NLR is an applied research institute. Their work covers different fields ranging from systems design and electronics to avionics. They’re a nonprofit organization – currently 80% contract-based for the private sector and 20% strategic financing from the Dutch government. They do operational consultancy, human factors, design composites and innovation and projects.
At NLR, Frederik is a researcher in aviation human factors and a business developer connecting knowledge development within NLR to the market through Lean Innovation.
We had a really interesting discussion. In it, you’ll learn:
- Why it’s important to be intentional in selecting the knowledge an organization wants to develop.
- The importance of deeply understanding the uncertainties of innovation projects.
- How to use implementation and value-effect preconditions to prioritize innovation projects.
- The challenges of innovating in the aerospace industry.
- Why it’s important to understand change management in B2B.
- The single thing that kills Lean Startup adoption in organizations.
You can read the full interview below:
Etienne Garbugli (EG): Could you tell us about your work at NLR? What kind of projects are you taking on?
Frederik Mohrmann (FM): We sell innovation. For example, an airline will say: “Okay, I’d like to develop a new type of training”. They can contract us to develop that training. We often help develop products – that could be a complete aircraft wing to an engine to a new cooperative avionic – or test product design.
The question I’m concerned with at NLR is how can NLR become better at that? We do knowledge development in specific programs and we participate in research initiatives from the European Union, but how do you choose which program or which knowledge development you want to do? What’s the need of the market? You need to understand what’s the value that that specific knowledge can generate within the sector.
If you’re fully government subsidized, the pressure to choose is low. As you become more dependent on the market (as NLR is), it’s important to become more critical about what knowledge you want to develop, which innovation fields you want to participate in to set up that selection process internally. That’s what I’m doing.
EG: What are some of the methodologies that you use to determine whether an investment is better than another?
FM: I think it resonates with a Lean Startup approach. It’s not just looking at validated learning metrics. You know the expected turnout or return on investment point, but you also want to know how many uncertainties are in your value proposition and whether you validated them. How many do you need to validate? If you have several value propositions next to each other, you could have one that has a lot of uncertainties and the other that has less uncertainties. The one with less uncertainties might also have less budget but it might be preferable simply because the risk of it stalling is lower. You have to break it down, not just look at the technical proposition and what employees have promised, but the certainties and uncertainties in this product development investment.
Another aspect is which preconditions must be true for your innovation to be valuable to your customer? Sometimes, innovation at businesses you’d like to sell to isn’t just a clear plug and play, it’s not an isolated product. In many cases, you have to interact with existing systems, existing operational processes in your customer’s organization which means that if a lot of other preconditions have to be true for this innovation to be valuable, the risk of failure increases proportionately. It’s a sense of understanding, what needs to be true for this to be implemented successfully?
The second thing is, if your innovation is implemented, it has some net value for your customer – making an operation more efficient, more economic, lower costs. Those values are dependent on specific conditions within that organization. It’s not just about the implementation preconditions, it’s also about the value-effect preconditions. Does it actually have value? If I’m going to sell you this product and it’ll save you €100,000 a year, that’s cool. With one company, it might save €100,000, in the other company, it might only save €20,000 because they can’t (or don’t want to) leverage parts of their operation which increases the value of what you’re implementing.
EG: In that case, you need to make predictions about future outcomes based on validated learning that you put together for these innovations?
FM: Before their first validated learning, I always ask the people with the ideas: “what’s the value of this innovation to the customer?” I ask this because even though there’s an emotional aspect to purchase decisions, businesses will generally ask you: what are my savings, when will I attain ROI and what are the risks? Businesses are fairly pragmatic about their purchase decisions, and rightfully so – numbers talk when you’re working in B2B. I think it’s one of the mantras in your book.
When I ask teams what the value of their innovation is, they may answer, for example: “Decreased CO2 emissions in airline maintenance processes.” Great. Although I can imagine that that’s nice from a technical standpoint, what does this mean for the customer? At the end of the day, the customer is going to pay you, and how does he earn it back?
An airline is in the market to transport people from A to B with a profit margin. CO2 reduction isn’t its core business; how does it serve the core business model of the customer? When I ask them to do this analysis, they explain: “If we do this, then that happens, then we have this effect and then, at the end, it saves them that much money.” Great, are all of these effect-assumptions true? If they say “I don’t know”, I explain that by writing these assumptions down, they have in essence a shopping list to validate the preconditions. If they find that some preconditions are not ready, how can they expand their innovation concept to include these preconditions in their offering? This ensures that they’re green, and thereby safeguards the value of the innovation, reducing the risk of product development.
EG: In a way, this is limiting the cost to evaluate the opportunities that come to your team – in a way, that’s completely the Lean Startup?
FM: Yeah, I think it is. You’re attuning people to what’s certain or uncertain and what the risks are in the value-estimate of their innovation. You can use this to select which seed-ideas you want to actually validate. If you have 20 new ideas, you can invest $10K per idea and validate them all, or you can sort them based on how many uncertainties are related to the initiative, as opposed to only looking at benefit-promises.
You really need to be rigorous about this in a B2B market. My own focus lies in the civil aviation market (airlines, airports, air traffic control). These are often very operational organisations that look for investments with a good story and clear, quantified contribution to their core business, preferably with short-term ROI. This is quite different from a consumer market, and it’s also one of the challenges that NLR faces with innovation in these markets.
EG: Do you feel that these types of constraints reduce the risk-taking ability of these organizations?
FM: An airline takes people from A to B. They want to bring as many people for the lowest cost to have the biggest market share. Airlines are very heavily regulated; they have to comply with a lot of rules and there’s not a lot of wiggle room to change things. Safety is a high priority. You can essentially kill your business if you don’t comply. For this reason, the business models change sometimes, but they don’t change radically. The level of disruption in the aviation industry is more damped than if you look at other industries. There’s more movement in ancillary parts of the operations such as, for example, support software for crew rostering.
If you’re talking about rigorous changes like, for example, changes to the way we track aircrafts, it’s a lot of technology that you put in there. You have to go through all the regulations. The regulator needs to like it, the rules and the laws might have to be changed, operation procedures need to be modified, everybody has to relate to what you’re doing. It’s very difficult to get a change and that’s the reason why you don’t see the aviation industry making radical steps in the way they operate.
If you look at the process of innovation in the aerospace industry, you’ll see that a lot of the technology is developed on the defense side because there’s more risk-taking there. The decision to innovate and try new technologies is often made based on the need to be successful on a fast-changing battlefield where there’s a lot of inherent uncertainty. That’s a whole different value proposition to develop technology than if you’re looking at a business that wants to fly people from A to B, and beat their competition.
Frederik Mohrmann presenting at the Delft University of Technology
EG: Working in a fairly regulated B2B environment, what do you feel are the challenges of innovating in that sector?
FM: You need to be aware of the constraints that the industry puts on you. Those can be regulatory or business model constraints. You have to consider the lead time – these are large organizations you’re working with, you have a lot of internal customers, different types of buyers, convoluted strategies, a lot of different departments which are not aligned. You need to go up the ladder and see where silos meet and then sell at that level, but then you’re speaking to the CEO of an airport with 40,000 employees. He doesn’t have the time to look at your value proposition everyday. There’s a lot of convolution in that sense. You’ve got the constraints, accomplished organizations, multi-stakeholder environments, etc.
Looking at the development side, the things you develop are going to be held to a high standard. You’re pitching to organizations that operate 24/7. They don’t accept failure. They don’t accept downtime. Hence, your internal investment to make something of that quality is high as well. The whole industry isn’t moving very fast.
EG: Looking at your industry, it doesn’t seem like a natural fit for the Lean Startup – how did you decide to adopt Lean Startup at this level?
FM: I’m leading the introduction at NLR right now. Sometimes you gain clear traction with internal problems, and sometimes you have to be Don Quixote. The new strategy of NLR is to look into product and service development, proactively engaging new and existing markets in new ways. That’s a shift from our historical tendered business model to a proactive, entrepreneurial business model, but the question is how do you do that with low risk? Risk-taking is fairly unfamiliar to our non-profit organization. Lean Startup provides NLR with a risk-reduction method that makes it easier for our organization to dip its toes in entrepreneurship. We’re trying to be more mindful and value-added in what direction we choose with our strategy and product investments, which is a major reason for people to open up to it.
And what’s the alternative? You can approach this classically like: “write a business plan, tell me how much money you promise me with an ROI in three years.” But all too often, you end up investing too much in solution development based on loose assumptions, leading to one single (fairly expensive!) learning moment two years down the road when the market isn’t what you thought it was, or some competitor swooped in and produced it at twice the speed. You can’t afford to hold on to technology-push philosophy today, you need to be much more attuned to the value you deliver and sensitive to the assumptions underpinning it.
EG: How did you hear about Lean B2B initially?
FM: I started asking myself at the end of 2015: “Why are we doing these projects?”. I wanted to be more value-added in the work I was doing. I picked up Start with Why by Simon Sinek which I loved and picked up The Lean Startup. When I read The Lean Startup, they talked about B2B and corporations, but both of those were under-appreciated topics within the book. My questions were how do I apply this risk-reduction strategy within an organization and how do I apply this for businesses because when you’re talking to businesses, you really need to change the way you’re thinking.
I found your book and felt that it was one of the better books. The reason that I chose to read it was that it started out with The Lean Startup and then said, how do we apply this to B2B? That’s exactly the question I was asking myself. It resonated with my situation.
I also read Lean Enterprise because I wanted to figure out how Lean Startup works within organizations to change processes. How do you influence higher management? I read a lot about change management because I realized, it’s all good and well to know where you want to go but how do you get there?
EG: Well, quite frankly, they’re tied at the hip. It’s not really possible to do everything from the outside-in without dealing with change management. It’s definitely a big part of it.
FM: Yeah, it’s huge. Within the Netherlands, we have a Lean Startup Leadership Platform. It’s a working group with a lot of different organizations from all trades to see how we can apply Lean Startup within organizations – B2B, B2C, internal change programs, etc. There’s been a lot of discussions on how to apply it for a specific product, but now more and more, the question is how are you going to implement it, how do you change your top management?
You need to be pretty progressive as top management to make that decision and then to test if it works. You need to have a big enough organization that can take that risk in case it fails. A lot of smaller organizations are faced with: “Okay, I’d like to see if it works but I’m not going to set up a different department”. How do you demonstrate Lean Startup within an organization without having that separate safe haven? That’s where we can set the seed for change but it’s very difficult.
EG: Tristan Kromer says that innovation needs to be managed outside of the regular P&L and not be evaluated by the same rules. Is that how you see it?
FM: That’s the challenge I was hinting at because if you don’t get the freedom to put it outside an organization, then you’re stuck within the classic P&L, the classic organization. It’s difficult to demonstrate a different way of thinking within that framework. An organization must create the right preconditions for Lean Startup to work, even for just a pilot if it wants to assess its value for the organization. By doing stage-gated piloting, the organization limits its risk exploring Lean Startup.
That’s where it fails a lot of times because you need to have enough team endurance as well as protection over you if it doesn’t start high enough in the organization. Once you can pilot it and show that it works, the experience speaks for itself. You can scale it up, and the company will adopt it, but it’s that initial demonstration within the current framework which is quite deadly for the introduction of the Lean Startup.
EG: In a way, it’s too easy to kill it fast because it doesn’t comply to the current rules in place?
FM: Yeah. If you have a CEO who’s entrepreneurial, understands these concepts and is looking to increase the entrepreneurial power of his/her organization, then that’s a guy that will probably say “Read this, it’s what we should be doing.”, move forward and find talented young people that are interested in setting it up. But in organizations that are learning to be more entrepreneurial, like NLR, that’s not something that they’ll just do 1-2-3. It’s not easy to set up when the initiative starts at the bottom of the organization instead of the top, but that’s the trick – introducing Lean Startup using Lean Startup.
EG: Thank you for your time.
FM: You’re welcome.