Successful Business Building at Siemens Digital Industries

Exploring new business models requires new strategies and ways of thinking. It competes with core business activities such as expansion, for resources.

In an organization, explorers and exploiters are viewed differently. Exploiters are seen as earning the money, while explorers get a bad rap for burning money through experimentation. But innovation and experimentation go hand in hand. Being bold is necessary to successful exploration, with the understanding that not all experiments yield significant results.

Amazon's Jeff Bezos, for example, is known for encouraging experimentation to increase the probability of innovative breakthroughs. That said, a vast majority of companies do not have the same resources as Amazon to commit to experimentation. When innovation happens on a limited budget, capital efficiency becomes necessary. One way to achieve it is to understand customer pain points before investing in development. Another way to avoid bleeding money on innovation is to stop activities that aren't successful, as Amazon did with its failed Fire Phone.

Siemens Digital Industries Innovation Framework

Siemens Digital Industries developed an evidence-based approach to validate business model ideas in a fast, structured, and efficient way. Their framework supports three strategic goals: move from technology push to customer-centric and opportunity-driven innovation, empower teams to learn about the customer and market and make their own decisions whether their idea gets a go or no-go, and engage investors with transparency and relevant data to understand the maturity level of each innovation project.

Within the framework, the first step is about validation, happening over two phases.

One is about eight weeks and involves teams learning about the customer through hundreds of interviews and gathering as many insights from the market as possible. Teams invest their own resources to collect customer and market insights.

At the end of eight weeks, teams have sufficient insights to decide the viability of their projects. The decision is based on deliverables, such as the number of customer interviews and feedback received. If there is no traction, the project is halted. While the teams self-declare their projects as viable or unviable, investors have a say as well. They can review teams' deliverables and decide whether or not they want to fund the project. Teams also have the option to pivot the project and repeat the first phase.

If a project is a go, teams enter phase two, which is about seven months of developing a minimum viable product (MVP). Rather than developing a product and having customers try it for free, customers engage in paid pilots, which essentially covers the cost of developing the MVP.

The project incubation period is about 12 months, during which the team also develops a sales strategy. They start integrating the innovation project into their "happy home" in the business, as it will eventually leave the incubator.

Success Factors: Team, Ambidexterity and Data

There are many factors that play a role in the success of the approach as outlined. Throughout their journey, these are three that stood out so far.

Team Composition and Requirements

The teams involved in the program are cross-functional, including people from sales, staff and core business units. The company has a strict requirement for team members to dedicate a significant amount of time, at least 50-80%, to the program. This can be challenging, especially for those from the core business. There is no specific system like the 20% time at Google for individual exploration, but they do have people dedicated to pre-development and exploration tasks. If someone is unable to allocate enough time, they are unable to participate in the program.

Taking an Ambidextrous Approach

The management at Siemens Digital Industries has a strong commitment to the ambidextrous organization approach. They conduct education and training for leadership teams to emphasize the importance of both exploit and explore activities. The company explores incentives, particularly for projects that are stopped or pivoted, with the belief that success in innovation management includes the ability to stop projects when necessary.

Data-Driven Decision Making

Reinventing the business or creating new frontiers is a risky endeavor but one that promises a massive competitive advantage. Data holds the key to making the right decisions and preventing the so-called zombies that eat up resources and time and deliver little or no value.