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Innovation at Telefónica with Lean Startup

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Telefónica adapted Lean Startup to their processes, culture and organization to make it work.

Creating digital products is different from building traditional telco products: the uncertainty is much higher, the way of creating value for the customer is totally different and lifecycle is much faster says Susana Jurado Apruzzese. Innovation project teams have to get out of building to have face to face conversations with potential customers to understand what problems they have and what is the best solution for them.

Susana Jurado Apruzzese and Maria Olano Mata wrote the whitepaper Lean Elephants Addressing the Innovation Challenge in Big Companies which describes how Telefónica applies Lean Startup for innovation projects.

At the Lean IT Summit 2015 Susana Jurado Apruzzese will give a talk about lean product development in a large organization. InfoQ will cover this event with news, Q&As and articles.

InfoQ interviewed Susana Jurado Apruzzese about using the lean startup approach for innovation, managing innovation and using KPIs, how lean startup and agile can supported each other, the major challenges Telefónica experienced when applying lean startup and how they dealt with them, and asked her for advice for large companies that are considering to apply lean startup.

InfoQ: What made Telefónica decide to use the Lean Startup approach for innovation?

Susana Jurado Apruzzese: When Telefónica decided almost 4 years ago to become a digital telco and compete in the digital world we, the R&D unit, had to evolve to support this change. There were tremendous challenges because creating digital products is different from building traditional telco products: the uncertainty is much higher, the way of creating value for the customer is totally different and lifecycle is much faster. So we were in a situation where we needed to start getting radically different results, meaning also that we had to start doing things differently within a very big organization.

The level of uncertainty that a startup faces is similar to the one an innovation project team in a large corporation faces. Therefore we decided to adopt methodologies from the entrepreneur world, Lean Startup in particular.

InfoQ: Can you give some examples showing how projects have used Lean Startup to innovate?

Jurado Apruzzese: Innovation project teams get out of building to find potential customers in creative ways and have face to face conversations in order to understand what problems they have and what is the best solution for them, and therefore learn how to create value for their customers.

Learning what the customer needs and what is really valuable for them is the key of progress in an innovation project. So teams experiment to validate hypothesis, and when an important hypothesis is invalidated the teams pivot. Teams build products incrementally with short iterations validating every step with customers.

Involving customers from the very beginning has been key to build products that customers need and want. And this has also proven to be really key in special innovation projects like Mobile Connect, an authentication product based on a mobile phone SIM card developed within the GSMA scope (the GSMA is one of the most important standardization bodies in the telco industry). Among other things, using Lean Startup has allowed us to identify and define the uses cases based on validated learnings around the customer segments, the problems this product solves and how these problems should be solved.

InfoQ: In the white paper you mentioned that one of the pillars that you applied was to "Fail  fast,  fail  cheap  and  make  sure  you  learn  along  the  way". This must have been quite challenging, my experience is that Telco's are focused on preventing mistakes and failure. How was this received by the employees?

Jurado Apruzzese: Most of our employees are engineers and therefore are biased towards technology and building solutions. Lean startup has changed the way we build products through innovation, instead of starting by building a functional prototype to validate the technology, teams don’t start coding until they validate the problem they are trying to solve is real and painful, and the solution they are going to build is the best one for that problem. Afterwards they build the solution incrementally and validating every step with customers.

So, if you fail, do it as soon as possible, because this way you minimize the cost of failure. When you build products incrementally, validating every step in the market, investing minimal resources at the beginning and increasing the investment as uncertainties are cleared, in other words when the cost of failure is controlled and minimised, it is easier for everybody to be willing to run the risk,

Of course it has been challenging to change the way of working, because getting out of the building is not easy for some people, especially for technical people, it’s something they haven’t done before in most of the cases. Therefore they need guidance and advice. But, in our experience, once they start having face to face conversations with customers, there is no turning back, it’s one of the most valuable things that this methodology brings for them, because these conversations are reality checks that show that what they are building is something that somebody really needs and wants, that you are making some people’s lives better.

Besides, what we have also found out is that these reality checks have fostered a frankness culture in teams and in many cases the teams are the ones that propose killing a project when it’s not progressing. When a project is killed, the people in the team move to another project once a debriefing process takes place to make the most of the project learnings and ensure we are going to make use of those learnings. This way we avoid the frustration that killing the project can produce in the team.

InfoQ: Can you elaborate about the small team of innovation managers that was created. How do they manage innovation? Can you share some insight what the team has learned, what has worked and what didn't work?

Jurado Apruzzese: Innovation managers have a facilitator or mentor role to help teams mainly providing guidance and support with the Lean Startup methodology but also with the corporate processes and the organization. Actually, one of the things we have learnt is that teams, and the project leader (or founder) in particular, devote a significant part of their time to deal with corporate processes and organizations in a big company, because this is key if you want the innovation project to progress. Besides, innovation managers are in charge of running the innovation process that includes running the innovation calls, where any employee can submit innovative ideas, but also helping teams to go through the stage gating process to get funding for their innovation project in a similar way as venture capital firms work.

One of the main things we have learnt is that you can’t apply Lean Startup to an innovation project unless you have the combination of a painful problem that needs to be solved and a potential solution for that problem. We have found ourselves with projects that start with a differential technical solution but without a problem that could be solved with that solution. In these cases, you have to step back and other methodologies, as Design Thinking, are more appropriate at this stage.

Concerning the innovation managers team, another key learning is that teams also need a sponsor from the business unit to facilitate the transition of the product from innovation to the business areas, and external mentors, that come from the startups world and that help with the Lean Startup methodology but also provide an external point of view as well as external contacts.

InfoQ: Can you give some examples showing how lean startup and agile have supported each other?

Jurado Apruzzese: Lean Startup is basically the combination of Steve Blank’s Customer Development methodology and Agile Development. So Agile is what lies behind Lean Startup, there are even some people that claim that Lean Startup is Agile. In fact, as we have been applying Agile Software Development since 2006 at Telefónica R&D, our engineers, and in particular those that have experience as scrum masters, are the ones that have adapted themselves best to Lean Startup. For example, in the aforementioned Mobile Connect project, the customer development iterations were perfectly synchronized with the Agile Software Development cycles, this allowed to design the fastest and cheapest prototype needed in each iteration to validate, or invalidate, the project hypotheses.

InfoQ: Can you elaborate on the major challenges that you have experienced when apply lean startup? How did you deal with these challenges?

Jurado Apruzzese: The major challenges we have experienced are:

  • Dealing with corporate processes and organisations. This is what Henry Chesbrough called “get upstairs in the building” in his excellent article Why Internal Ventures Are Different from External Startups.  As I mentioned before, management of corporate processes and organisations is key if you want innovation projects to move forward in a large company.  And one of our project leaders estimated that he devoted 30% of his time to this. So the main strategies we follow here are:
    • Engage with people in charge of corporate processes, like purchases process. Sit down with them, explain what you need from them (e.g. speeding the purchase process, or certain flexibility on the providers) and why you need it, and most of the times they understand it and are willing to help.
    • Get decided commitment and sponsorship from top management. Bringing key stakeholders on board from the beginning.
    • Communicate the activities we are carrying on, their progress and results.
  • Finding intrapreneurs. Applying Lean Startup implies a significant mindset change from “achievers and performers” to “pioneers and explorers”.  Intrapreneurs must be able to navigate the company because corporate innovation needs to be pushed outside in the market but also needs to find its place inside the company. At first it’s not easy to find intrapreneurs but we have realised that when you give them the opportunity to emerge they become visible. We make innovation calls open to everybody and it is a very good way to identify them.
  • What branding to use when experimenting? If you are running early stage experiments relying on MVPs a strong brand can bias or contaminate the results, thus you do not even know what you are measuring. At the same time we must prevent that the strong brand gets damaged in any way because of these experiments. So, by explaining in a transparent way how we work and why, we have established a fluid relationship with the brand department and they are willing to provide solutions that suit each case. And they have defined a new look and feel, Telefónica Lab, for those products that are in a beta stage.
  • Experimenting in B2B environments. In a big company when you need to talk to a potential B2B customer or test your solution with a company, you must involve sales people as soon as possible when addressing their customers. Instead of being an obstacle they can support you and “open doors”, an advantage that startups usually don’t have. But it is very important to tackle sales people’s expectations since they are focusing on short term selling not on short term learning.
  • Measuring innovation. Using “exploitation” KPIs to measure innovation can destroy it. We have come up with a combination of traditional KPIs and non-traditional metrics more qualitative than quantitative taking into account that we are looking for mid/long-term results.
  • Competing with core business products in the go to market race. The most delicate moment in the life of an innovation project is when it is time to scale up and get transferred into a business unit or product line. At this point they start competing with existing businesses, and not only for budget but also for sales and channel attention, marketing and operations support, space in the portfolio, that is the go to market race. But the processes and in a large company are not designed to support this transition. Our experience is that projects that apply lean startup survive better because they are in a position to bring to the table tangible credibility in the form of validated market traction and even customers. Still there is no silver bullet to guarantee success and of course sponsorship from stakeholders and top executives is more critical than ever.

InfoQ: Which KPIs do you currently use to manage innovation? Can you explain how they help you to become more innovative?

Jurado Apruzzese: We have come up with a combination of traditional KPIs in terms of products transferred from innovation to business units with non-traditional metrics more qualitative than quantitative focused on validated learnings, therefore more related to the Lean Startup methodology. For individual projects our key metric is the validated learnings generated within a certain time period, hypothesis to be validated are defined for that period, or stage, and teams must show market evidences to assume they have been validated. For example in the first stages of a project, when validating the hypothesis around the problem is going to be solved with the solution that is going to be built, the team has to bring real testimonies of potential customers showing that the problem is real and painful, and the more testimonies the better.

InfoQ: Can you summarize the main advantages that applying lean startup has delivered for Telefónica?

Jurado Apruzzese: These are the main advantages:

  • We have accelerated the innovation cycles in a factor of 2.6, through many short iterations within the projects. And this acceleration, as well as this way of working, has allowed us to do more with less. In other words, with even slightly less budget we have estimated that we have been able to increase in a 45% the number of innovation projects while reducing in average a 48% the medium budget invested for each of them. Therefore Telefónica has reduced the overall risk by augmenting the granularity of the bets and minimizing the cost of failure for each individual project.
  • We are building products more focused on the customer. And by focusing on the customer from the very beginning and during all the process, Telefónica has significantly increased the chances of having relevant impact in business, since within the same timeframe and budget there are many more opportunities to learn and figure out how to, and how not to, build a particular product or service that customers really need and therefore they are willing to pay for.
  • We have been able to foster intrapreneurship, that is, to identify intrapreneurs, people that value ownership, autonomy and empowerment to work in their own ideas.

InfoQ: Are there things from lean startup that didn't work and that you stopped doing?

Jurado Apruzzese: What we had to do is adapt Lean Startup to our processes, culture and organisation to make it work. Because we are not a startup, we are a big company with an already existing culture, organisation and processes whose main objective is to obtain profits from the products and services already commercialised. The aforementioned major challenges we had to face and the way we got over them are examples of the things we had to do to make Lean Startup work in our company.

InfoQ: Which advice do you want to give to large companies that are considering to apply lean startup?

Jurado Apruzzese: I would like to give them the following advice:

  1. Adapt Lean Startup to the context and culture of your company to make it work.
  2. Start small, because this will give you the possibility of both learning and minimizing risks. And at the same time will give you the confidence and experience you need to extend it. In our case, we started with only two projects and then scaled.
  3. Provide training and mentorship. Lean Startup implies a different mindset, a different way of doing things, and people need help and support to learn to work this way.

About the Interviewee

Susana Jurado Apruzzese is Innovation Manager and mentor at Telefónica R&D. In recent years she has been working in strategy, the last three years mainly focused on innovation. She is part of the team that defined Telefónica R&D seedbed innovation model, where Lean Startup is the cornerstone of the execution phase. At Telefónica R&D she is part of the team that runs the innovation process, fosters conceptualization of new ideas to get high quality innovation proposals and mentors and assesses innovation projects. She has co-authored the Lean Elephants whitepaper, that describes their experience and learnings of applying Lean Startup to innovation projects at Telefónica for more than three years. Susana lives in Madrid, Spain, and holds a MS in Telecommunication Engineering and an MBA from IE Business School. 

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