The Unique Challenges of Scaling
Hawthorne had been carefully formulated during the ideation phase, using design thinking methodologies to ensure that it was solving real problems faced by the customers. The team extensively validated the new idea during the incubation period using lean startup methodologies – so they believed that this new transformational innovation could have a significant impact on the company’s business. Where they failed was understanding how the impacts of Company Fit challenges manifest in the scaling stage.
Requirements to Succeed in Transformational Business Innovation
To succeed with new transformational innovations, large incumbent firms must master three distinct competencies: ideation, incubation, and scaling. (Reilly and Binns, 2019, California Management Review). Ideation is where the ideas for new business innovations are discovered and developed. Incubation is about option generation involving continuous iteration of customer development, testing of prototypes, and continual refinement of the business model until a scalable, repeatable business model emerges. Scaling is about optimizing the business model and the need to prove profitability and growth that is strategically relevant and material relative to the core business.
Scaling inside an established business typically has another requirement that may or may not be explicit but is almost always implied. The new transformational business must also leverage the organization's unique assets or operational capabilities (aka “synergies”). Leveraging synergies with the core business capabilities is vital for two reasons. First, the scale efficiencies from those capabilities are often part of the assumed path to profits. Second, synergies with the core business should be part of the rationale for developing the transformational new business within the organization in the first place. If there are no potential synergies, why create the new business internally versus outside the organization?
The Warning Signs for the Hawthorne Project
Several aspects of the Hawthorne project proceeded well. The product development was making great progress. The performance relative to customer needs and competing alternatives was promising, and customer and partner feedback was positive.
Leverage Internal Legal Resources (Result: time delay)
The first hint of trouble for the Hawthorne project during the scaling phase came from interactions with the legal team. The attorneys withheld approval of the team’s plans, concerned that the new business envisioned by the team would require the company to store personally identifiable data, something it had never done before. A data breach, they worried, could make the company a target for lawsuits—and a ripe target, given the company’s deep pockets. Hawthorne was an early-stage business; it wasn’t a C-suite priority project and couldn’t compete on revenues with the established business groups. As a result, the team had trouble making headway with the legal department. Finally, after three months of meetings, they found an individual in the legal department who had experience in data vulnerabilities, understood how to mitigate the risks, and was personally interested in exploring new business opportunities. She was willing to help find a balance between the needs of the new business and risk. Legal issues resolved; the Hawthorne team forged ahead – though with a three-month delay.
Sales Force & Channel Synergies (Result: time delays & slower growth)
The team wanted to leverage the company’s relationships with some of its biggest customers to scale the project rapidly. However, they ran into another wall when they went to the sales team and described the new approach, which involved making money on services instead of hardware. There were some supporters, but there was more resistance, mainly because a significant chunk of the sales team’s compensation came from commissions based on hardware sales, the company’s core business. The sales team didn’t just resist the idea—several suggested giving away the new service (which had ongoing operational costs) as a deal sweetener to promote higher-volume or higher-priced but one-time hardware sales. The reluctance of the sales team to cooperate and provide access to key customers was critical: it slowed the ramp-up to scale and kept the team from getting feedback from critical customer segments on the service offering.
Intel Asset Re-use (Result: time delay, compromise to performance & cost)
Another obstacle presented itself when the Hawthorne team met with the IT team to request support for consumer-based, high-frequency purchase transactions. The existing sales systems were set up to work with purchase orders from large distributors, and enabling the smaller, more frequent transactions for Hawthorne’s model would require significant modifications. After several months of scoping meetings, the Hawthorne team concluded that the effort was just too great, given the uncertainty of the new business. The team spent more time convincing the funding team to allow the project to use an outside vendor to handle the transactions. This solution solved the immediate problem but had a negative (though acceptable) impact on the business’s near-term profitability and customer experience.
Project Funding Meeting – Tragedy Strikes
By this point, Hawthorne was out of time and money, and while they had struggled to make progress, one of the startups with a competing solution had made significant progress. The startup didn’t have anywhere close to the resources that Intel could bring to bear on the solution. Still, they moved much more quickly, were able to translate early traction into significant investment, and were quickly becoming the leader in the emerging segment.
Despite the initial excitement and strong interest from potential customers, the team now had to go back to the funding committee and explain why and how they had failed to meet most of their major milestones. They had a difficult time describing the problem to the executives. Listing the delays caused by problems with other functional groups that demonstrated excellent performance generally seemed to them like excuses for poor execution. Perhaps needless to say, the funding team was not impressed. After sixteen months of hard work, the Hawthorne Project was canceled.
