Scaling innovation takes courage. What else does it require?

Sarah Nicastro: Welcome to the Future of Field Service podcast. I’m your host, Sarah Nicastro. Today, we’re going to be talking about how to scale innovation to drive business impact in service. I’m excited to welcome to the podcast author, advisor and top 10 global thought leader, as well as founder and CEO of Lean Scaleup, Frank Mattes.

Frank was a guest speaker at the ‘Future of Field Service Live Tour’ stop in Frankfurt. We had a wonderful conversation. It was one that the audience really enjoyed, because there’s so much importance to the points you made and the work you’re doing. It’s so really true when you think about some of the challenges that our audience is having.

Sarah Nicastro: Before we dig in, I gave your top level bio, but tell everyone a little bit more about yourself, and what you do.

Frank Mattes: Lean Scaleup, the term is the program. I mean, you want to scale up those big ambitions that companies have, thus creating and shaping their own future. Future-proofing their company, if you will. But, it turns out that this is not so easy to do.

In the last five years, I partnered with leading companies and leading business schools, to come up with a solution to this ‘Scaling-Up problem.‘

It turns out, it’s quite easy to drum out ideas and do some small-scale experiments. But, when it comes to really make it big, this is where seven out of eight of big ambitions fail. The Lean Scaleup provides a solution to that.

It has been co-created with leading companies, the London Business School, and UC Berkeley, to help companies solve that problem.

Sarah Nicastro: We are going to dig into some of those specifics. Before we can talk about scaling, let’s talk a little bit first about how you define innovation. Many companies get a vision, they are excited to innovate, and then reality sets in. Or, they know innovation is an important buzz word and they want to innovate, but really they’re defaulting to more of just an incremental improvement. Let’s talk about the fact that we need to define innovation, and what it means. That there is some confusion around it.

Frank Mattes: Excellent point, Sarah. There’s so much noise about innovation, you called it a buzzword. So much activities going on, so many blog posts, and conferences, you name it, all around innovation. But, there isn’t a proper, commonly accepted definition on what innovation is. Isn’t that funny?

I do have my own. Not saying that this is the only definition that you can use, but it combines a couple of very critical elements. It rings a bell with my clients. Just to give the audience an idea: my clients are the biggest German companies and on a selective basis, European or even global champions – companies like Philips, bp, Telefonica, et cetera.

The definition that rings a bell with these kind of companies, is to say innovation is capturing the value from meaningful insights via new offerings that change the order of things. Now there are a couple of things in here.

Number one, it’s about capturing the value. It’s about value, and there is a customer who should appreciate the value. It’s not about ‘new stuff’ – it’s about value, and value is defined by the customer.

It’s also about simply just putting out some new stuff that has value, but it’s about capturing the value. Meaning, collecting the dollars and the cents of that value that resides within that new stuff that you did. We find this potential value via meaningful insights. There’s this old quote from Wayne Gretzky. When he was asked why he is so successful, he said, “Because I’m skating to where the puck is going to be, not where it is right now.”

If we look at it, Sarah, innovation is a game that you play with three to five years in advance. You need to think about who will be our customers in three to five years? What would be valuable to them then? What do I need to bring to the table to make myself attractive to these future customers?

The last point, new offerings that change the order of things, means new business models, new goto-market strategies, new strategies on working with the ecosystem to create the value, et cetera. we are talking about the big steps here. Changing the order of things, thinking outside of the box, if you will. If it’s in the box, if it doesn’t change the order of things, then we have incremental innovation. Hopefully that helps for the audience as well. Capturing the value from meaningful insights via new offerings that change the order of things.

Sarah Nicastro: I think it is important to clarify that there isn’t anything wrong with incremental innovation necessarily. Right? But, the point is companies really need to define this for themselves and be clear on what it is they’re aiming for. What that means then in terms of what they need to change.

I wrote a blog a couple of weeks ago. Since late last year, I’ve been an avid Peloton user. We got the bike around Christmas. I have the tread, and it’s been great. It’s made my daily fitness routine far more consistent, and it’s been wonderful. A couple weeks ago, I was doing my morning workout, and one of the instructors said, “Everyone wants transformation. But no one wants to change.” I wrote a blog about that, because it’s really true here too. People see the examples of the companies that have done the hard work. Once they’ve achieved success, and they want that, but they’re not necessarily realistic with themselves about all of the hard work it takes to get that.

It was interesting to me, some of the parallels that are there. Now, with the vast conversations you’ve had with a variety of different businesses, different educational researchers, et cetera. What are the biggest drivers for innovation today?

Frank Mattes: Let me just reiterate before I come to the point, what you just said. I’m fully with you, and actually, if you look at the broad scale, companies are investing 70% in keeping their existing products and services relevant. Modernizing them, integrating speech interfaces and touch screens. Adding in one more functionality.

That’s perfectly fine, right? But, the point is that it still locks the company inside the box. If the box changes, then it becomes hard. This is why we need to think wisely about where and how to spend the 10% innovation budget. That’s the average for innovation that is aiming at changing the order of things.

Coming back to your question, what are the biggest drivers of today? I mean, let’s use an example that I guess we are all familiar with, cars and mobility, traveling from A to B, et cetera. What you notice is, number one, existing industry boundaries blur.

In the past you had your car makers, you had your insurance companies, you had the companies from the entertainment industry. These days you find big rumors saying that who once used to make iPods becomes a major player in the car industry. Now obviously there are many more industry boundaries blurring. There’s new competition out there. Companies that take an angle from area of expertise that your company does not have expertise in. Then there’s number two, future value pools.

There are enough surveys out there that say Gen Z or maybe even Gen Y, they’re not so much interested in owning cars any more. Probably like my generation or to some extent I think you’re quite young, so your generation is. They want to have the mobility, the service that they can book that takes them from A to B. This is a future value pool to get future revenue streams as in the car mobility industry. We’ll just stick to that one example. You need to be present there.

Number three is, existing business models lose their relevance. Let’s take an example: bp, one of my clients. They are currently still in the oil and gas business. They look for hydrocarbons, and take it out of the ground, refine it. Ship it to the gas stations where you’ll put it in your car. That’s the business model.

bp said that for various reasons, in ten years they will not base their business on fossil fuels any more. They said, we will sell electrons. We will go electric. We help our clients which would be big companies, regions, or even cities to decarbonize themselves and we want to be a major player in the mobility space. Because, in 10 years, the old business model has lost its value. Think about Nokia beaten by Apple’s iPhone, et cetera. These kind of things.

Number four is the trend towards servitization. People don’t want to buy products. They want to have a solution to their problems, wants and needs – they want help in completing their job-to-be-done. If we stick to that, these services like Uber or Lyft, that you can simply call or rent a mobility vessel, as some of our clients call it. They do not call it cars anymore. They use the term mobility vessels to really stretch the imagination to the foundational function.

Last but not least, I see sustainability getting more and more importance. Innovation is not only about financial success anymore. It’s also about the ecological impact that it generates. There are also studies out there that show that investors value a companies that put out their part in decarbonizing the world.

Behind that, Sarah, you find in many instances, 80 or 90 percent or so, Digital. The potential’s of Artificial Intelligence, Big Data, remote monitoring of assets, predictive maintenance, et cetera. But it’s not exclusively tied to digital. Rather, I, in my view, in my discussions with my clients, I look at the changing order of things. Then work your way backwards. What does it mean to technology and the digital opportunities out there?

Sarah Nicastro: I think the changing order of things is a very good point. It’s where a lot of people get stuck. But, I think it’s also an important point to not start there. At least in my opinion. Because the same way you said they call them vessels instead of cars, because they don’t want to limit themselves to thinking in a singular or a mental image.

I think one of the things, at least the companies I talk with, struggle with is, they think about that changing order, and it makes them think small, because they start thinking about what it will take to get to that real disruptive innovation. That changing order seems so big that they back away from it. I think worry about that, not last, but I mean, don’t think about that initially, because then it will limit you from thinking about what the value is that you could potentially bring to market.

Frank Mattes: That’s an excellent point, Sarah, because it takes courage – apart from the right thinking tool and management systems, the right culture et cetera, and all the points that we might be touching later on. It takes courage to leave a little sheet of ice where the company lived comfortably over the last 30, 40, 50, maybe even 100 years, and venture out into the wild. Into the unknown, because some leaders recognize that the little sheet of ice is based is getting smaller and smaller by the year.

They are on a burning platform that’s also a terminology that’s used pretty frequently. If you don’t take your future into your own hands and future-proof the company, the forces of the market will determine your future. In many cases this will not be the better option.

Sarah Nicastro: Right. Also, just a side note, I never, never take notes during a podcast, but you probably saw me doing that, because I had some thoughts that I just could not … I was afraid I would lose them if I didn’t write them down. It’s a good sign. When we were at the event in Frankfurt, you said people aren’t short on ideas. They’re short on outcomes. Let’s talk about some of the roadblocks that get in the way of the ideas ultimately delivering the outcomes.

Frank Mattes: Your audience and my clients are companies, from SMEs up to very large enterprises. They have built their organization as a machine executing the same processes over and over again. Over the years, they have fine-tuned what they need to do, doing that flawlessly and most efficiently. There’s a lot of expertise in there, creating, delivering value at scale and earning the margins.

The problem is, when these companies set up their innovation ambitions, they found an innovation center or a digital lab, or an incubator, accelerator or a corporate venture builder – there are several concepts and terminologies out there. But, for the sake of simplicity, let’s say there’s a little garden where smart people can think about the future.

You see that there are two systems. On the one side you have your day-to-day operations. Where customers log in their orders, which are then processed. The supply chain does its work, and the stuff is being shipped and serviced out in the field, et cetera. That’s a day-to-day business. And on the other side, you get those crazy ideas. There’s no problem in that.

The problem arises when you try to make those bold ideas that should change the order of things big. Why is it so? Because the management system that you have, that you need for that day-to-day business is about efficiency, productivity, short term views and no risk. Risk is not a good thing if you want to have those processes. Now the people who have been playing out in that innovation playground, come out and say, “Let’s make this big. Let’s build a factory. Let’s build processes. Let’s recruit new people to sell that new stuff.” This really conflicts with the management system that you have for the day-to-day business.

This is basically the point where it all stops if you do not have the right precautions, systems, probitions in place. It stops at the point where you demonstrate, still in that innovation “playground,” a Minimum Viable Product or a Proof Of Concept. When you want to go beyond that, when you want to achieve scale, you need to have a different thinking. This different thinking is heavily geared in basically all of the companies towards the running day-to-day businesses with a monthly, quarterly, annual horizon or so.

Sarah Nicastro: Let’s talk a little bit more about this then. I understand the conflict. What needs to change? How do we … And we talked about this at the event, and we talked about, and I don’t want to make you give the same example. But, we talked about the red and the blue. I remember, and using that to illustrate.

No organization can just rush to solve that problem. There’s no way to just, “Okay, we get it. Hey, Frank. We understand what you said, and yeah. We got it. We’ll go fix it.” It’s far more layered than that. When you think about this incubator, garden, playground, it’s almost like then the machine’s over here, and it’s like running into a brick wall. It doesn’t fit. To scale, we have to figure something different out. Let’s talk about what is needed to bridge that gap to solve that problem.

Frank Mattes: Thanks for that reflection on what we discussed in Frankfurt, because I think also that my experience, Sarah, that this language helps a lot in understanding, framing, and then ultimately, obviously addressing the problem. The fundamental problem between the pressure of the NOW, while at the same time, the ambition – and in many cases the necessity – to create the NEW.

The language that I introduced that rings a lot of bell, is about the red shirts and the blue shirts. There’s a famous book out there. It’s called Blue Ocean Strategies that was written some 10, 15, 20 years ago. The two authors said, “Well, if you’re battling with the usual suspects, your known competitors for the same customers with the comparable value propositions using the same channels. Maybe even the same suppliers. A lot of similarity in here. Basically, that’s a shark’s tank.” There’s a lot of blood in the water in here, because it is a shark’s tank. These companies work in what the authors called red oceans.

On the other side, wouldn’t it be great if you could find a space out there where there’s little to none competition, where you have a superior, completely unique value proposition? Where you do not have to compete. Where the value proposition is so strong that the customers approach you, basically # lowering the Costs Of Customer Acquisition. This is what the authors called the blue ocean.

In order to discuss the issue that we just touched, Sarah, it’s helpful to say the day-to-day operations, these are the people working in the red oceans. I call them the red shirts. The guys in the “innovation playground,” try to find the new value pools – these are the blue shirts.

Now, the big point in understanding and trying to work out a solution product of the Scaling-Up problem is to say that this is not about good and bad. You need both. Actually, the red shirts, they sell the products, they provide after sales service, etc. to win and to secure the revenues that would fund that search and implementation for creating the NEW. If there are not no blue shirts out there, if it’s just red shirts, chances are that with a perspective of five, 10, 15 years or so, with all the big drivers of innovation that we discussed earlier, the red shirts will find themselves out of the business, because the customers have moved on.

We need both. That’s the conclusion, right? You need to own the business NOW and in the future in the NEW. You need to future-proof the company, if you will. This piece of awareness, Sarah, I found in many companies, this is what gets the juices flowing, the spirit flowing. My clients say, “Now I understand. It’s not about good and bad. It’s not about the blue shirts doing innovation theater. And it’s not about the blue shirts saying, “the red shirts, they do not get innovation.”

They are living in different systems that were designed for different purposes. That run differently that need different people even, different culture in here. But yet you need both to future prove the company. Then we can come to that million dollar question in the truest sense of words. Okay, now that we understand there are blue shirts and red shirts, and we need both of them – How can we make them work together?

Sarah Nicastro: I have two questions based on what you just said. One is, and maybe this will lead into how they work together. One is I feel like I remember talking at the event about percentages: how many red versus blue and what that should look like. That was one question. The second one is as a company, let’s say a company gains this understanding, appreciates the need to set this up and not think of them as competitive but collaborative. As the innovation needs to scale, so basically as the blue idea needs to come into the red machine, is the goal for the blue team to pass off the concept to the red to operationalize? Or is the goal for the blue team and the red team, eventually, at some point to become one?

Frank Mattes: These are good questions and obviously they are interrelated. The fundamental thing is and that’s also the trick, and then the philosopher’s stone if you will of future-proofing the company. The trick is to say, “Well, we need to do this in the way that we monetize, that we leverage all of the good things that we build up in our last 30, 40, 100 years of our corporate history. If you look at it, there’s so much there of corporate assets and corporate capabilities that could be the foundation of that future. The NEW with new value pools and new revenue streams.

Let me give you some examples for this corporate assets and capabilities. Obviously, the company has customers, right? It’s got a reputation in the market. People trust the brand if you will. It’s got access to delivery and supply chain channels. It knows how to manufacture products and services. It’s working with the regulators, and it’s got tons of experts in the various functions. It’s got a lot of patents, IP, etc. It’s got transactional data that you can use to train artificial intelligence models. Et cetera, et cetera, et cetera.

In my book, I have two pages of potential sources of those unfair advantages, as I call them. That’s the kind of thinking you need to put out there. Also, Sarah, that’s where I see many companies struggle. They set up that innovation “playground”. They tell those typically smart, young people with the espresso machines and the beanie bags, et cetera, “come up with something really great. Really new.” But, typically that is not connected to the day-to-day operations where the company operates in today. It’s almost like, in that situation, Sarah, as if the company would try to create a startup out in the wild. It’s a greenfield – it’s not a brownfield. But actually we’re talking about a brownfield situation.

But then in that greenfield situation, the company will never win if it’s a smart idea, against venture capitalists. If the two of us get together, we’ve got this great idea about the super duper podcast, right? We would go outside and ask some venture capitalists if they would fund us, and then we take it from there. The company can never win that.

Now coming back to the point that you raised. Quite often you’ll hear the battle cry, the company needs to become more innovative. They’re putting out the posters, train those catalysts or coaches or whatever they’re calling. They run their annual great big idea programs, et cetera. You know what I mean?

Well, I do have a different point of view, and that comes exactly from that thought that you … It’s really about leveraging what has been created in the past. Leveraging those corporate assets and capabilities for an unfair advantage. Three of my clients said, “Well, Frank, we don’t need 100% of our staff to be really innovative. It’s only 4%, 6%, and 12%.” That’s what those three companies said. 4 percent was an automotive company, 6 percent was a bank and 12 percent was a TelCo. You only need a fraction of people who understand what those blue shirts are creating, and how this could be translated into the machine of the day-to-day business.

Sarah Nicastro: You’re saying four, whatever the percentages was, that’s how many red shirts need to understand the mission of the blue shirts? Right? That’s not how many blue shirts you have, but it’s how many go betweens. People that could wear both shirts essentially.

Frank Mattes: Yes. Yes. Blue shirts, you have a couple of dozens maybe, or a couple of hundreds if you talk about real large companies. But those 4 percent, thanks for clarifying that, Sarah, is really the number of red shirts that need to be able to understand what the blue shirts are doing, and translate it into the process the logic, the machine of the red shirts.

Take an example. The car maker for instance. You’ve got the blue shirts thinking about mobility services and stuff that play out in those mobility vessels – they call them cars today. But at the end of the day, this car and the device that sits in the car that does the magic in here, needs to be constructed. This is heavy engineering, and you want to manufacture it with a six-sigma quality, right? This kind of translation work, this is 4 percent. Four percent only.

Sarah Nicastro: How powerful are those four people, first of all? I mean, that’s just incredibly critical to the success of all of this. It also though, leads me to my next question, which is, none of this works without leadership that gets it and understands.

Often, I see individual, functional leaders, a VP of Service or what have you that really see this, and they really understand it. But, they are reporting to a top leader who is just clueless when it comes to what this all means. What it really takes, et cetera. I mean, what would you say about the role of top leadership in this? What to keep in mind, related to that?

Frank Mattes: One thing you need to have those red shirts that need to understand the blue stuff as we just discussed. But 20 great companies and two business schools are saying, Sarah. We need more. Number one is you need to have look at the end-to-end process. From the first thoughts about where should we innovate in, to the meaningful idea, to checking – validating as they say – this idea to making that decision ‘Let’s make it big’ – you need to look at this end-to-end process in the right way.

It touches, as I think we already eluded to, to different management systems. Different people, and if you dig deeper, different cultures, different KPIs, et cetera. Looking at the process is really an art. It’s not a straightforward thing that you do for many operational processes, be it in production or be in service in the end.

Now, to address the leadership, well, let’s come back to that in a second. Number three turns out that in order to solve that red, blue conflict, which is not a conflict about people. But, a conflict about systems. You need to establish a collaboration model. You need to define what is to be done in that transitional phase. It is a phase, when the blue shirt gradually hand over the responsibility for scaling up, and then actually running it at scale to the red shirts.

This is basically where the scope of the blue shirts ends, and it’s good because you’re getting into really detailed stuff, and on running the machines on the establishing of six-sigma quality. This is not what the blue people are about.

Sarah Nicastro: I mean, also the blue shirts need to keep looking for what’s next, right? I mean, they don’t go away necessarily. They’re continuing to look for those innovation … I mean, that’s another understanding of all of this is we’re in a time that this is all continual, right?

Frank Mattes: Yeah. But now, let’s come to leadership. Methodology, the process, the culture, the collaboration piece, and number three, the leadership. Obviously leadership plays an essential role in here. You can have the best process with all the jumps in between, all the validation, all the technology, you might even have a set up a collaboration model. But once leadership doesn’t support it, it all cracks. If you look on our website, leanscaleup.com, there’s a visual where we say out of the many cog wheels that run in the day-to-day business, leadership is that cog wheel that takes it out and creates that environment for the unfair advantage.

It’s a leadership task, and Sarah, in my view, it’s THE leadership task, to answer the question, how can we win today? How can we win the now? While at the same time, future-proofing the company, creating the NEW. Everything else delineates from there.

How can we win today and be safe and win in the future? It turns out that you basically need to have, as they say an ambidextrous view. You need to look at the red shirts and the red system and what’s going on in today’s markets. We also need to look at three to five years into the future. How are customers shifting? Let me give you an example. Let’s remain in that mobility example in here.

One of our customers is a big truck company. They are seeing that in three to five years, their customers will not be the logistics companies any more. Actually, it will be the customers of today’s customers. They will organize that fleet of autonomous vessels and run their operations. The truck morphs into an element of logistics-as-a-service.

You see that and you need to make the change while being confined to today’s requirements. Your shareholders expect that you safely deliver the revenues and the margins. Your current customers say, “Don’t you dare to speak to my customers. Because these are my customers, not your customers, and these kind of things.

What you need to do is to arrange an overarching system where you say, “Well, we have some red elements in here, but also the blue elements.” For instance, if you up your great idea, and you want to take it to scale, some of these milestones during Scaling-Up need to be in the red shirt manager’s systems. If they do not see the benefit of supporting the Scaling-Up, they will not do it.

If you do have to arrange that kind of working in blue KPIs into the red shirt system, you might end up with a C suite saying, “We want to be innovative. We take on the challenge. We want to create a future.” But it’s basically stuck in the middle management level, where the functional experts and the owners of those assets and capabilities that we spoke earlier are sitting. It’s about really that leadership taking that red shirt/blue shirt view, the ambidextrous view.

Sarah Nicastro: It’s exciting stuff, but I can see why it feels daunting to some. I mean, it is a lot. It’s a tall task. But, to your point earlier, I mean it is really, really imperative that companies figure this out. That’s just the reality. All right, Frank. Go ahead.

Frank Mattes: And, and … Just one more point, Sarah. I mean, there’s stats out there. There’s stats that tell you how long is the average life span of a company that made it to the S&P 500. It’s not just Frank. You can look at the stats, and from those stats I would delineate my recommendation. You need to start about how to blend together the now and the new.

Sarah Nicastro: All right, Frank, so any other thoughts, advice, words of wisdom related to today’s topic that you want to share with folks before we wrap up?

Frank Mattes: Definitely. I mean, we started off with the Lean Scaleup, so I heavily would recommend to read into the book to absorb what those 20 companies and the business schools have worked out. I feel lucky to be part of that journey. Basically, get an inspiration on how to solve that system problem. But, I’ve got also, when I thought about this, Sarah, two or three minor but very powerful things to bring to the audience. Not to asking for changing the company from Tuesday to Wednesday. But, rather small steps, philosophies if you will. Changing the mindset.

Number two, is let’s look at one of the most successful business build ups. Companies that builds basically new businesses at scale and at pace, Amazon. Right? Jeff Bezos when he was still CEO said, “Our success correlates directly with a number of small experiments that we’re doing.” If you are very careful and you shop on amazon.com et cetera, you even see that the website changes by the day. They put a button up here, and they change the coloring there, et cetera. They want to continually look at how can we basically find clues of what might be really bad. Not just the optimization. The incremental stuff might really be better.

Also, a third piece of advice, Sarah, would be if you’re trying to tap into the unknown. If you want to really think outside the box, obviously that is territory that the C suite and the senior management of that company is not very much familiar with. Right? They know their home base if you will, all right? But they do not know the new.

There’s one concept that I recommend my clients to go with, which is a very, very powerful concept in tapping out into the wild. It’s called the skin-in-the-game concept. There’s so much studies that you can read in thinking about what the future would look like. You can speak to so many potential customers out there. What they need and what they might be willing to pay for.

At the end of the day, it’s about that they put something of value on the table. Skin of the game, right? They devote that time, and a team to co create a minimum viable product with you. They put their reputation on the line by conducting webinars to promote that new product or services. Always ask yourself, is this just theory or is someone putting real skin into the game?

Sarah Nicastro: That’s a really good point. Okay. Frank, thank you so much. Wonderful conversation again. As Frank mentioned, it’s leanscaleup.com. Correct?

Frank Mattes: Yes.

Sarah Nicastro: Yeah. That’s the website. I know from the event in Germany, you had some great slides and illustrations. Obviously, Frank has written the book on this topic, so there’s some wonderful stuff. I would encourage all of you to go and check it out, because this was just the tip of the iceberg in terms of Frank’s insights.

Sarah Nicastro: So, Frank, thank you so much though for coming and spending some time with me. I appreciate it.

Frank Mattes: Thanks for having me.

Sarah Nicastro: Absolutely. You can find more by visiting us at futureoffieldservice.com. You can also find us on LinkedIn as well as Twitter, @thefutureoffs. The Future of Field Service podcast is published in partnership with IFS. You can learn more at ifs.com. As always, thank you for listening.