Breakthrough innovation - one step at a time

In the last couple of months we’ve had the opportunity to work with two very different organizations; both want to improve their innovation capability. These contrasts help point out that the principles of breakthrough innovation are similar across a wide variety of organizations. The first was a very large oil and gas company, concerned with technological innovations that could dramatically alter their business. They wanted to understand how to improve their breakthrough innovation capability, and so they paid us a visit back in May. What a great day, and ongoing relationship with them since. They are experiencing one very typical challenge to Breakthrough innovation: they view the issue as one of technology only. How do we find the most radical technology possible to commercialize in our current businesses? While this is a great question, it’s overly constraining. Unless companies realize that technology is just one aspect of Grabbing Lightning, they’ll never be able to commercialize the new opportunities that breakthroughs present.Business models, customer markets, organizational business unit structures will all have to be reconsidered if a company wants to properly innovate via breakthroughs.

The second organization is a Credit Union. Amazing to see a senior leader of a not-for-profit cooperative so proactive about step-change innovation. But he is. He’s designated an innovation team to find new ideas. They are experiencing another very typical challenge, though different from the one our oil and gas company exhibited. In the case of the Credit Union, all innovation is being managed the same. Incremental, evolutionary and breakthrough are all handled by the innovation team, and are all evaluated via the same criteria, and are all managed using the same processes. Secondly, while the innovation team is great at receiving and developing innovation ideas, there’s no one in the organization tasked with conducting mine experiments to see how viable they are. No incubation capability. ..until now, we hope! Distinguishing types of innovation on the spectrum of uncertainty really can make a difference. Manage them differently, and start to see the outcomes.

Every year it’s a bittersweet time in May, when our MBA’s graduate. Posted here is a pic of one of our favs….Sabeer. His mother traveled all the way from India for the big event! Lois and I have enjoyed working with Sabeer very much these past two years as his interest and acumen for innovation has continued to grow. And of course he’s not the only one. BTW, he has supported our blog site for his entire time as a student. What will we do without him????

It’s wonderful to have innovation enthusiasts in our classes. We wish them all well and know that we can call on them whenever for networking, updates, etc. And they surely know where to find us!

Last week I was at a small gathering of really cool companies in Boston, organized and sponsored by our friend Peter Koen at Stevens’ Institute of Technology. Peter runs a consortium of companies who are all concerned with ….you guessed it…..how to make innovation happen better in their companies. Kraft, ExxonMobil, P&G, HP, Becton-Dickinson, Corning were there. The specific topic was how to organize for innovation. Should an innovation group be separated or embedded in the business units???? This was the subject of debate.

The speakers were yours truly, as well as George Westermanof MIT, and Bruce Harreld of Harvard , though he was formerly Sr VP of Strategy for IBM and engineered their famous Emerging Business Opportunities management system. With Bruce was Caroline Kovac, who ran IBM’s Life Sciences EBO very, very successfully.

I think there were 35 people in the room. All of them smart. All of them pretty high powered. Some were CTO’s and Chief Engineers. Some were from the Strategic Marketing community. Some were from the HR/Talent management/Org Design communities of their organizations. Others were from the Finance community. All were part of the Innovation initiatives in their companies….and all of them seemed to learn a lot during the two days. The questions were rich. Their engagement was wonderful. They struggled with some of what they were hearing, but it felt like a high level Executive MBA course, in some ways. They really dug in, and seemed to absorb so much of what they were hearing.

What strikes me is how much education there is to be done about this emerging management discipline. We know a lot more about it than we give ourselves credit for. We know how to make it work. Listen to Bruce Harreld and Caroline Kovac. It is not rocket science. It’s naivete at this point. Educators and those who are experienced in this can contribute so much right now.

So, we keep talking. All week. Every week. Next month I’ll be doing a webinar for the Management Roundtable. Hope to hear from some of you!

When we look at organizations that have been successful innovators, some such as Apple stand out because of their ability to come up with several breakthrough innovations. What makes organizations such as Apple innovate repeatedly? The simple answer is there are many reasons. It could be their culture, it could be their R&D and product development processes, it could be the leadership and so on. A more general answer is that Apple seems to have institutionalized some competencies that enable them to successfully innovate.

In an on-going study we have been examining how organizations could institutionalize innovation management capabilities. We surveyed over 85 large firms in the US to identify the organizational systems comprising of processes and structure they have created to institutionalize innovation management. Today we will discuss about the structures. I will talk about the various management practices in the subsequent posts.

One structural arrangement that seems to be gaining ground is an innovation hub. What is an innovation hub? It is typically an organizational unit or group created to facilitate innovative activities in the firm. More than 65% of the firms surveyed had implemented a hub in some form or other. They come with different names such as the New Business Initiatives group at Intel that Gina mentioned in her post, or emerging business opportunities group at IBM.

Do hubs matter? In our study we found that in a way they do. It is not that firms that had hubs magically became better innovators. But hubs facilitated organizations to implement effective innovation management practices which in turn lead to better outcomes such as successful commercialization of breakthrough innovations. Which leads us to the obvious question such as – what do these hub do? Where do they reside in the organization? What are their responsibilities etc. More on this in my next posting. Stay tuned.

Have you seen Tom Friedman’s March 2nd Column article? He talks about an old, dusty US economy…the United States of Deferred Maintenance, and compares us to the People’s Republic of Delayed Gratification. Wow, what descriptive labels, and I share his concern, as you likely know. However, the evidence that he provides for his concern is a talk that he heard Paul Otellini, Chief Executive of Intel give in Washington recently. Otellini described the difficulties he faces in hiring great science and engineering talent in the US, as well as in the comparatively minute financial incentives the US offers large multinationals to create more jobs. He described the ease with which he can access talent globally today, and certainly the more welcoming tax structure of China for attracting his latest manufacturing plant. Friedman cites Otellini’s reference to a study showing that the US is dead last in the rankings of 40 industrialized countries in an index they call the ‘rate of change in innovation capacity’ over the last decade…surely something any US reader would find frightening.

He may be right. The study may be right (though when you examine the source you find that the study, conducted by the Information Technology and Innovation foundation, is measuring IT infrastructure and other foundational elements rather than the innovation related capabilities that have actually driven US based innovation over history). But what Otellini failed to mention in his talk is how Intel is handling innovation. How are they managing it? How are they building, nurturing that expertise? That capability? Intel’s New Business Initiatives (NBI) group, part of Intel Capital for a number of years, no longer exists. Responsible for the beginnings of WiPro, among a number of other offerings that provided Intel with the options for developing whole new platforms for growth, NBI was largely viewed as an appendage to the mainstream organization. It was run by a strong willed, articulate person, Angela Biever, for a number of years in the early part of this decade. She wasn’t always the easiest to deal with, I’m certain. She fought uphill battles, for sure. She constantly had to justify her group’s existence. But the success rate of her portfolio was among the best in the ‘Corporate Entrepreneurship’ space. Once she left, and I’m certain for many apparently rational reasons, the NBI group’s mandate evolved to become ‘closer in’ to the mainstream business. Great.

Now I’m sure the NBI is not the only innovation related group in Intel, or Intel’s only approach to innovation. But this is just an example of which I’m aware. So the question is, if Intel wants innovation….how do they plan to make it happen? Is the lack of capable scientists and engineers really the root cause of Intel’s problem? Are tax incentives for building a plant the basis of Intel’s innovation issue? or is it, perhaps, the company’s ability to commercialize technologies that are new, unfamiliar, and perhaps risky???

These past two days, in the driving snow and rain, a group called the Thought Leadership Institute met in Philadelphia. They are a professional organization of human resources management leaders from a variety of companies, spanning services, pharmaceuticals, High-Tech, to industrial firms. They call themselves Talent Acquisition and Talent Management professionals. I was invited to speak about the topic of Career Paths for Innovation Experts, which we described in a very brief article in Harvard Business review (Dec 2009 issue) that their organizing committee saw.

Wow, what an experience. While some of them could not relate, a number of them really resonated with the problem. But their concern is just bordering on the issue of what to do with these people once they find them. Their major concern is how and where to find them and what should the skills be? One woman mentioned that the Sr. Vice President of Innovation and Marketing (another interesting title!) is trying to hire
a VP of Innovation. But everyone this Talent Acquisition woman finds for him is unsatisfactory. Yet he cannot articulate to her what he is looking for.

Others in the audience expressed the following concerns:
1. Many of the people in the company who have innovation skills have left or have been sidelined because they grate on the corporate nerves…they can be irritating.

2. Senior leadership wants to build an innovation group, and is great at telling us who they want in it now, but they cannot tell us (the Talent Management people who are concerned about such matters) what their plans are for these people.

So, I left them with a challenge: Who will join us for Phase III of the Radical Innovation Research Program? We need 6-7 companies, each of whom has a declared strategic intent to build a capability for breakthrough innovation, and has been at it for a bit, and is concerned with the issue of Talent Management. Talent Acquisition is key, but the killer, we’ve found, is how to develop meaningful career paths for these
people. If innovation is truly emerging as the next business function, this problem has to be solved.

We have three companies signed up so far…..and others are following on !!!

Next Year’s gonna be crazy!

Well, the holiday season is well underway and 2009 is nearly gone. Lois, Ravi and I wish all of our readers a wonderful relaxing rest of the holiday season. It’s been great so far, and I’m still taking advantage of these final few days. But can’t wait to tell you about recent experiences with a certain energy company who is seeking to grow 10x. I’ve had many inquiries of late from firms interested in our work. AND we’re preparing for stage III of our research program. We’ve just developed a brand new relationship with a cool group focused on talent development in large companies. AND the data from our survey has just come in. So 2010 promises to be a wild year as far as learning about how firms are developing capabilities for breakthrough innovation. (And mind you, they are rapidly becoming much more sophisticated!). BTW, did you see our article in the December issue of HBR?????

Wishing you all a great year and Stay tuned to learn more about “INNOVATION”…..

I’m delighted to welcome Professor Ravichandran to our blog. Ravi has been a member of our research team since 2000. He has been working primarily on the development and fielding of two large surveys on management processes for breakthrough innovation. The data collection for our first survey is complete and he will be sharing some of those results with you. Our second wave of data collection is now underway. I don’t want to steal his thunder….just let you know that we are finally able to put some statistical prowess behind the prescriptions that we’ve been offering in this venue and in the Grabbing Lightning book…Plus a few surprises!

Ravi is a professor of information systems at RPI, but don’t let that fool you. He’s all about innovation…in IT and in everything else. He’s made quite a contribution to our research program and we are happy he’s joining the blog scene.

Hope you all had a good Thanks giving!!

Professor Henry Mintzberg of McGill University recently published a paper that caught my eye. First published in Sloan Management Review , and picked up by the Wall Street Journal, it’s a controversial idea: Do away with Executive Bonuses!

He points out that bonuses drive the wrong behavior. There’s lots of attention on figuring out how to fix the problems by redesigning the bonus structure. But bonuses rest on three faulty assumptions that make any fix impossible, Prof Mintzberg asserts. First is that a company’s health is represented by its stock price. He simply does not buy the well accepted argument that a firm’s stock price captures full information. Company culture, brand name, commitment to people, and other aspects of corporate ‘goodwill’ are not reflected in the daily ups and downs of the market. Stock price as full information may even encourage abusive decision making on the part of CEO’s…cost cutting, downsizing experienced employees, overworking those who remain, cutting back on customer service, etc.

Second, there’s the fallacy that performance measures, short or long term, represent the true strength of the company. Obviously not, as we know from cases like Enron, AIG, Merrill Lynch, etc. etc. etc. And, it’s impossible to assess the long term performance of a chief executive. Over how many years should we assess it? What, exactly, does long term mean?

Finally, there’s the assumption that those who get bonuses are the ones responsible for the company’s performance. How is this possible? How about the person in the lab? Or the account manager who goes the extra mile on a customer’s behalf? ???? Mintzberg points out that many, many influences, including the weather, affect a company’s performance. How divisive is it to pay some and not others, when teamwork is all the rage and “our people are our most important asset”? The class structure this imposes on a company all but ensures that the firm, as a whole, will not perform to its potential. It’s too discouraging as an employee.

Well said, professor. But not enough said. As challenging and confrontational as these thoughts are, it’s even scarier when we think about the impact of executive compensation on breakthrough innovation initiatives in companies. Why would a CEO invest to build such a capability, when we know that it takes time to bear fruit, that time horizons are long and success on any single project is uncertain, and that much of what is gained in striving for breakthroughs is immeasurable? Any time we bring a group of innovators together at RPI, at the Industrial Research Institute, or in the myriad other workshops we attend, the subject migrates to this topic. It’s the elephant in the room.

Other academics are beginning to demonstrate links between investment in major innovation and firm stock price. We have to. Otherwise it’s a non-starter. But you know, I like Professor Mintzberg’s approach better. He suggests firms use executive bonuses as a screening tool for hiring senior leadership. Those candidates for the job who insist on a bonus package should be screened out. Wow. Can you imagine the impact on firm’s investments in innovation?????

Amazing, Business week online posted a note about Rita McGrath’s latest statements regarding companies’ needs to structure innovation groups. Finally, perhaps, the world of large
established businesses will begin to get the message. It’s time. Innovation must become a function in companies. Departments, job titles, career paths, appropriate metrics, processes that are tuned to the world of high uncertainty.

Reporting to someone at the Corporate level who is responsible for the future health of the company. It’s not expensive. And it’s not impossible. It’s the next wave of management discipline.
Of course, read Grabbing Lightning for the post -Defining Innovation-How to start the conversation.