By Ralph Morales III
Head of Innovation Practice
A case study describes how a new business formed by a merger of established brands created a culture of disruptive innovation.
Structuring to Handle Disruption
The agriculture industry is facing disruption on two main frontiers:
- Technology – genome editing, drone-applied pesticides, biologicals, digital transformation
- Market – changing consumer preferences (like meat alternatives), new business models (like e-commerce)
Formed by the merger of the AgTech businesses of DuPont and Dow Chemical, Corteva has three core businesses: Seeds, Crop Protection, and Digital. Corteva’s Global Innovation Investment Forum (GIIF) allocates investment to its core businesses.
Corteva has a “disruptive innovation” portfolio that cuts across all its businesses. The Disruptive Portfolio gives Corteva a vehicle to anticipate disruptions and compete in new markets and technologies. Corteva’s Innovation Incubator manages the Disruptive Portfolio.
Challenges to Building an Innovation Incubator
Corteva faced four main challenges in building its Innovation Incubator. In Politics and Culture, the challenge was building trust and credibility. At the Project Level, the two challenges were focusing on critical assumptions and developing reliable information. In Decision-Making, the challenge was building the right portfolio.
Challenge: Building Trust and Credibility
Core businesses operate proven profit models. The disruptive portfolio, by contrast, is dominated by the creative types in R&D. This puts the two groups in a state of tension.
Core looks at the disruptive portfolio as a protected sandbox for R&D to play with technology of unproven value. Sometimes R&D can fixate on ideas without a practical application within a reasonable planning horizon. Corporate managers must build trust and credibility early on to buy the time and space to allow some of the impractical ideas to become practical.
Corteva’s solution is full transparency with separate decision-making. Corteva facilitates interactions between the core businesses (the “Army” implementing current strategy) and the disruptive project teams (the “Artists” creating new visions) to strengthen each side’s engagement with the other.
At the same time, Corteva allows each side to maintain its separate decision rights. This balances the strengths and weaknesses of both sides and minimizes the mutual tension.
Challenge: Focusing on Critical Assumptions
The Innovation Incubator needs a mechanism to de-risk critical elements of each business case. This prevents wasting extensive technical work on an idea before evaluating its actual business potential. Corteva’s mechanism is the Lean Startup Method, a learning-based approach with metered funding.
Assessing an innovation starts with gaining clarity about what stage the idea is in:
- Explore – paper exercise – generating ideas
- Incubation – Metered funding to test hypotheses
- Develop – Committed funding to complete product development
This assessment is illustrated in” Mapping the Route to Awesome Innovation: The Role of Scouts.”
Next, Corteva rigorously measures the depth of understanding across all elements of the business case to build a Maturity Matrix. Over the innovation project’s life, the team measures the current depth of understanding of the most critical assumptions and the progress of the project team.
Challenge: Developing Reliable Information
Along with evaluation tools and frameworks, the Innovation Incubator needs reliable and consistent information across all the portfolio’s diverse projects. For this, Corteva uses visualization tools. A simple hierarchical tree building tool breaks down assumptions about the project into the parameters that drive project value. Assumptions mapping helps project teams refine their thinking.
Corteva builds those assumptions into a model along with ranges of parameter values based on the current knowledge about the project. A Tornado diagram shows which assumptions have the most impact on project value. By testing these high-impact assumptions, the Innovation Incubator teams can “buy down” project uncertainty and risk.
Corteva expects project teams to build business cases and assess project valuations, but team members have highly variable skill levels. To help level up these skills, Corteva created a new initiative to implement innovation services provided by domain experts.
These experts train project teams and provide access to information. The services providers ensure consistency in measuring depth of understanding.
The investment model is:
- A project team generates an idea, identifies critical assumptions and (with help from innovation services) builds the maturity matrix
- The team presents the plan to the investment board, which evaluates it and commits a metered amount of funding
- After each round of critical hypothesis testing, the project team (with innovation services’ input) and presents progress to the investment board. The investment board decides whether to continue the project, pivot to a different higher-value approach, or kill the project outright.
Challenge: Building the Right Portfolio
A key function of the Innovation Incubator is deciding what belongs in that portfolio, that is, where to invest. One principle is deciding not to include things that are core projects. Furthermore, a disruptive innovation project doesn’t qualify just because it’s an area in which Corteva is comfortable operating: it must have significant impact. It also must fill Corteva’s strategic vulnerabilities in the battlegrounds of the Ag industry.
Each strategic area of the Ag industry has multiple available projects. How does Corteva decide which ones to invest in?
For this, they apply the Adjacency Matrix and Portfolio Analysis.
The adjacency matrix places each innovation project based on two dimensions:
- How new is its market?
- How new are the technologies needed?
By definition, the Disruptive Portfolio’s purpose is adjacent or transformational innovation.
Corteva analyzes uncertainty and potential project value at two levels. Corteva rolls up the valuation ranges (the horizontal bars) for all the projects in the portfolio to show which have the highest upside potential. It also plots the projects by probability of success and potential value if successful. Corteva chooses projects with high upside potential value so that the successes pay for the many projects that fail.
Corteva’s Innovation Incubator manages its Disruptive Portfolio using rigorous analytical tools to assess innovation projects, select the ones to invest in, and manage the ongoing learning and de-risking of those projects. The Innovation Incubator ensures Corteva will be prepared for whatever the future holds for the Ag industry.
Tags: #innovationincubator #business #strategy #decisionmaking