Bosch

Michael Nichols

Michael and his innovation team at Bosch act as a service organisation; sourcing projects from the business and taking them through rapid validation.

What is your background and current role?

My background is a bit different compared to most employees at Bosch. Bosch has traditionally been a premier engineering and hardware company but it is now supplementing its offerings with software and service. Having an MA in social sciences and liberal arts, focusing on Russian and Eastern European culture, my background is a bit more exotic. I have lived in Germany teaching foreign languages and took an MBA at the University of Florida, focusing on finance and strategy, which allowed me to enter the world of business.

I am a generalist by nature and intellectually curious; I’m therefore keen to understand everything – the assumptions behind things, and innovation is, at the end of the day, a social science; it is much more about people than numbers, technology, and processes.

My first position in Bosch was in finance and controlling, but I wanted something more general and strategic, so I had the unique opportunity to create a position to do corporate business model innovation in practice. Corporates are typically quite bad at innovation away from the core, and I saw an opportunity in that to make an impact by addressing this gap. This was in 2016 when business model innovation was still quite new, and we kept a close link with leading universities such as UC Berkeley and tried to incorporate the teachings of thought leaders such as Steve Blank, Alexander Osterwalder, and Charles O’Reilly to educate ourselves and learn from their vast experience with other corporates.


What is your definition of innovation and how do you work with it?

My philosophy when it comes to innovation is that most new ideas won’t succeed. It is very seductive to believe you have insights that the market somehow does not have, and that you can select the best ideas. But most of us are not consistently smarter than the market, and therefore most ideas will fail. We also need to understand the reasons why they fail. The top reason is that there is no market need, meaning there are not enough customers with a need strong enough to be wiling to pay for your solution fast enough that you do not run out of money. The sooner corporations realise this, the better. Many corporations place bets that are too large too early on. Instead, you need to test as many projects as possible, as fast as possible. You need enough throughput to get a high number of chances, or shots on goal. And you need a mechanism to stop ideas early on since most of them will not work out. If you do this, winners will have a chance to emerge.

We consider ourselves (Bosch Management Consulting) a service organisation sourcing projects from the business and taking them through a rapid validation process. We charge for our services and demand skin in the game – we only accept projects with a committed team with full capacity until a project is validated. If you cannot allocate a team for a few weeks, you are not really serious about innovating. Innovation must be treated just as seriously as your core business. Otherwise, you end up in the theatre.

We start by validating customer needs, and this is where most projects drop out:  50% of the projects we work with drop out within the first 8 weeks of validation due to not finding a must-have need of a relevant customer segment. This is not surprising, since changing customer behavior is one of the most difficult challenges all innovators face. Later, only after we have validated the customer needs do we develop an MVP or a pilot-project with some of our OEMs with potential customers. These pilots or proofs-of-concept should be paid to prove willingness to pay early on, because we want to avoid spending lots of cash to develop technology nobody will ultimately pay for, otherwise known as proof-of-concept hell where you are stuck doing free demos.

We have a set of transparent criteria that projects must meet, but it is the team’s decision whether to kill a project or not, and we tell the business managers to respect this decision. We do give our recommendation, but we are a service and not a governance unit.

If validated, the project is eventually transferred back to the business unit. This is typically where the biggest problem may arise, as projects can get lost in the “Bermuda triangle” between the working style of this early incubation mode and the expectations of the business unit which may be unrealistic for early-stage ventures. This remains a challenge for all corporations, including us, even if you have done everything right before then. Projects need to be ring-fenced, including after going back to the business unit. And managers need to assess the project’s business model configuration and potential, rather than myopically focusing on traditional business metrics such as revenue figures and EBIT contribution, and this should be done for a longer time than these managers are comfortable doing. This discomfort is not surprising, since these managers must meet their core-business targets. Adding exploratory projects to their portfolio presents them with a difficult situation. They often perceive these ventures as costs and not as opportunities. The trick is finding a way to protect these projects while allowing the managers to focus on their core activities. There is no one-size-fits-all answer to this, though. This is the core problem ambidexterity concepts try to resolve, and it is one we are actively seeking solutions for.

I am not a fan of innovation as “transformation”, where whole businesses are turned around. It is not helpful for most corporations to think about innovation in that way, and it can even become destructive by distracting the core from its main purpose – to produce cash for the company’s survival. Without this cash, there is no innovation. The point is that fully transforming your core business immediately is not needed for most companies– but looking beyond the core should be the goal. Thus, not everyone needs to be an innovator; you still need those that execute and administer the existing business well. What companies really need are new business models to drive future growth. We need to think more in terms of how we might change around the edges while simultaneously keeping the core but leveraging its capabilities. In that regard, I find the dichotomies of exploit-explore and core-beyond core more useful concepts when it comes to corporate innovation.


What are your key learnings from working with innovation and how have you handled them?

The first thing I would highlight is the strategic relevance to the company. Corporations let through too many ideas without critically assessing the strategic relevance. You have to ask yourself: if you are not utilizing a company capability, why are we the right ones to do it? We were probably too vague in that regard in the beginning, wanting to try everything new and interesting, but the risk is that you can fail to obtain the strategic alignment that is really crucial to get the resources you need later on to incubate and scale. Adjacent and radical innovation projects are often considered a cost and are thus easy to kill. It is easy to end up creating an “innovation zoo” with many exotic projects, but no real integration. You need to have strategic alignment internally and a commitment to follow through, otherwise, it is all for show. That is why we now ask for a project team with full capacity for up to a year.

The second learning is about capital efficiency. In corporations, there is often a patent-focused culture. But when doing exploration away from the core, speed is more important than a patent, and you cannot afford to tie up so much cash in an idea that is highly likely to fail. If you test in the market in the right way, you do not need to worry so excessively about IP. You get extra validation before investing. It is hard for people, especially in R&D, to trust that you do not necessarily need IP so early on. We like to say: Don’t worry about IP, worry that nobody cares! Do not invest in patents, but in learning – that is more efficient in the end. So, the key is to invest at the speed of learning, as our friends at Change Logic often say.

Third, I would like to say that it is possible to create a failure culture. Not in the buzzwordy-sense where it is said that all failure is good but our actions tell us otherwise. Corporates need to understand that failure in innovation is not exclusively about the people behind it, but mainly because of a lack of market need. You might fail, but actually be the best team – and your success is that you stopped the project before you burned too much cash. That is a success! This mindset helps liberate the teams to explore without fear. Additionally, you must embrace failure in the sense of placing lots of bets. You literally have to fail a lot to find the few winners worth betting on further. That is what embracing failure is all about. 

Can you mention an example of a success story?

We had a project that wanted to bring Bosch technology to Africa, but the initial problem was that the hardware was too expensive for this market. The project managers Sara Carvalho and Levent Suerer, now my wonderful colleagues in the Bosch Accelerator Program, found another business model using mobile payments that was based on a collaborating with a local partner who could also provide access to local customers. The market was tested through numerous customer interviews, and the feedback was positive: people wanted and even paid early on for the solution and the partner was able to deliver. Despite this, the project was later discontinued because of strategic reasons. I still consider this project a success, because it failed for the right reasons.

We ended up in a good place because we were truthful about the probability of success. We are honest about failing, and focused on failing for good reasons. We did not want to disappoint teams and their morale by allowing projects that were strategically misaligned. Failing for the right reasons is a good thing. If you start on this path with eyes wide open, and are honest to management as well, you will not disappoint.

You need to ask yourself: do you want to do theatre or do you want to do business? If you do business the right way, you will change culture. Not the other way round.


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