White paper adapting test & learn for internal startups (jan. 2013)

ADAPTING TEST & LEARN
FOR “INTERNAL STARTUPS”

By Brian Christian
January 2014

Copyright
©
2014
by
The
Inovo
Group,
LLC

All
rights
reserved.

www.TheInovoGroup.com

ADAPTING TEST & LEARN
FOR “INTERNAL STARTUPS”

H

aven't
we
all
been
heard
saying
something
like,
“I
could
kick
myself;
I
almost

bought
Apple
stock
in
1999.”
Or
heard
a
colleague
complain,
"I
can’t
believe

they
[competitor
X]
launched
that
product;
we
thought
of
that
five
years
ago!”

As
most
of
us
have
(painfully)
learned
at
some
point,
there
is
a
real
difference
between

having
an
idea
and
taking
action
toward
realizing
an
idea.
When
it
comes
to
innovation

–
and
many
other
things
in
life
–
moving
from
idea
to
action
can
mean
the
difference

between
being
so-‐so
and
so,
so
good.
Getting
from
concept
to
market
success
is
where

strategic
innovators
take
the
most
risk.
Strategic

innovation
entails
significant
impact
internally
and

externally.
The
move
from
concept
to
market
success
is

where
we
make
the
real
investment.
It
is
where
we
face

real
market
feedback,
where
we
grapple
with
the
most

uncertainty
and
where
we
confront
the
real
possibility
of

failure.

New
systematic

approaches
exist
to

improve
our
odds
of

getting
from
concept

to
market
success

while
minimizing
risk

along
the
way.

The
good
news
is
that
new
systematic
approaches
exist
to
improve
our
odds
of

getting
from
concept
to
market
success
while
minimizing
risk
along
the
way.
The
entire

strategic
innovation
ecosystem
–
companies,
consultants,
service
providers
–
all
benefit

when
the
methods
and
tools
for
innovation
raise
the
quality
of
outcomes
and
lower
the

odds
of
failure.

This
white
paper
will
explore
two
such
systematic
approaches
in
detail,
Test
&
Learn

and
Inovo's
adaptation
of
Test
&
Learn,
the
Demand-‐Design
Tango™.
We
will
share

several
pitfalls
in
applying
Test
&
Learn
to
strategic
innovation
in
large
companies,

referred
to
as
“internal
startups,”
and
show
how
the
Demand-‐Design
Tango™
can
help

avoid
them.

A
Foundation
for
Strategic
Innovation

Strategic
innovation,
also
known
as
breakthrough,
disruptive
or
radical
innovation,

generally
refers
to
innovation
that
has
a
significant
level
of
external
impact
on
the

market
or
the
world.
The
descriptor
strategic
is
intended
also
to
strongly
convey
the

significant
degree
of
internal
impact
for
the
innovating
organization.
As
such,
strategic

Adapting Test & Learn for “Internal Startups” | 1

innovation
requires
a
different
mindset
as
well
as
different
principles,
methods
and

skills
than
more
incremental,
sustaining
types
of
innovation.
For
a
more
detailed

understanding
of
this
topic,
refer
to
our
white
paper,
Strategic
Innovation,
available
at

www.TheInovoGroup.com.

Strategic
innovation
traditionally
has
been
defined
with
three
primary
phases
of

activity:
Discovery,
Incubation
and
Commercialization
(figure
1).

At
the
start
of
Discovery
uncertainty
is
high
and
risk
is
low.
In
other
words,
we
face

many
unanswered
questions,
but
not
many
human
or
financial
resources
have
been

invested
yet.
As
the
work
proceeds,
questions
are
answered
so
uncertainty
decreases,

but
project
risk
increases
because
resources
are
being
invested
at
increasing
rates.

Test
&
Learn:
A
New
Approach
to
Incubation
and
Commercialization

The
Test
&
Learn
approach
has
emerged
from
the
Silicon
Valley
startup
community

over
the
past
five
years
as
a
means
for
entrepreneurs
to
manage
uncertainty,
reduce

risk
and
improve
the
odds
of
success
with
their
startups.
Recently,
large
companies

have
also
begun
adapting
the
Test
&
Learn
approach
to
strategic
innovation.
We
refer

to
these
strategic
innovation
efforts
within
large
organizations
as
"internal
startups."

However,
while
Test
&
Learn
offers
a
useful
mindset
and
methodology
that
large

companies
can
use
for
strategic
innovation,
it
requires
some
adaptation
to

accommodate
the
natural
differences
between
true
startups
and
internal
startups.

For
instance,
in
true
startups,
the
Discovery
phase,
by
definition,
has
already
been

completed;
the
early-‐stage
company
has
a
beginning
concept
already
in
hand.
In

essence,
the
Test
&
Learn
approach
was
developed
as
a
replacement
for
the
post-‐
Discovery
Incubation
and
Commercialization
phases
(figure
2).


Large
companies,
by
contrast,
must
undertake
a
distinct
Discovery
phase
of
work
to

generate
the
startup
opportunity
and
must
also
then
manage
an
often
challenging

transition
into
Test
&
Learn.

By
the
end
of
the
Test
&
Learn
phase,
we
have
an
offering
and
a
business
model

that
has
been
proven
in
the
marketplace
and
also
proven
to
be
sustainable
by
the

company.
The
Scale
phase
is
mostly
a
matter
of
adapting
the
opportunity
to
additional

segments
or
geographies
to
enable
broader
adoption.
This
is
not
without
its
challenges,

but
for
the
purposes
of
this
white
paper,
we
will
focus
on
Test
&
Learn.

Proponents
of
Test
&
Learn
include
Steve
Blank, i
Eric
Ries, ii
and
Alexander

Osterwalder.iii
Let’s
call
their
collective
methodologies
the
Test
&
Learn
Approach,
or

TLA.
The
TLA
goes
something
like
this:
The
startup
entrepreneur
has
a
vision
of
a

specific
innovative
offering
and/or
business
model,
as
well
as
an
approach
for
achieving

that
vision.
The
precise
manifestation
of
the
actual
offering
and
its
related
business

model
emerge
through
an
iterative
process
of
testing
with
potential
customers
in
some

approximation
of
the
eventual
marketplace
and,
ultimately,
the
actual
marketplace.
The

entrepreneur
learns
from
these
tests
and
adapts
(or
"pivots,"
as
Ries
would
say)
as

necessary
to
optimize
the
"product/market
fit."

In
essence,
each
test
aims
to
resolve
at
least
one
uncertainty,
and
the
startup

learning
journey
will
succeed
or
fail
according
to
how
well
each
of
the
uncertainties
is

tested.
The
entrepreneur
does
not
declare
failure
until
the
vision
has
been
proven

wrong
–
or
the
clock
or
funding
runs
out.
This
is
different
from
the
traditional
approach,

in
which
thorough
planning,
analysis
and
development
are
conducted
with
the

expectation
that
the
first
version
tested
in
the
marketplace
will
be
a
very
close

approximation
of
the
optimal
one.
It
is
essentially
a
gamble
on
the
"big
bang"
outcome

–
the
smashing
success
that
takes
the
market
and
competitors
by
storm.
This
is
the
stuff

of
business
legend…
and
mostly
of
business
fiction.
In
the
highly
uncertain
startup


world,
the
traditional
approach
usually
leads
to
missed
expectations,
disappointment,

investor
fatigue
and
failure.
In
large
companies,
it
often
leads
to
budget
and
schedule

overruns,
launches
that
fail
to
meet
expectations
and
internal
organizational
strife.

The
foundations
of
TLA
have
their
roots
in
the
principles
of
Lean
Thinking,iv
which

were
first
developed
and
practiced
by
Toyota
in
the
1970s.
Toyota
first
applied
Lean

Thinking
to
manufacturing,
and
the
TLA
proponents
–

The
foundations
of

Blank,
Ries
and
Osterwalder
–
point
to
Lean
Manu-‐
TLA
have
their
roots

facturing
as
their
inspiration.
One
of
the
foundational

in
the
principles
of

principles
of
Lean
Thinking
is
the
elimination
of
waste

Lean
Thinking.

(muda
in
Japanese).
In
the
application
of
Lean
to

startups,
waste
is
all
the
resources
invested
in
a
fully
formed
product,
service
or

business
only
to
realize
that
it
was
the
wrong
offering
and/or
the
wrong
business

model.

We
at
Inovo
believe
Lean
Thinking
also
is
relevant
upstream
of
Test
&
Learn,

starting
with
the
Discovery
phase.
While
waste
elimination
may
not
seem
essential
for
a

strategic
innovation
program
(many
questions
raised,
yet
few
resources
committed),
it

is
in
fact
critical.
The
value
of
waste
elimination
lies
less
in
cost
reduction
in
the
normal

operational
sense
than
in
the
conservation
of
precious

financial
and
human
resources.
When
confronted
with
a

The
greater
the

vast
white
space
of
opportunity,
an
organization
must
be
degree
of
uncertainty,

able
to
discover
and
exploit
its
hidden
opportunities

the
more
important
a

within
real
constraints,
and
this
is
not
possible
without
a

Lean
approach

Lean
approach.
And
since
these
opportunities
are
often

becomes.

new
to
the
world
and/or
new
to
the
company,
uncertainty

related
to
the
new
offering
and
business
model
remains
high
not
only
during
Discovery

but
right
through
Test
&
Learn.
The
greater
the
degree
of
uncertainty,
the
more

important
a
Lean
approach
becomes.
By
contrast,
the
traditional
linear
stage-‐gate

model
is
a
reasonable
approach
to
highly
predictable
situations
typical
of
sustaining,

rather
than
strategic,
innovations.

Along
with
Lean
Thinking,
Business
Model
Thinking
plays
an
equally
large
role
in

TLA.
Business
Model
Thinking
forces
innovators
to
look
beyond
the
offering
itself
to

include
all
of
the
aspects
of
constructing
a
new
business
where
none
previously
existed

–
the
channel,
the
partners,
the
target
customer
segments,
the
revenue
model,
etc.
A

schematic
view
of
how
the
methodologies
work
together
to
create
a
comprehensive

Test
&
Learn
approach
is
shown
in
figure
3.


The
proponents
of
TLA
have
smartly
recognized
the
relevance
of
Lean
Thinking
for

startups
and
entrepreneurs.
By
doing
so,
they
have
broadened
the
application
of
Lean

Thinking
and
made
it
accessible
and
relevant
to
an
audience
that
probably
has
not
had

much
exposure
to
Lean
concepts.
Thanks
to
Osterwalder’s
contributions,
the
TLA

proponents
also
have
broadened
the
application
of
Lean
beyond
the
new
offering
to

encompass
the
entire
business
model.

The
TLA
proponents
have
asserted
that
the
mindset
and
methodologies,
originally

developed
for
true
startups,
are
translatable
to
internal
startups
in
large
companies.
As

Blank
wrote
in
an
article
in
the
May
2013
issue
of
Harvard
Business
Review,
"…despite

the
methodology’s
name
[The
Lean
Startup],
in
the
long
term
some
of
its
biggest

payoffs
may
be
gained
by
the
large
companies
that
embrace
it.”v

The
Pitfalls
of
Test
&
Learn
for
Internal
Startups

We
agree
that
TLA
has
relevance
and
importance
for
large,
established
companies

undertaking
strategic
innovation,
but
the
application
of
TLA
within
these
organizations

is
not
without
pitfalls:

1. Business
model
diversity
-‐
A
nearly
unlimited
variety
of
business
model

types
exists,
and
the
strategic
innovator
must
be
able
to
select
the
right

methods
and
tools
for
a
particular
offering's
associated
business
model.

The
innovator
also
must
make
it
compatible
with
the
larger
organization

upon
which
the
new
innovation
will
rely
for
resources
and
support.

2. Organizational
complexity
-‐
The
TLA
emerged
as
a
framework
for
startup

companies,
either
venture-‐funded
or
bootstrapped.
Large,
established

companies
are
different
in
fundamental
ways
from
startup
companies,


and
the
strategic
innovator
must
adapt
TLA
to
accommodate
these

differences.

3. Discovery
transition
-‐
When
startups
get
initial
investor
funding
to

embark
on
a
TLA
program,
they
usually
are
further
along
in
their

development
of
the
offering
than
opportunities
coming
out
of
a
large

company’s
Discovery
program.
Large
companies
need
to
ensure
that

opportunities
are
ready
for
the
heavier
resource
investments
TLA

demands.

Let’s
examine
each
of
these
three
pitfalls
more
closely.

1. Business
Model
Diversity

The
methods
and
techniques
required
to
support
TLA
vary
greatly
because
business

model
types
vary
greatly,
spanning
tangible
and
intangible
products
distributed
through

virtual
and
physical
channels.
For
instance,
imagine
how
different
Test
&
Learn
would

have
to
be
for
a
mobile
gaming
app
like
Angry
Birds,
a
pharmaceutical
such
as
Lipitor,
a

large
electromechanical
system
like
the
Boeing
787
Dreamliner
or
an
institutional

service
offering
such
as
medical
education
(figure
4).
In
addition,
business
models
are

becoming
more
complex
as
companies
blend
the
intangible,
tangible,
virtual
and

physical
into
systems.

How
innovators
assemble
methods
and
tools
into
an
overall
TLA
phase
of
work
will

vary
greatly
among
the
diverse
types
of
business
models.
Three
primary
factors

determine
how
business
model
type
impacts
Test
&
Learn:

•

Degree
of
invention
-‐
When
the
new
offering's
level
of
invention
is
high,

iterations
on
the
product
development
side
can
take
a
long
time.


However,
market-‐side
assumption
testing
need
not
come
to
a
halt
during

these
periods.
In
fact,
such
testing
can
provide
valuable
input
into
the

invention
process
and
also
can
inform
the
minimum
viable
product
or

prototype.
The
ecosystem
that
determines
adoption
is
much
broader

than
the
customer
or
end
user,
and
innovators
can
glean
valuable

information
about
the
ecosystem
(for
example,
regulatory
constraints
or

intellectual
property
barriers)
during
these
extended
invention
periods.

Finally,
the
expected
invention
time
often
can
be
short-‐circuited
by

scanning
the
landscape
for
available
technologies
or
technology

development
partners.
Using
this
strategy,
Inovo
recently
helped
a
large

consumer
packaged
goods
client
identify
a
material
technology
that

significantly
advanced
the
client’s
development
of
a
promising
new

product.
The
new
product
was
in
the
market
in
less
than
two
years
from

concept,
likely
cutting
two
to
three
years
off
R&D
time.
In
The
Lean

Startup,
Blank
stipulates
that
TLA
should
only
be
applied
after
the
work

of
invention
is
complete
and,
therefore,
it
only
relates
to
demand-‐side

uncertainties.
We
at
Inovo
believe
this
is
too
simplistic
and
limits
the

potential
of
TLA.

Indeed,
invention
can
–
should
–
be
incorporated
into
a

company's
overall
TLA
program.

•

Cost
of
prototype
construction
-‐
When
the
cost
of
prototype

construction
is
high,
going
deeper
on
customer
and
ecosystem
research

in
advance
of
full
system
investment
reduces
investment
risk.
Inovo

recently
helped
a
Fortune
50
client
test
assumptions
about
the
use
of
a

proprietary
plastic
composite
to
replace
wooden
railroad
ties.
By

engaging
with
experts
across
the
railroad
industry
ecosystem,
we
were

able
to
help
the
client
discover
early
on
that
its
proposed
offering
was

insufficient
along
a
key
but
unrecognized
performance
dimension
and

therefore
would
not
be
adopted.
The
client
quickly
made
the
decision
to

cease
product
development
efforts,
which
preserved
significant

resources.
The
client
then
redirected
those
resources
to
projects
with

higher
probabilities
of
success.

In
some
instances,
in
silico
models
of
adoption
can
help
innovators

correlate
design
variations
to
customer
and
ecosystem
needs
and
desires.

Computer-‐generated
models
are
no
substitute
for
in-‐market
testing,
but

they
can
tighten
up
the
definition
of
the
minimum
viable
product
and

reduce
costly
prototype
design
iterations.
A
few
years
ago,
Inovo
built
an

adoption
model
for
the
electric
vehicle
market
to
support
product
design


efforts
of
an
electric
vehicle
battery
manufacturer.
This
was
the
only

feasible
way
for
a
battery
producer
to
gauge
market
adoption
of
the
end-‐
user
product.

It
is
also
possible
to
test
individual
elements
of
a
complex
system
and

piece
together
the
market
responses
to
build
a
complete
picture.
There

is
a
risk
that
the
sub-‐system
responses

We
are
not
talking
so

will
not
be
"additive,"
but
this
approach

much
about
a
minimum

can
be
superior
to
taking
one
large
risk

viable
prototype
as
we

with
a
complete
system
prototype.
We

are
a
set
of
minimum

are
not
talking
so
much
about
a

viable
subsystems.

minimum
viable
prototype
as
we
are
a

set
of
minimum
viable
subsystems.
As
an
extreme
but
illustrative

example,
Boeing
tests
seat
design
with
passengers,
cockpit
design
with

pilots
and
galley
design
with
flight
attendants
rather
than
wait
for
a
fully

constructed
aircraft
prototype.

•

Cost
of
in-‐market
testing
-‐
Sometimes
"in-‐market"
testing
is
difficult,

costly
or
even
impossible.
This
is
true
in
many
business-‐to-‐business

situations
as
well
as
in
certain
industries
such
as
the
pharmaceutical

industry.
In
these
situations,
as
in
the
previous
case
of
costly
prototypes,

it
also
can
make
sense
to
invest
time
and
effort
in
deeper
ecosystem

understanding
and
in
in
silico
adoption
models
prior
to
investing
in

prototypes
and
in-‐market
testing.
Again,
this
is
no
substitute
for
testing,

but
it
can
tighten
up
the
target
market
definition
and
eliminate
costly
in-‐
market
test
iterations.
Several
years
ago,
Inovo
developed
adoption

models
for
an
agricultural
seed
company
to
correlate
seed
traits
with
the

needs
of
various
consumer
personas.
This
helped
the
client
gain

confidence
in
the
decision
to
acquire
a
new
seed
technology
where
in-‐
market
testing
of
a
prototype
would
have
been
impossible.

Yet
another
effective
way
to
manage
the
risk
associated
with
the
three
factors

discussed
above
is
to
seek
financial,
product
development
and/or
commercialization

partners
who
can
share
the
risk
and
perhaps
quicken
time
to
market.
For
example,

Inovo
currently
is
working
with
a
carbon
fiber
part
manufacturer
to
build
an
entirely

new
business
in
the
automotive
sector.
Inovo
is
helping
the
client
identify,
screen
and

develop
partnerships
with
OEMs
and
Tier
1
suppliers
who
are
well
positioned
to
co-‐
develop
the
client's
early
trial
offerings.
These
partners
will
benefit
from
early
and

exclusive
access
to
a
leading
process
technology
in
an
emerging
area
of
industry

development.


2. Organizational
Complexity

The
second
pitfall
regarding
the
translation
of
TLA
to
corporate
strategic
innovation

relates
to
the
real
differences
in
culture
and
business
processes
between
a
true
startup

and
strategic
innovation
within
a
large,
established
company.
As
Steve
Blank
has
said,

“A
startup
is
not
a
small
version
of
a
big
company,”
recognizing
the
very
real
differences

between
the
two.
Some
of
the
key
differences
include

•

•

Coordination
-‐
Startups
are
simple
organizations
with
few
layers
and

shallow
functional
divisions.
Large
companies
are
complex
structures

with
many
layers
and
deep
functionalization.
Orchestrating
a
"startup"

activity
within
a
large
company
is
a
complicated
task,
and
doing
it
quickly

enough
to
achieve
adequate
speed-‐to-‐market
is
a
significant
challenge.

This
is
especially
true
for
strategic
innovation,
which,
more
likely
than

not,
involves
significant
changes
to
the
company’s
established

organizational
rules
and
processes.
Inovo
has
found
that
constructing

cross-‐functional
and
multi-‐level
teams
with
graduated
accountabilities

and
active
involvement
in
the
project
is
the
key.
It
takes
a
lot
of
effort

and
patience
to
manage
this
complex

Decisions
to
adjust,
pivot

team
structure,
and
it
requires
a

or
proceed
within
a
large

conductor
who
not
only
appreciates

company
are
difficult
to

its
importance
but
also
has
the

make
effectively
while

political
and
leadership
skills
to
do
so.

maintaining
alignment.

Online
voting
tools
are
a

great
way
to
cut
through

politics
and
posturing
and

also
to
broaden
the

conversation.

Decision-‐making
-‐
Startups
have
one

or
few
decision-‐makers,
and
they
are

well
aligned
around
a
simple
goal.

Large
companies
have
many
decision-‐
makers,
often
in
a
matrix
structure,

and
goals
are
not
always
well
aligned.

Decisions
to
adjust,
pivot
or
proceed
within
a
large
company
are
difficult

to
make
effectively
while
maintaining
alignment.
At
Inovo,
we
have

found
that
the
use
of
online
voting
tools
to
gather
opinions
and

preferences
in
advance
of
decision-‐making
events
is
a
great
way
to
cut

through
politics
and
posturing
and
also
to
broaden
the
conversation.
For

strategic
innovation,
we
believe
the
reliance
on
the
judgment
of
senior

executives
and/or
scientific
gurus
alone
is
a
risky
proposition,
because

their
intuition
typically
is
derived
from
experience
in
the
existing

business
and
technology
domain.
It
also
greatly
helps
to
employ
meeting

facilitation
practices
that
interrupt
the
usual
way
in
which
technical
or


administrative
seniority
tends
to
bias
conversations
and
decision

outcomes.

•

Portfolio
management
-‐
Startups
generally
have
one
offering
and
one

business
model
to
manage.
Large
companies
have
many
offerings
and,

quite
possibly,
multiple
business
models.
Large
companies
are
not
just

making
decisions
about
one
opportunity
but
must
make
portfolio

decisions
across
multiple
opportunities
on
an
ongoing
basis.
One
of
the

assessment
tools
developed
and
used
by
Inovo
evaluates
opportunities

along
two
axes
–
"should"
we
do
it
and
"could"
we
do
it
–
to
assist
in

these
kinds
of
portfolio
decisions.
We
also
use
opportunity
"canvases"
to

monitor
and
maintain
a
healthy
distribution
of
opportunities
by
risk
level

and
across
the
domains
being
explored.
These
tools
help
keep
focus

where
it
belongs
–
on
the
best
opportunities
–
and
avoids
disruptions

that
occur
when
funding
is
pulled
and
moved
to
"more
attractive"

opportunities.

We
can
mitigate
some
of
these
challenges
by
physically
separating
the
internal

startup
and
protecting
it
from
the
core
business'
preoccupation
with
short-‐term
results.

These
internal
startup
teams
can
be
housed
in
standalone
facilities
and/or
allowed
to

bypass
multiple
levels
of
executive
management
in
the
reporting
structure.
However,
it

is
neither
possible
nor
advisable
to
make
this
barrier
impermeable.
Resources,
funding

and
knowledge
should
regularly
pass
through
the
barrier
and,
consequently,
we
need
to

navigate
the
issues
of
coordination,
decision-‐making
and
portfolio
management.

The

trade-‐off
is
a
very
favorable
one
for
the
internal
startup
when
these
issues
are
managed

well.

3. Discovery
Transition

The
third
pitfall
when
translating
TLA
to
large
company
strategic
innovation

concerns
the
way
in
which
large
companies
come
into
the
Test
&
Learn
phase.
Generally

some
form
of
Discovery
program
generates
one
or
more
strategic
opportunity
concepts.

These
Discovery
efforts
can
range
from
half-‐day
(or
shorter)
brainstorming
sessions
to

six-‐month
(or
longer)
formal
Discovery
programs.
In
the
latter
case,
opportunities
can

begin
to
approximate
the
level
of
definition
that
a
true
startup
might
have
in
order
to

attract
funding
but,
in
most
cases,
still
fall
short.
There
is
often
a
great
temptation
in

established
companies
to
cut
to
the
chase
and
short-‐circuit
due
diligence.
An
action

orientation
generally
is
a
healthy
one
when
it
comes
to
TLA,
but
some
caution
is

appropriate,
too.
An
extra
two-‐
to
three-‐month
deep
dive
into
an
opportunity
concept

to
validate
the
likelihood
of
adoption
or
the
feasibility
and
availability
of
technology
can


save
a
lot
of
time
and
cost
for
Test
&
Learn.
Knowing
when
you
know
enough
is
the

“art”
part
of
the
art
and
science
of
strategic
innovation.

TLA
is
an
important
component
of
any
large
company’s
strategic
innovation

initiative.
That
said,
it
requires
a
healthy
respect
for
the
breadth
of
business
model

types.
Innovators
also
must
design
and
tailor
their
Test
&
Learn
efforts
with
the
proper

methods
and
tools
to
account
for
organizational
complexity
and
to
enable
a
well-‐timed

transition
from
Discovery
into
Test
&
Learn.

The
Demand-‐Design
Tango™
Approach
to
Test
&
Learn

When
Inovo
is
brought
in
to
work
with
a
client
in
the
Discovery
phase
of
strategic

innovation,
we
employ
the
ADOPTS™
framework,
which
stands
for
Active
Discovery
of

Opportunities
and
Predictive
Testing
of
Solutions.
We
have
developed
and
refined

ADOPTS™
over
more
than
12
years
and,
from
the
very
beginning,
the
framework
has

taken
a
Lean
approach
to
Discovery.
In
fact,
it
is
fair
to
say
that
ADOPTS™
itself
evolved

from
a
Test
&
Learn
approach
through
continuous
experimentation
across
a
broad

range
of
industries,
from
consumer
goods
and
professional
services
to
industrial

supplies,
and
across
a
broad
range
of
innovation
types
–
simple
applications,
platforms

and
complex
system
solutions.

Within
the
ADOPTS™
framework,
one
of
the
Lean
methodologies
we
employ
is
the

Demand-‐Design
Tango™.
The
Tango
methodology
can
be
used
from
the
start
of

Discovery
all
the
way
through
the
Test
&
Learn
phase,
as
we
migrate
from
the

abstraction
of
a
white
space
or
opportunity
domain
to
the
precision
of
a
real
market

offering
and
enabling
business
model.
Throughout
the
process,
we
cycle
back
and
forth

between
testing
Demand
side
uncertainties
and
testing
Design
side
uncertainties.
It
is

one
continuous,
unbroken
and
iterative
process.
In
fact,
break
points
between
the
three

phases
are
somewhat
artificial.
Decisions
to
change
course,
whether
relatively
small
or

relatively
large,
are
happening
throughout
the
process
(figure
5).


Any
successful
innovation
is
essentially
a
Design
"peg"
that
fits
very
well
into
a

Demand
"hole."
The
Design
peg
can
be
a
product,
service
or
process
along
with
its

accompanying
business
model.
The
Design
side
represents
the
part
of
the
domain

ecosystem
that
contributes
to
the
offering
and
its

business
model.
The
Demand
hole
can
be
an

In
the
strategic
innovation

unmet
need
or
unfulfilled
desire
and
can
be

process,
Demand
and
Design

conscious
or
unconscious.

The
Demand
side

proceed
as
two
dance

represents
the
part
of
the
domain
ecosystem
that

partners,
bound
together

but
in
a
constant
state
of

determines
adoption
(which
is
not
usually
limited

movement
and
tension.

to
the
customer
or
end
user).
For
example,
the

iPod
is
a
design
peg
that
fits
very
well
into
the

music
portability
demand
hole.
But
the
strategic
opportunity
represented
by
the
iPod

was
far
more
complex
than
just
the
device
and
the
consumer.
The
Design
side
included

the
enabling
iTunes
digital
song
library
and
the
formation
of
partnerships
in

development
and
production
for
both
the
device
and
the
digital
music.
The
Demand

side
included
the
channel
partners
in
the
music
industry
who
supported
the
iTunes

business
model
and
without
whom
the
iPod
would
not
have
succeeded.

The
term
"tango"
is
an
apt
metaphor
for
this
methodology.
The
tango
originated
in

Buenos
Aires
and
Montevideo
in
the
late
19th
century.
The
original
"Argentine
Tango"

has
evolved
into
many
variations
as
it
has
crossed
continents
and
generations.
In
all
its

forms,
it
remains
a
fiercely
emotional
dance
characterized
by
closely
held
positions,

rigid
and
improvisational
at
the
same
time.
This
requires
the
highly
synchronized

coordination
of
steps
and
close
verbal
and
physical

Dominance
shifts
back

communication
between
partners.
In
the
strategic

and
forth
over
time

innovation
process,
Demand
and
Design
proceed
as

between
Demand
and

two
dance
partners,
bound
together
but
in
a
constant

Design
as
critical
path

state
of
movement
and
tension.
During
Discovery
–

uncertainties
move
from

and
all
the
way
through
Test
&
Learn
–
Design
is

one
side
to
the
other.

formed
and
shaped
to
meet
the
conscious
and

unconscious
needs
and
desires
of
Demand.
However,
dominance
shifts
back
and
forth

over
time
between
Demand
and
Design
as
critical
path
uncertainties
move
from
one

side
to
the
other.
The
next
step
is
not
always
known
until
the
previous
one
is
taken.
We

may
need
to
resolve
a
Demand
side
uncertainty
before
we
can
make
our
Design
side

adjustments
and
vice
versa.

The
innovation
tango
proceeds
from
the
moment
the
music
starts
at
the
beginning

of
Discovery
until
the
end
of
Test
&
Learn.
As
we
proceed
on
a
project
we
are

developing
both
the
offering
itself
and
its
associated
business
model.
Our
methodology

for
the
business
model
elements
is
adapted
from
the
construct
of
Osterwalder.
Each


business
model
element
can
be
related
either
to
the
Demand
side
or
the
Design
side
of

an
opportunity,
and
some
elements
relate
to
both
(figure
6).vi

In
our
approach
to
opportunity
development,
we
are
continuously
addressing

uncertainties
(assumptions
or
hypotheses
to
be
tested)
on
both
the
Design
and
Demand

sides
of
the
opportunities,
inclusive
of
both
the
offering
and
business
model.
At
any

given
point
in
the
development
of
an
opportunity,
there
may
be
greater
uncertainty
on

the
Demand
side
or
on
the
Design
side.
Each
uncertainty
requires
an
action
to
resolve,

and
often
this
action
requires
some
creativity
to
develop.
On
the
Design
side,
these

developments
relate
to
changes
in
Design

In
our
approach
to

performance,
features
and/or
aesthetics.
On

opportunity
development,

the
Demand
side,
the
developments
relate
to

we
are
continuously

changes
in
the
target
customer
and
how
to
test

addressing
uncertainties
on

the
new
Design
feature
with
end
users
as
well

both
the
Design
and
Demand

as
the
broader
adoption
community.

sides
of
the
opportunities,

Many
uncertainties
must
be
tested
as
a

inclusive
of
both
the
offering

strategic
innovation
project
team
moves
back

and
business
model.

and
forth
between
the
Demand
and
Design

sides
of
the
Tango.
The
importance
and
relevance
of
these
uncertainties
varies
greatly

according
to
the
nature
of
the
opportunity.
We
note
some
of
the
more
common

uncertainties
in
figure
7.


There
is
also
a
vast
array
of
methods
and
tools
available
to
the
innovation
project
team

to
address
these
uncertainties.
Many
of
these
methods
and
tools
are
listed
in
figure
8.

When
and
how
to
use
them
is
the
central
challenge
during
the
Demand-‐Design
Tango™

and
the
entire
strategic
innovation
process.

In
the
Demand-‐Design
Tango™,
just
as
in
TLA,
there
are
two
conceptual
themes
at

play:
Lean
Thinking
and
Business
Model
Thinking
(figure
9).
We
believe
the
Demand-‐
Design
Tango™
methodology
offers
an
even
more
robust
way
for
large
companies
to

take
a
strategic
innovation
from
initial
hypothesis
to
market
success,
from
the
start
of

Discovery
all
the
way
through
Test
&
Learn.


Key
Demand-‐Design
Tango™
Principles

We
at
Inovo
and
the
clients
we
work
with
adhere
to
two
key
principles
as
we
pursue

the
Demand-‐Design
Tango™
in
any
strategic
innovation
program.
The
first
principle
is

awareness
at
every
point
in
time
of
where
the
greater
uncertainty
lies.
Is
it
on
the

Demand
side
or
the
Design
side?
By
forward
mapping
the
uncertainties,
we
have
a

means
of
assessing
them
in
a
logical
manner,
even
though
we
know
this
forward
map

will
be
ever-‐changing
as
we
gain
knowledge
and
resolve
questions.
These
are
subtle

distinctions,
and
where
the
greater
uncertainty
lies
is
not
always
clear.
The
take-‐away

here
is
to
have
these
conversations
and
to
seek
honest,
objective
answers.

The
second
principle
of
the
Demand-‐Design
Tango™
is
simultaneous
focus
on
both

sides
of
the
Tango,
paying
attention
to
Demand
side
uncertainties
even
when
the

Design
side
uncertainty
is
more
pressing,
and
vice
versa.
Activity
on
one
side
does
not

cease
while
the
priority
is
on
the
other
side,
although
activity
might
be
modulated
to

avoid
unnecessary
expense
–
for
example,
while
waiting
for
the
outcome
of
an

assumption
test.
In
many
instances,
learning
on
one
side
will
inform
concurrent

experimentation
and
testing
on
the
other
side.
As
with
the
tango
dance,
regular

communication
between
the
Demand
and
Design
side
"partners"
is
critical.

In
some
situations,
Demand
side
iterations
are
difficult,
long
and
costly.
Consider

the
user
testing
requirements
in
the
pharmaceutical
industry.
In
some
situations,
Design

side
iterations
are
difficult,
long
and
costly.
Consider
the
development
requirements
of

Boeing’s
next
generation
of
airliner
before
it
ever
gets
its
first
user
test.
In
other

situations,
both
Demand
and
Design
side
iterations
may
be
simple,
brief
and


inexpensive
(mobile
phone
apps).
It
is
important
to
recognize
these
differences
and
to

have
a
robust
means
for
managing
the
Demand-‐Design
Tango™
for
each
situation.
As

difficulty
and
complexity
rise,
so
does
the
importance
of
forward
mapping
the
obstacles

and
alternating
one’s
focus
from
the
Demand
side
to
the
Design
side
and
back
again.

Summary

There's
a
wide
chasm
between
having
an
idea
and
executing
it
in
a
way
that
leads
to

success
in
the
market.
The
bridge
over
this
chasm
is
constructed
of
methods
for

managing
uncertainty
and
risk.
A
Lean
approach
to
strategic
innovation,
such
as
Test
&

Learn,
is
an
especially
effective
way
to
manage
this
uncertainty
and
risk.
The
mindset

and
methods
of
Test
&
Learn
were
born
in
the
world
of
true
startups
but
are
rightly

finding
application
for
internal
startups
within
large
companies.

By
adapting
a
Test
&
Learn
approach,
Inovo
uses
its
Demand-‐Design
Tango™
to

systematically
address
the
uncertainties
inherent
in
any
new-‐to-‐the-‐world
and/or
new-‐
to-‐the-‐company
strategic
innovation
initiative.
The
Demand-‐Design
Tango™,
along
with

the
overall
ADOPTS™
framework,
builds
on
TLA.
It
helps
large
companies
address
the

complexities
of
their
organizations,
the
variety
of
business
models
that
exists
in
many

companies’
portfolios,
and
the
timing
of
the
transition
from
the
Discovery
phase
to
the

Test
&
Learn
phase.
It's
an
iterative
approach
that,
like
the
Tango
dance
itself,
requires

both
rigor
and
flexibility,
knowledge
of
the
steps
and
the
ability
to
discern
how
and

when
to
improvise.
Such
an
approach
can
mean
the
difference
between
a
widely

adopted
new
product
or
service
and
a
costly
mistake.
Not
only
does
the
innovating

organization
benefit
from
success;
so,
too,
does
the
entire
market
ecosystem.


Notes
i

Blank,
S.
Four
Steps
to
the
Epiphany:
Successful
Strategies
for
Products
that
Win
(second

edition),
K&S
Ranch,
2013.

ii

Ries,
E.
The
Lean
Startup:
How
Today's
Entrepreneurs
Use
Continuous
Innovation
to
Create

Radically
Successful
Businesses,
Crown
Business,
2011.

iii

Osterwalder,
A.
and
Pigneur,
Y.
Business
Model
Generation:
A
Handbook
for
Visionaries,
Game

Changers
and
Challengers,
Wiley,
2010.

iv

Taiichi
Ohno,
James
Womack,
et
al.

v

Blank,
S.
"Why
the
Lean
Startup
Changes
Everything,"
Harvard
Business
Review,
May
2013,

http://hbr.org/2013/05/why-‐the-‐lean-‐start-‐up-‐changes-‐everything.
Retrieved
January
14,
2014.

vi

These
business
model
elements
are
adapted
from
Osterwalder
and
Pigneur,
as
described
in

Business
Model
Generation:
A
Handbook
for
Visionaries,
Game
Changers
and
Challengers.


About
The
Inovo
Group

Founded
in
2001,
Inovo
is
an
innovation
consulting
firm
based
in
Ann
Arbor,
MI,

that
helps
the
world’s
top
organizations
succeed
at
strategic
innovation.

About
the
Author

BRIAN
CHRISTIAN
is
one
of
the
Founders
and
the
President
of

The
Inovo
Group.

Prior
to
founding
The
Inovo
Group,
Brian
spent
eleven
years

at
Whirlpool
Corporation,
where
his
last
role
was
Vice

President
of
Global
Product
Development.

In
this
position,

Brian
was
responsible
for
profit
&
loss,
global
product
strategy,
and
four

engineering
centers
around
the
world
for
Whirlpool’s
dishwasher
category.

During

Brian’s
tenure,
his
home-‐cleaning
category
introduced
a
number
of
important

innovations,
including
the
in-‐sink
Briva
dishwasher,
the
drawer
dishwasher,
and

the
“turbo
zone”
dishwasher.

In
this
role,
Brian
caught
the
‘innovation
bug’
and

left
Whirlpool
to
build
an
innovation
consulting
business
in
2006.

Brian’s
professional
experience
also
includes
five
years
in
general
management

consulting
at
Booz
&
Company
as
well
as
eight
years
in
the
petrochemical
industry,

serving
in
various
product
research
&
development
roles
in
multiple
locations

around
the
world.

Brian
holds
an
MBA
from
the
University
of
Chicago
and
a
Chemical
Engineering

degree
from
the
University
of
Michigan.

White paper adapting test & learn for internal startups (jan. 2013)

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