The Missing Discipline Behind Failure to Scale
Companies make significant investments in developing and incubating new business initiatives, but too few follow a rigorous path to scaling their ventures.
Dan Page/theispot.com
In 2018, Best Buy announced that it would enter the health market. It was an unexpected move for a consumer electronics retailer, but it was consistent with then-CEO Hubert Joly’s passionate advocacy for making Best Buy a company with a deep sense of purpose.1 Starting with a focus on helping the elderly to age safely at home, the company broadened the strategy to make Best Buy Health a provider that “enables care at home for everyone.”2 It was also a lucrative opportunity: Home health is forecast to be a $265 billion market by 2025.3
Over the next few years, Best Buy Health tested its key assumptions about the opportunity, seeking out the sweet spot that would allow it to build a new business to sit alongside the company’s existing retail franchise. By 2022, it was a $525 million business, projected to grow at a 35% to 45% compound annual growth rate through 2027. The initiative created a new growth vector for its parent company and gave it a measure of resilience in the turbulent consumer retail sector.
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Best Buy succeeded where many companies fail. It moved through the three innovation disciplines required to build new businesses: ideation, incubation, and scaling. It came up with a new idea for solving the customer problem of aging safely at home, incubated it by running in-market experiments to test value propositions, and then scaled it to a revenue-generating business unit. This is a relatively rare accomplishment. Our research finds that while 80% of companies claim to ideate and incubate new ventures, only 16% of companies successfully scale them.4
A key contributor to this problem is the almost exclusive focus that companies place on the first two innovation disciplines. The ways and means of ideation and incubation — embodied in methodologies such as design thinking and lean startup, and disseminated by an army of trainers and consultants — are well known and readily available. However, when it comes to scaling, there are few methodologies to guide corporate decision-making.
References
1. H. Joly, “The Heart of Business: Leadership Principles for the Next Era of Capitalism” (Boston: Harvard Business School Press, 2022).
2. “Edited Transcript: BBY — Best Buy Co. Inc. Investor Update Meeting,” PDF file (New York: Thomson Reuters StreetEvents, Sept. 25, 2019), http://s2.q4cdn.com.
3. O. Bestsennyy, M. Chmielewski, A. Koffel, et al., “From Facility to Home: How Healthcare Could Shift by 2025,” McKinsey & Co., Feb. 1, 2022, www.mckinsey.com.
4. A. Binns, “Beating the Odds of Disruption,” white paper, Change Logic, Needham, Massachusetts, 2019.
5. K. Shah, “Breaking Down Corporate Walls to Avoid Echo Chambers and Innovate” (presentation at the Innov8rs Conference, Austin, Texas, Nov. 1, 2022).
6. D. Adams, “Life, the Universe and Everything” (New York: Harmony Books, 1982).
7. A. Binns, C. O’Reilly III, and M. Tushman, “Corporate Explorer: How Corporations Beat Startups at the Innovation Game” (Hoboken, New Jersey: Wiley, 2022).
8. A. Wilkinson, “The Creator’s Code: The Six Essential Skills of Extraordinary Entrepreneurs” (New York: Simon & Schuster, 2015).
9. A. Binns, M.L. Tushman, and C. O’Reilly III, “Leading Disruption in a Legacy Business,” MIT Sloan Management Review 63, no. 3 (spring 2022): 9-11.
10. “Best Buy Targets Five Million Seniors for Digital Health Services,” Digital Commerce 360, Sept. 30, 2019, www.digitalcommerce360.com.
11. Ibid.
12. Binns, O’Reilly, and Tushman, “Corporate Explorer.”
13. M.L. Tushman, J. Winsor, and K. Herman, “Deloitte’s Pixel (A): Consulting With Open Talent,” Harvard Business School case no. 420-003 (Boston: Harvard Business School Publishing, 2020).
14. Deborah DiSanzo, interview with authors, February 2023.
15. R. Casadesus-Masanell, O. Gassmann, F. Wortmann, et al., “Bosch (A): Entering the Electric Bike Market,” Harvard Business School case no. 722-459 (Boston: Harvard Business School Publishing, 2022).
16. A. Lewis and D. McKone, “So Many M&A Deals Fail Because Companies Overlook This Simple Strategy,” Harvard Business Review, May 10, 2016, https://hbr.org; and Y. Weber, S. Tarba, and C. Öberg, “A Comprehensive Guide to Mergers and Acquisitions: Managing the Critical Success Factors Across Every Stage of the M&A Process” (Upper Saddle River, New Jersey: FT Press, 2013).
17. D.G. Thomson, “Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth” (Hoboken, New Jersey: Wiley, 2005).
18. P. Robertson, “Always Change a Winning Team: Why Reinvention and Change Are the Prerequisites for Business Success” (Singapore: Marshall Cavendish Business, 2005).
19. Interviews with the authors in 2019 and 2021.
20. Deborah DiSanzo, interview with authors, February 2023.
21. “FDA Finalizes Historic Rule Enabling Access to Over-the-Counter Hearing Aids for Millions of Americans,” U.S. Food & Drug Administration, Aug. 16, 2022, www.fda.gov.
Comment (1)
Dr Nagayya C Hiremath