I was recently in Shanghai, meeting with both founder-led domestic companies and global multinational companies (MNCs). During this trip, I had the opportunity to talk with the senior management team of M&G Stationery, a market leader in stationery in China. M&G was established in 1996 by cofounder and CEO Huxiong Chen. He started working in stationery at the age of 17, as a salesman. After a decade in sales, he founded the company with his brother, Huwen Chen, and sister, Xueling Chen.
During the management meeting, we got on the topic of innovation and the issues companies often encounter. Huxiong Chen noted, “Currently, M&G has a couple of small-scale innovations (less than 50 million RMB). As I consider these innovations, I realize they are really just expenses to M&G rather than real business. We are treating these innovations as a hobby, because we are not investing time to ensure that these innovations can scale.”
The challenge of scaling innovations is one we see all the time—it’s a common issue companies have when they try to innovate through “pilots.” There are two rules of pilots:
- Rule 1: The initial pilot always works.
- Rule 2: The rollout of innovation produced from the initial pilot never works.
Why do these rules almost always hold true? Companies don’t pursue innovation under normal business conditions. Pilots are over-resourced. Senior leaders are committed to do whatever it takes to make the pilot successful. But when management teams try to scale the resulting innovation or solution, they run into huge problems. The pilot was never tested for transferability, meaning it doesn’t work in the next city or with the next product. If you change a couple of conditions, the pilot fails to work. Nor was the pilot tested for repeatability. You can’t make it work at normal resource levels, when running business as usual.
For example, earlier this year I spoke with executives at a consumer goods company about their recent product launch. The new product delivered a far better consumer experience, but it was also more expensive. To help the sales team explain the pricing proposition to store managers, the product team created a “sales pack.” They had great success in piloting the sales pack with one sales team. But when the company rolled out the sales pack to the rest of the salesforce, they immediately ran into a problem. The sales pack took about 15 minutes to explain, and each salesperson had an average of 50 sales visits per day. The prototype couldn’t be scaled—it didn’t fit into the reality of the working day of the salesforce.
In our work on micro-battles, we’ve become obsessed with what goes wrong with innovative ideas. We’ve noted that innovation demands two things: winning and scaling. Winning is about translating a strategic initiative into something that can be prototyped and tested with customers. Scaling is about testing that prototype for transferability and repeatability, then developing the repeatable model to scale across the company. As we’ve worked with companies on what it takes to win and scale, we’ve found that there are three communities that must help industrialize innovation. But only a few companies have realized this.
The first community is the Agile/disruptive/innovator community. Most companies have formed this community. Members are encouraged to disrupt current products and services, business processes and even the company’s business model. The second community is the expert/execution community. They are the doers of the company, making up roughly 85% of the people and activity of the firm. They have clearly established routines and playbooks. Your customers benefit from both of these communities. The innovator community generates new ideas to improve customers’ lives. The expert community delivers these innovations to customers through zero-defect routines.
But there is a third community, one that is vital to innovation. This is the scaling community. They act as a bridge between disruption and execution. They help test prototypes for transferability and repeatability. In the consumer goods company, they’re the ones who would point out that the pilot could not be rolled out, because the 15-minute conversation would never fit into the rhythms of the sales team.
As I began to talk with the leaders at M&G about the need to create and nurture the scaling community, Huxiong Chen immediately started asking questions about how to build this community. He wanted to be specific about the “who” (who should be part of the community) and the “how” (how he should begin to quickly build it). As he described his team, I suggested that the first member of his scaling community should be his head of sales, who has a track record of rolling out innovative ideas to the salesforce.
The CEO jumped up and drew three big circles on a whiteboard. He said each circle represented the innovator, expert and scaling communities. He told his team that it was imperative that they build the scaling community immediately. The head of sales would be its first member.
“Starting today,” he declared, “each business unit must proactively build the scaling community, or the team that can help us translate disruptive ideas into scalable, repeatable models that can be handed to our expert community. We only have real innovation when it can be scaled across the enterprise, and for this, we need to build the scaling community.”
This always happens when I speak to founders in China. They take one new idea from the conversation and execute on it immediately. M&G is a highly successful company, with an annual revenue of about $1 billion. It’s growing at over 35% a year. And yet, its founder is constantly trying to scale disruptive ideas more quickly.
Huxiong Chen is representative of the best Chinese founders. They have an extraordinary ambition to transform their industries. They also have an incredible desire to learn and disrupt their own companies with new ideas. I have no doubt that when I return to Shanghai in a few months, Huxiong Chen will have built a scaling community and vastly improved the speed at which M&G scales innovation.
We’ve told this story before—see, for example, how quickly the Zhang brothers built Engine 2 at Yonghui. Chinese founders are moving at extraordinary speed. The Western MNCs must wake up to this, or they will find themselves distant followers in their most important markets.