Sramana Mitra: I’m going to make a couple of points on what you said. I was talking to Head of Commercial Banking in American Express. She told me that they waited a long time before they got into this micro-lending business which companies like OnDeck and Lending Club are doing. Lending Club is peer-to-peer and OnDeck is working capital loans.
American Express just sat on the sidelines. Then they created their own version of that. That’s going really well. Intuit has done the same thing. They are doing working capital lending with their own money within their own platform. They didn’t buy. They actually built it themselves but they waited for the right time and for the technology to mature.
When you’re making these timing decisions from the point of view of a large company, it’s better to wait a little bit for the technology to mature before jumping in.
Anita Sands: Exactly, because you have to do it at scale. You might be pursuing a great innovative idea, but you may run into a lot of reputation damage if you push something to your customer and it doesn’t work. That is not in keeping with the expectations that a lot of customers have of very successful brands. It’s one thing for the Googles of the world to get away with releasing beta products. There’s a little bit of a different expectation in that sphere. Think of companies like a bank.
Sramana Mitra: You can’t mess around.
Anita Sands: Exactly. Fundamentally, what you’re talking about is, there’s a thoughtful discipline around innovation. That’s a very important word. If you’re going to do innovation successfully at scale, it has to be quite a disciplined process. It’s a creative process. When you place the right boundary conditions in place, it leads to more success.
Sramana Mitra: This is a very important culture question. If you talk to people who have been inside Google in the era of 20% flexible time, they’ll tell you that it’s like a mad house. People are doing whatever and not much is coming out of it. You have a lot of people who are frustrated because their ideas are not going anywhere because there’s not structured processes to evaluate those ideas and bring those ideas to bare. I don’t think that’s the way innovation processes should be run.
Anita Sands: Absolutely. I couldn’t agree more.
Sramana Mitra: What we do successfully is, address that culture of giving people a platform to innovate within a structured process. If their ideas are not adopted, there’s a good reason and a good explanation why they’re not adopted. For example, TAM is a very big determining factor in venture capitalists investing or not in a company.
If the TAM is not a billion-dollar plus TAM, a VC is not going to invest in a startup. This is how the venture capital business works. It’s not subjective. There’s a very objective and very good explanation of why a $200 million TAM company cannot raise venture capital. The same philosophy applies to corporations and innovation inside of corporations. There is a TAM question. If your idea is a $20 million TAM question for a $10 billion company, that is not relevant.
Anita Sands: Exactly right. The thing about large companies is they have a high opportunity cost. Every dollar that’s diverted in one direction to pursue an idea versus another has a much higher opportunity cost. It should have a higher barrier if you will. Not to mention the previous point around expectations being very different for a startup versus a large company endeavoring to do something.
Sramana Mitra: The other thing is, there is this popularity of hackathons. People think hackathons are great innovation programs. I don’t. Hackathons are fine. They’re fun. I don’t think people should be investing in doing a lot of prototypes and software development without a business case analysis of an idea. What do you think?
Anita Sands: I completely agree. I think is the latest incarnation of that setup for unrealized expectations. Innovation is an end-to-end process that goes from ideating right through to integrating it into the overall operating model of the company. There are big organizations that have these innovation satellite hubs away from the mother ship.
One one hand, I can understand the virtue of that in terms of attracting a different kind of talent and having people work with a different set of boundary conditions. Ultimately, for that to be a meaningful valuable incremental piece of work for the company, it’s got to be integrated then into the operating model.
It’s really important that you think about that from an end-to-end perspective. To your point about the hackathons, they are fun. They’re a way to engage people and get people excited. Ultimately, how is that going to move into the operating world?
Sramana Mitra: After several years of thinking about this and hands-on being in this game with a number of corporate partners, I have come to the conclusion that, as the ideas are germinating, you have to constantly talk to the different product mangers of adjacent product lines. You have to talk to the sales people who are selling adjacent product lines who have some view into what the customers are thinking. You have to really make it an immersive process that is very much in touch with the organization as opposed to being shoved away somewhere in some cutesy office. I could not agree with you more.
Anita Sands: I think you’ve hit on the operative world – immersive process as opposed to innovation being something you do in isolation.