Innovating Corporate KPIs - Ellie Amirnasr and Charles Vaillant

These serve as a compass that helps the innovation team, stakeholders and management navigate their way to success.

Well- defined progress and success metrics when combined with the right understanding on how to build a hundred million dollar business enable business owners to evaluate the actual performance of their business in almost real time at Mann and hummel today's guest used , a hunter strategy concept to design growth validation process for their digital ventures, focusing on exploration type businesses.

Now, before I introduce those guests, I want to thank our sponsor of the corporate explorer series, Wazoku. Wazoku helps large organizations create effective, sustainable innovation ecosystems that accelerate efficiency gains and new value growth. It does this through intelligent enterprise software that connects and harnesses the power of employees, suppliers, startups, universities, and the unique Wazoku crowd of over 700, 000 plus global problem solvers.

And Wazoku call that , . Collective intelligence and you can find wazoku at www. wazoku.

com now to today's guests and the latest episode of the corporate explorer series called "validation, managing the journey from concept to scale", we are joined by two corporate explorers who have done just that, Ellie Amirnasr and charles welcome to the show

innovation process changes depending on the size of the opportunity you're going after whether it's b2c b2b what life cycle stage that business is that.

Opportunity is that etc etc so there's loads to get through today but i thought we'd start up first by explaining who man and home is, to you guys are in that business

, of course, filters are everywhere in your daily life, from the food that you eat, the air that you breathe, the water that you use for your laundry or washing yourself, all the way to the way you go to work. We do about 32 filter every second, 24 seven, and we'll be located a location globally. One of those so called hidden champion of Germany.

And currently I'm managing the digital ventures and digital business for Mann and Hummel.

And we know that traditional metrics and measurement. Are the bane of so many of our listeners let's share why that is from your experience before we get into solutions and i'd love you then Ellie to take us through the hunter strategy but maybe charles will start with you and what's so broken about these metrics,

So naturally, the way you run your core business it's very efficient, you know how to measure it, you measure your ROI on project, you measure your return on investment, your time to market and you're able to do this in a very efficient way. We typically tend to call this, this the exploitation type of business. That the market risk is very limited or inexistent. You want to enter a new market with a product, so you have to work on the technology. So in my view, it's pretty straight line.

And you know what the objective is, you know where you want to go, and then you go there. And the typical metric that people use , are okay for that. But then when you go into more , breakthrough innovation, transformation B, depending on how you call this, right? It's a new market, new business model, this type of exploratory type of innovation. Yeah. it becomes a bit more nebulous. Why? Because the market may not exist. The technology doesn't exist and this is not a straight line.

In fact, we know, and we have experienced that you never end up with what you start with, right? The hypothesis of the, of today is not what you will deliver. And as you go through the journey, you progress, you learn, you pivot, you change direction, you stop. And once in a while you succeed. So I like to say that innovation in general, in my view, cannot be efficient. Okay. So that is a big, a big statement, radical.

But then I quickly enhance the sentence says, but it needs to be effective, right? So our job as innovators are corporate explorers are really for us to find the most way to be effective. And we know we have to design solutions and process where, where waste is okay. and learnings are okay. And for those, the metrics of today, they just don't work. So you need to find another metric because having no metrics at all is also not an option.

And the reason is because you, you create a huge amount of frustration. The team is anxious because they know the top management can, can pull the plug at any seconds for any reason. And there is no transparency and visibility when they can do this. Management is frustrated because they feel the team is running in circle and not delivering any results and they're wasting money. So you create that, that, that situation where, where it's unhealthy.

So we try to we are German company, so we like metrics. So we're like, okay, how can we, Break this paradigm. How do we design a, a system and metrics that enable us to provide that transparency, that, that visibility without falling into the trap, to measuring the wrong thing?

Perhaps the corporate explorers reporting to a CFO and the CFO by their very nature is not going to agree to the fact that we're inefficient here, we're gonna we're gonna create a lot of waste and they're gonna be gone oh my god and panicking all the time and how to deal with that so you obviously have had to.

Evolve overtime to get that to be the mindset of the organization but there has to be education of that for the senior leadership team particularly if it was a stable exploitation business in the past.

In fact this whole concept of exploration, exploitation really was started with our CEO bring that concept and, and, and from discussion that he has had. So I personally reported the CFO of Mann Hummel. And she she understand that. In fact, she has a very good concept of innovation herself in the way we drive this. So we have good dialogue now for sure globally we have to deliver on numbers and we have to be profitable and so on. The world is changing at such a rapid pace.

Transformation, being digital, being AI, being everything around us is changing at such a rapid pace that the C suite cannot ignore,, those type , of changes and, in direction. And, and therefore they rely, and they are request, requested and required by their shareholders to innovate beyond the core because innovating only on the core will not guarantee success. In fact, it will probably guarantee. Long term failure of the corporation.

And , there's not much standardization that you can actually put on that because you're changing direction quite often. Moving to the hunter strategy. It's exactly what it is. If you're looking at an animal, how it's going to move, how fast it's moving and everything. This is changing , your strategy as well. So imagine five different types and size of animal. Imagine a fly, a mouse, a rabbit, a deer, and an elephant.

So the size of each animal represents the size of a deal that you can get out of a business. So fly, for example, represents what I would say a consumer market, for example. So it means that the deal size is around 10 or less. The mouse is representing the size of one deal of 100 or less. The rabbit is around 1, 000 or less for one deal. And then, the deer is 10, 000 and goes up to elephant. And you can go to dinosaurs and any size of the animals that you want to actually put in there.

This concept coming from Christophe Jans, says, if you want to build a hundred million dollar business in this world, and you're going after fly type businesses, which is 10 or less, you require to acquire about 10 million customers to actually get to that point. And if you're going to an elephant size customer, it's around, 000 customers you have , to acquire to get to 100 million dollar business. Okay, what does that tell us?

When you have somebody that has to make a decision for a 10 or less, they usually make that decision in an hour. Or less than that. It's either a click of a button or something like this. So your business type and the decision making process is completely different. When somebody has to make a choice for spending 100, 000, they usually take their time. They do more evaluation. So the sales cycles are different for these type of animals and these type of businesses.

Why am I explaining it like this? Because at Mann and Hummel, we actually work backwards. We look at our targets where we want to be in 10 years, 20 years. And then we reverse engineered that business process and come back for KPIs in today's world. Okay. So it means that if I'm trying to reach to a hundred million dollar business for an elephant type business means that I have to acquire 1000 customers. My sales cycle is most probably between three to six months.

So how many customers in what period of time do I have to acquire? And we start working backward ourselves like, What is the pipeline that we have to build? How long does it take to actually get from the time that we launched this product to acquire the first customer? What is the growth curve and all of these things?

And then we developed the KPIs based on that instead of jumping in and putting like, okay, so we want to get a hundred million dollars in 10 years, we divide it by I don't know, 10, we create this hockey stick and we're good to go. And then we constantly get frustrated by not hitting our sales targets. If you ask Charles, he will tell you that we constantly, at the beginning, we used to set targets and not reach it and set targets and not reach it.

If you show that in the CFO, of course they get frustrated because they plan for every single dollar that you're planning to bring in. And if you're not bringing that. It's, it doesn't make sense for investors. It's very important to show the return on their investment. Not necessarily right at the beginning. The return on investment is in dollar that you can bring in. It's actually about the customer base that you're building the outreach that you will have, the market that you are creating.

And we started putting KPIs on those. At the beginning, especially when we were doing exploration, and if you cannot hit those targets, you definitely cannot get sales if you cannot even get one customer to talk to you, if you can't even create a proposal or quote for 10 customer of the size that you're talking about. You will never actually get to making any sales anyway. and then we communicate these with the stakeholders and the management, so they will see the progress.

And it's actually, I would say a business practice. To go through these efforts that you have to actually deliver or close a deal. And that's basically the concept of Hunter strategy. Now, if you want to do fly, you're not going to go and sit with the customer and talk to them. Most probably it's an e commerce platform. The metrics for e commerce platform, the way that customers hear from you is completely different. And then we change. Our, approach for each business based on that.

Which sometimes it might be that it might not be the same practice that today, for example, Mann and Hummel is using. So we avoid the standardization of the process that they have and try to test these ideas with this strategy.

I'm sure some people still do this we blame them we can it goes those dinosaurs they don't understand etc but when you point the finger this three point back to yourself and you gotta realize that well i didn't.

Even do my homework here to understand what are the right metrics how to your point different businesses in different business models all have different metrics and then to be able to capture those and then use them the next time that's not something that is even, interesting to many many people who work in innovation cuz it's not the fuzzy ideation stage i'm what i'm so struck by by you by man and Hummel, is that you guys have created a process.

But even that process evolves consistently and constantly. And I'd love you to tell us a little bit about that because you use your processes to actually innovate your processes.

But they have to work for you and what works for us probably doesn't work for other firms, right? So I you you have to adapt I think any type of framework that you're using Being the horizon one, two, three the dual transformation, you know the Bains framework. It doesn't matter all of those in my view they need to be adapted and and the way you measure this needs to be adapted as Well, what we have done over the last 12 months.

So you understand now that especially for exploratory type of business, we are actually forcing us. We don't, we do not measure financial metrics. We measure progress metric growth metrics. So we're looking at customers are acquired. Systems we're delivering, the usage of the platform. So depending on the type of business, we disconnect the numbers. Now we do have, we track sales because we also track cashflow and we, we, we try to replicate for our corporate.

the same type of of of, of focus on the cash. So we, we, we look at pre cash flow on a monthly basis. And then , the owner of that business or that team needs to understand how much he's getting from his customer, how much he's investing, but that's really from a pure cashflow perspective, making sure. that they understand that, Cash is limited and cash is precious.

But regarding , the patience that we want to put on the pro on the project and to avoid this discussion about how many zombies do we have in the organization? This is where we have all this progress mertics, right? and here over the last year, we really think we thought about a method where we look at five dimensions, the product market fit, which is very important, the very early stage of initiation, Then we look at scalability of the business.

We look at profitability of the business, but much later on. So depending on later stage of the growth, we look at unfair advantage. Are we leveraging the capability of the organization to give us this unfair advantage? And the market size.

Now, are we attacking, the point that Eli was mentioning with the animals, it's nice if the side of the business is 10, 000 for every for every acquired business, but if there's only 5 in the world, you're not gonna so the question is, do we even want to get this? So, let's make sure we don't end up with a niche business. And the reason why this is so important, that the target is so important. addressable market is significant is because the chance of success are very low.

And we have to be honest. And this go back to my non efficient is I need to be effective. So I got to make sure that if I place my bet into that quadrant, I need to do the best job possible, but if I get there, you need to provide huge reward because otherwise when you make the numbers game it just doesn't add up. So that is and that's, you talked about the evolution.

So I think this, this new, new type of metric that we are just currently deploying and it's really helped the team to really speak the Language. people speak about product market fits and they understand, okay, next. six month cycle, we will focus on demonstrating and validating that our product has a good product market fit. In the past, we used to ask the questions, do you have a product market fit? Yes, we do. We have one paying customer.

Now we asking, okay, show me evidence that you have product market Fit. show me evidence that you can scale up. So I'm not I appreciate a discussion, but I, I I don't take it for, You need to demonstrate with data that you have a product market, that you're scalable, that you're profitable and that you're leveraging the company capabilities. So it's a little bit more, in depth and skin in the game type of things, a little bit more difficult about the discussion.

And but it provide that transparency between the team. Because at the end, the management, in my view, the management does not have the capability to run those new businesses right? So what got you here won't get you there. We know how to run the core business, but as a CTO, I don't know how to code. I don't know how to design sort of the chemistry that we're working on. So I have to trust that my associates are competent. What I can do is provide the framework and time box, a space.

for them to innovate, for them to show progress. We are very clear on that timeframe and what are the objective to achieve. And then we get at the end of the cycle and we can look look at the data and say, are we happy with the progress? Are we not happy? Do we give it another chance or we don't?

But one of the things that I see a lot is businesses Mature businesses do not invest R&D money like proper R&D money versus incremental or just business as usual improvements that they label as innovation that are so far away from R& D so even when they get government grants this happens where.

that money doesn't go to where it really needs to do to your point charles what got you here won't get you there in the future how do you manage that resource allocation to be able to protect funds, to go that's proper R&D money that's not to be used for

It's R& D investment of the percent of net sales or sales. Yeah. So this is what is reported the most innovative company Tesla is spending over 15 percent of their, of their sales on R& D. And then you can go through, Google, you can look at all this company. Yeah. But if you think about this, this R& D budget is, it needs to be now distributed between different types of R& D work. And corporations like Mann and Hummel, we are an industrial company in the B2B space.

We spend and we use a lot of that financial resources into incremental tasks. So some people call that incremental innovation. In fact, at Mann Hummel, we don't call that innovation. We call that R& D work. So what are those? Those are, material cost reductions to get, you know, a little bit more gross margin on your product. It's the change of label on the product. You're selling a product to a customer, you make a private label tomorrow, it's the same product. The box needs to be different.

And so on. You need an engineer to create a new part number, loading the systems. It's very incremental, help you to survive, very important to your business. It's not going to help you bring tomorrow on the map, right? So then if you look at the percent of sales, on the other percent of sales, and you start to bucket what you're doing. So you look at incremental spend. You can look at core innovation, true innovation. What are those? Those are innovation that.

drive USP, differentiation, brand equity, where you can go into the market and get market share because your product is so much better than whatever is exists today, either in your core business, or maybe some adjacent business that you have. And then you have the breakthrough or breakaway type of business, which is the revolutionary type of things that has a high chance of return, but also low chance of success.

So you need to look at this because today, and this is the way we look at it, we spend the majority of R& D spend on this incremental task. Therefore we are indirectly starving the true investment. Our CEO, I was with him last week and he was saying, if we would have a better way to use that investment, there's so many more innovation we can bring to market right then. We not the ideas and the potential project is not the The problem is how do we finance all this?

While, keeping the incremental business as well. So now you think about digital transformation that we are all talking about, right? AI generated designs. How do you quote a product without having a human behind the keyboard and so on. So you can now take this majority of your R& D spend And through transformation, internal transformation, how do you drive better processes that you can really take the majority of the human task out? So that is, that process still needs to take place.

Designing a new label, changing the color of a product, but that is done basically almost automated. You have few people controlling it, and so you, you really drive, Now you talk about efficiency. Now you drive this efficiency of this, As much as possible. So the amount of R& D resources and dollars and dollars spent on that is as low as possible, the same output.

And every dollar you save, now you reinvest into creative type of work that require experimentation, that require creativity, that require because that process To the majority of its work, you cannot digitalize, creativity is still to this point very much a human function that, that we need people to do.

And for those people that are watching us, all the books behind me, there are tons and tons of strategy and tactics and different ways of doing this, but choosing one and then making it work for you is actually really, really important, but also then having the willingness to throw it out and, and try new and evolve it and frameworks, I think that's so, so important.

But the question I have, Ellie, I'll come to you first is going back to your earlier self, when you started off on the innovation or the corporate explorer journey, what would be the one piece of advice that you'd give yourself if you had the time machine to go back to yourself and go, Hey, Ellie Don't do this don't do this thing that you're about to do because this will not pay out well for the future i'd love you to share that the piece

of advice you give to an early version of le in a corporate explorer sense,

And they allow, or they, they actually trust and empower, and then also courageous employees that are willing to try and bring evidence and lead up. So we met somewhere in the middle together. And right at the beginning, if I would say, I would have started much more with her, but I also didn't know much back then. That was like, is it true? Am I going to sound stupid?

Yeah, but you will learn only if you just sound stupid and then observe and then come back and reflect and then go back again and correct yourself. So I would say out of a lot of other things, I would be just more courageous to to try different things and then just come up with best practices and lessons learned as much as I can.

And if you don't wear the, the business card of the company, then then then, the work we are doing with a corporate venture capital and working with startup and try to leverage their tech and to combine it with yours. We started that quite late and I wish we would have started earlier. We still not that great at it, but we are really working to try to leverage it because.

If you can access a tech that exists already IP and then you license it and then you build a adjacent product with it and you speed to market is phenomenal. So that's number one. The second is. the toy here in the, in the breakaway innovation this, this new business model that everybody's talking about and very few people are able to do, when you do this, you, you keep your eyes off the, the, the core business and the core business is so valuable.

You have customer relationship, you know what you're doing. The problem is what we talked earlier, you're consuming so much of your R& D on this incremental. So if you can have the discipline to really say, I'm gonna, really innovative on my core. This is in terms of, and now that will be the first time I talked about financial metrics, return on innovation. as the best chance into that middle segment, right? We, we tend to go to the extreme.

So focus on, on the one where the return is the best, because you have the capability, you have the brand name, you have the experience, you have the branding, the confidence. So don't, don't try to go too far out. It's okay to put some bets on the, on the future, but leverage where you are and then evolve that business with initial services, smartification, IOT, whatever it is. to make that core business even more valuable to you.