a rhetorical question. So far, such companies are perceived as competitors. Although, in reality, only cooperation with them on partnership terms will pave a way to constructive development.
Corporate innovations: a school for entrepreneurship in Ukrainian business
Innovations = creativity х entrepreneurship. When readiness of employees to risk and build own businesses is equal to nil, then the multiplication result of innovations is also equal to nil. Certainly, corporate entrepreneurship is a new behavior model for business, and it should be introduced step by step. Like any new habit of a person, it may be assimilated on condition three basic elements are available: trigger, possibility, and motivation. Absence of at least one of them will lead to the failure of the new habit’s assimilation.
A trigger represents something that consistently impels to changing a behavior model. If you were a student and have just started a working career, a trigger for you will be an alarm-clock waking you every morning for work. In the organization, a trigger for entrepreneurship may become a process that consistently impels employees to think and act as entrepreneurs. To achieve this, some companies open corporate incubators. Other companies embed entrepreneurship at the level of the whole organization – by granting employees the right to independently make decisions and take risks.
In case with a student and his/her new work, a possibility represents skills, knowledge, and ability to come to work in time. To grow entrepreneurs from employees, you should wake up a risk appetite among them. Some employees have natural risk appetites, whereas, for others, it is needed to create risk appetites by developing confidence that they are also able to become entrepreneurs. This confidence may be built on required knowledge about principles, processes, and methods for doing modern business. If you want your employees to become innovators and entrepreneurs, but cannot serve them as an example, this represents a problem. They will not believe you if you are unable to explain how design thinking works or how to build and experiment with business models. How to apply the lean startup framework for your organization. How to create efficient teams and how they may effectively operate using lean and scrum frameworks. In addition to proper knowledge, people will need to have time for its gaining and applying empirically. In the event the budget of your organization has no this time and investments, correspondingly, it has no possibility for developing entrepreneurship.
The last, but extremely important element is motivation, a desire of people to progress. A student may be motivated by a salary or future experience that s/he will be able to obtain so that a habit to go to work remains with him/her for a long time. In case with corporate entrepreneurship, people may be interested to take risks and create new products. They may get interested by two forces. The first one is non-monetary. Thirst for new knowledge, interesting projects, freedom in making decisions, new professional horizons and acquaintances, a visible value of the product you are creating. The second one is monetary. A monetary consideration upon the product’s success, a perspective for creating own business or receiving a share in the existing one. For this reason, all modern technological companies, like Amazon, Google, Facebook, grant their employees, in addition to competitive salaries, own corporate shares. To increase capital of a company through its increased own income is an extremely powerful motivator.
Corporate innovations: a trigger for development of new Ukrainian entrepreneurship
Corporate innovations, in reality, represent a system and a process. They consistently create triggers, possibilities, and motivation for your employees to become innovators and creative entrepreneurs. If you as a leader desire to turn your company into an innovative and sustainable business, demonstrate by your own example how innovations work as a new way for perceiving the world. And why it is important for the company. And the key is to give employees a possibility to change the company together with you. Do experiment, do not be afraid to copy best practices of technological companies, customize them to your environment. Motivate teams, design products, create additional value to your business and added value to the country’s economy.