Breakthrough innovation - one step at a time

Last week I had the opportunity to work with a firm that is trying to build an innovation capability. It’s a large privately held firm in a highly regulated industry that is undergoing lots and lots of disruption. They know they need to generate new revenue streams, and so, in one division, they appointed a “director of innovation.” Cool! She knows she needs to develop an innovation management system, but isn’t sure where to start. So we got down to business.

It soon became clear that what her leadership thought was innovation was very different than what she thought they should think was innovation (still with me?). I agreed. It’s amazing what people will call innovation. Her leaders were using the term to denote what we once knew as business process re-engineering …the ultimate in continuous improvement. They wanted her to oversee this function in the company. They called it “business model innovation.” Well, there ARE lots of potential business model innovations in her industry (pharmaceuticals and health care). But helping the salesforce implement a new software package is not one of them…and that’s the sort of thing her leadership believed she should do. That’s continuous improvement.

Others believe that patents, or inventions, are innovations. They aren’t. Not until some useful purpose is demonstrated and there’s a link to a need. All the follow-on work to develop that invention into a useful product or service is the part that makes it an innovation. - So, her first step will be to educate her leadership on the definition of innovation. Here’s what we told her:Breakthrough innovations are those with the potential to offer new to the world performance features, OR order of magnitude improvements in known features, OR dramatic reductions in costs. These last two options open up new applications for an offering that may never before have been imagined.

Take, for example, the personal computer. Now that was a breakthrough. But all of the subsequent improvements? Some have been incremental, and some have perhaps been evolutionary. Hybrid vehicles? Breakthroughs. Subsequent generations (like the new one with solar cells in the roof to heat/cool the interior)? Evolutionary. CT scanners? Breakthroughs. Cell Phones???? I Phones?? What other breakthroughs come to mind? There are myriads. One of our recent graduates just sent me an announcement that the start up firm he’s with has a breakthrough. It is the first-ever FAA certified speech recognition system for pilots. It allows the pilot to enter waypoints in 1/10th the time required by the current method. Now that meets the requirement, right? :-). Take a look at this if you want to see a demo. This will allow pilots to operate very differently in cockpits. Could change a lot of things.
But the key issue associated with breakthroughs, and even with evolutionary innovations, especially in the mature established firm, is the uncertainty inherent in them. Because of this uncertainty, managing them is different from managing incremental innovation or continuous improvement. Way different.

Most activities that companies engage in have to do with using what they know in familiar situations. That’s mostly the world of higher degrees of certainty, and implementation is the key. When the world is uncertain, it’s hard to know what the outcome of any action you take will be. That makes managers in companies nervous, because predictability (and therefore control) are not the name of the game. Experimentation and learning are.

It seems that companies who have not focused on developing a management system for innovation have a very difficult time keeping its definition clear. It differs across individuals in the organization. Everyone has a different understanding about what it is.

So step #1 in initiating a capability is to clarify definitions.
When beginning that discussion, ask some of these questions:
1. How many ‘levels’ of innovativeness do we experience in our company, and what should we call them? (Incremental, Evolutionary or platform, and breakthrough? Today, tomorrow and beyond? Horizon 1, Horizon 2 and Horizon 3? There are lots of options for names, but most companies settle on three ‘levels’ of innovativeness).
2. How shall we allocate our resources across those three levels?
3. What do you believe the differences are among them, and what are the management implications regarding each of the following? In other words, how should we handle each of these differently for the three levels of innovativeness?
a. Processes and tools
b. Metrics
c. Organizational structure arrangements
d. Governance and leadership
e. Resources?
f. Skills and talent development?
If they start to look at you quizzically…..you’ve done your job. You’ve got them thinking. Yowza!

Way back in January I was invited to give the keynote address at the Women of Innovation Awards banquet hosted by the Connecticut Technology Council. If you’re interested, you can watch it here. The awards program recognizes women in the workforce who are innovators, role models and leaders in the technology, science and engineering fields. Students at both the high school and college level are also recognized. Nearly 500 people attended to support their coworkers, friends, and community members who had been nominated.

It was an absolutely awesome experience to be in a room with so many innovators. Ten women were granted Awards in 9 categories, including Academic Innovation and Leadership, Collegian Innovation and Leadership, Community Innovation and Leadership, Entrepreneurial Innovation and Leadership, Large Business Innovation and Leadership (two 2009 Winners), Research Innovation and Leadership, Small Business Innovation and Leadership, Youth Innovation and Leadership, Public Sector Innovation and Leadership. They were extremely impressive people: scientific researchers, entrepreneurs, business leaders and policy makers. You can meet a few of them below in the videos posted.

But beyond the fact that these people have achieved so much, and contributed so much through their innovation based careers, I was also impressed by the Connecticut Technology Council itself, and the role it plays in bringing together companies both large and small, government, and universities to consider how technology can play a more effective role in the state of Connecticut. Just having an organization such as the CTC in place, to recognize innovators, sends strong signals throughout the state and local community about the importance of innovation. And that can’t be bad.

 

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Last Friday a recent graduate of our MBA program, who now works for GE, sent me a copy of a speech that CEO Jeff Immelt was making at the Detroit Economic Club. He’d just signed an agreement for GE to partner with the State of Michigan to build GE’s Manufacturing Technology and Software Center, for the purpose of developing technology to provide clean energy, better transportation, and affordable healthcare.

Mr. Immelt offered encouraging words to the hard hit people of Detroit. “The people of this great state have been told that the decline of their manufacturing base was inevitable. I reject that pessimistic view. I believe that good jobs can again return to Michigan and in manufacturing centers across America.” He opined that America prospered from the productivity of the information and services age, but has forgotten the fundamentals of its core competencies.

“As a nation, we’ve been consuming more than we earn, saved too little and taken on far too much debt. Growth in research and development has slowed. …While some of America’s competitors were throttling up on manufacturing and R&D, we de-emphasized technology. Our economy tilted instead toward the quicker profits of financial services….What has been the impact? Unemployment is at the highest point in 26 years. And, as a percentage of S&P 500 earnings, financial services expanded from 10 to 45 % over a quarter-century.”

“You know something is wrong when a mortgage broker is pulling down $5 million a year while a Ph.D. chemist is earning $100,000.”

Mr. Immelt went on to call for America to set its sights on being a leading exporter based on a strong manufacturing base (20% of jobs should be in manufacturing, he claims) , to invest more in R&D (it’s currently at an all-time low of 2% of GDP), and to address the major challenges of clean energy and affordable health care.

Was Mr. Immelt’s speech self-serving? Absolutely. GE’s stock crashed along with everyone else’s, thanks in large part to its enormous financial services business. Surely, not all of our problems would disappear with a return to manufacturing. But the focus on innovation? On technological innovation? On investment in technology? It’s the only sure bet. But it begs the question that we hear repeatedly from corporations around the country. Where do we begin. How do we capture breakthrough opportunities? What processes must be aligned to realize the full potential and earnings from new discoveries, new services, & new technologies?

The answer is not simple but requires a change in perspective and a change in how corporations fund, resource and manage innovation platforms and the functions that support them. The
learning we as researchers impart to corporations working to develop innovation capabilities , is that the management processes developed by large companies to provide incremental innovation will kill off breakthrough innovations, and that companies must develop fundamentally different methods of managing breakthrough innovations. It’s the only sure bet.

Sunday’s radio show on June 7th,2009 as mentioned earlier in our monthly update was so much fun. Zara was such a knowledgeable and energetic host. We could’ve spoken for hours. Her focus is on the people issues associated with breakthrough innovation. Of course these are HUGE. But of course they’re only one element of a system of issues that must be considered…but you know that by now! Listen in if you’re interested.

Looking forward to a few upcoming events in the next several days. Just wanted to let you know in case you are interested in tuning in:

This Friday, June 5th I will be moderating a brown bag lunch discussion of a recent article published in Research-Technology Management titled Sustaining Breakthrough Innovation,authored by yours truly. This series is organized and hosted by the Industrial Research Institute, and you must be a member to participate so check them out at www.iriinc.org.

Sunday, June 7th, 4:00-5:00 p.m. EDT, I am joining a new acquaintance of mine, Zara Larsen, on her Tucson-based live talk radio and web streamed show. “Circles of Change with Dr. Zara Larsen: Where Your Path is Created by Walking on It” is dedicated to opening up positive conversations on personal career and organizational change to inspire and help others during these change-rich times. Zara has hosted over 120 shows in just over a year featuring guests from around the country. No surprise, we will be discussing our new book Grabbing Lightning: Building a Capability for Breakthrough Innovation.

Join us live via web stream at your computer or within the Tucson/Phoenix broadcast area on AM 1330 KJLL “The Jolt”. Call-in questions to (520) 529-3508, toll free (877) 544-2580, or email questions can be sent to change@thelarsengroup.com

If you miss the live show, a recap and full podcast will be posted at “Circles of Change Radio”, 2009 Season left hand tab by Wednesday evening, June 10th, where you will also find the free library of thought provoking shows to date.

Thanks in advance for joining us!

We’re back! What a lengthy absence from the blog scene, so we apologize to our innovation enthusiasts out there. It’s been a long, and jammed semester, but all that’s over for now.

So The New York Times has written a piece lately, Who Says Innovation Belongs to the Small that recognizes the power of large established firms to develop and commercialize breakthrough innovations. Welcome to our world! They are reporting on Clay Christensen’s recent book on Health care systems and how to fix them. Now mind you, Prof Christensen is the one who’s always maintained that large firms are least likely to innovate for the well know reasons, and that radical disruptions arise from start ups.

You know, it just isn’t necessarily the case. So the NYT article states: Big companies like General Electric I.B.M that employ scientists in many disciplines typically have the skills and scale to tackle such projects. Their advantage is in “being able to integrate innovations across these complex systems,” said James E. Spohrer, a scientist at I.B.M.’s Almaden Research Center in San Jose, Calif.

Technology trends also contribute to the rising role of large companies.The lone inventor will never be extinct, but W. Brian Arthur, an economist at the Palo Alto Research Center,says that as digital technology evolves, step-by-step innovations are less important than linking all the sensors, software and data centers in systems.”

It’s true that big companies can be the integrators, but also, due to their vast reservoirs of knowledge and flexible internal networks, they can learn and leverage new information quickly.And the many disciplines present in industrial R&D groups are the key advantage of seeing novel opportunities, which ALWAYS arise from the points of intersection of disciplines.

So why haven’t we known this????? Why has Christensen’s initial message prevailed for nearly 15 years????

Because large companies have the potential…but have not executed on this well. And they can and need to be MORE than integrators on complex problems, which is the focus of the NYT article . They need to build management systems for breakthrough innovation. The ONLY way to do this is to make innovation a business function, just like marketing is, or R&D is, or accounting is.

Large companies have lots to learn in this regard, but the train is leaving the station. Many are tuning in to this message. I’ve given talks at two recent meetings of the Industrial Research Institute…once in March and one just last week. Standing room only. All of those member firms are ready, so they say. They’re frustrated at the rich discovery opportunities they have, but at the very difficult challenges they face in articulating opportunities in a manner that will get senior leaders’ attention, and then at incubating them into businesses. So we’re starting a forum on Breakthrough Innovation. We’ll be meeting regularly to discuss. They’ve asked our team to facilitate the forum. We look forward to sharing our knowledge, to learning from them as they go forward.

We’re also running our Innovation & Corporate Entrepreneurship (I&CE) program here at RPIto help these companies learn how to build a management system for breakthrough innovation. Come one, come all!

On Feb 22 the Wall Street Journal printed an article about Juniper Network’s choice to invest heavily in R&D during these trying times. CEO Kevin Johnson has bucked the trend of rival firms to hold or cut R&D budgets, and instead has increased it by 15% and has cut other expenses, including salaries.

Additionally, Juniper was expected to announce the creation of a new business unit dedicated to developing and deploying a new generation of networking equipment. …so the investment is in R&D as well as in a commercialization engine.

CEO Johnson, upon taking the helm at Juniper in September 2008, reviewed the inventory of R&D projects and decided they’d have to go ‘on the offensive.’ He adopted this strategy by studying companies that survived the Great Depression of the 1930’s and then thrived. The pattern was clear: companies that invested heavily in R&D benefited when the depression ended. Others did not fare as well.

The size of Juniper’s R&D increase has ‘shocked the market,’ the article quotes an analyst at Goldman Sachs as saying, and Juniper’s share price fell by 15%. Many of the investments will take years to pay off.

But the senior leadership team is backing the CEO. It turns out the company made the same decision during the dot com bust and survived. Their annual R&D budget has not dropped since the company went public. Persistence and consistency in innovation are key, whether or not Wall Street believes it (yet).

With the economy reeling, firms are wondering….how can we sustain our breakthrough innovation efforts? Indeed, the Front End of Innovation is conducting a poll to see how many are pulling back on their innovation investments .

But now is not the time. I saw this local story in the paper this week. An ingenious, entrepreneurial assistant professor found a way to make thin film photo masks used to develop tiny biomedical lab devices: lab-on-a- chip sorts of things…..and to make them for less than 1% of the cost of the current technology ($15 rather than $2000). How???? He’s found a technology that a local printing company uses, and simply asked them to apply the technique to thin film. It works! Voila! Now mind you, some alterations in the process were necessary, but not many. The printing shop owner had never ever considered this opportunity space, so it’s a sure boon to his business.

But the real lesson here is that breakthroughs can happen in tough times too. Applying a known technology to a different problem can result in game changing, radical, disruptive innovation…and when the game it changes is cost structure, the poor state of the economy is no longer a barrier to successful commercialization. In fact, it helps.

Today Obama will sign his economic stimulus package, the American Recovery & Reinvestment Act of 2009. That is great news.. our economy does really need help now! From the looks of the details at American Recovery & Reinvestment Act of 2009 it seems that US scientific, engineering and technical R&D communities fared well. Agencies such as NSF, NIH, NASA as well as energy research will be beneficiaries. K through-12 and higher education are also well supported.

All of this is extremely important for seeding innovation and therefore revitalization and transformation of the American Economy. Nevertheless the full benefit of this investment will not come about unless companies and government become more adept at breakthrough innovation which, as we have said often, requires much more than just investment in R&D.

In this regard one disappointing development is that no stimulus funding was approved for the Technology Innovation Program or the Manufacturing Extension Partnership Program at the National Institute of Standards & Technology (NIST). These are two programs that were invaluable to radical innovation projects described in our first book Radical Innovation: How mature companies can outsmart upstarts. Such programs help bridge the chasm between technology discovery and building technology related products and businesses. We need to work hard at getting these and other sorts of innovation-enabling programs funded in the future. Which reminds me that instead of a Chief Technology Officer which is a late twentieth century idea, what Obama really needs to help him achieve the goal of economic rejuvenation is a Chief Innovation Officer.

I am feeling really, really guilty. I just bought a new truck. And it is not a small one – it is a Ford 150. There are bigger ones… the 250 or the 350. Without a running board I have to have someone push me up into the seat. I fell in love with this truck when we had to rent one in December as our other care was in the shop for repairs.

Right now I am rationalizing this purchase along four lines of reasoning:
1) It has four wheel drive and there is a lot of snow outside.
2) I have a lot of animals and a very big garden so I need a truck to carry all my stuff… that is not a great sign either…
3) I am extremely affected by the glare of car headlights and I have to teach at night. Sitting high up in a truck helps – that’s really why I started to love the truck we rented in December.
4) Our other car is extremely environmentally friendly, so net net, perhaps we’re not a major cost to our surroundings.

You ask… ‘What does all this have to do with innovation?’ Well it started me thinking about what was wrong with my decision and us in general with regards to transportation innovation. I was reminded of a case I taught on the hydrogen economy in our class on Business Implications of Emerging Technologies. I chided the students for only thinking about it in terms of automobiles. I challenged them to totally rethink the way we transport ourselves around on a daily basis. Then I started to think about the auto industry bailout and wonder if that might provide a stimulus for rethinking the design of farm vehicles, trucks and the lot, or how we go about solving the problems that such vehicles now solve. There is a lot of talk about electric cars and hybrid vehicles and that is good…they are much more fuel efficient and friendly toward the environment – but they are not really radical in terms of how we transport ourselves on a daily basis. Then I thought of the stimulus package the The American Recovery and Reinvestment Act of 2009and its support for highways and parking garages – once again supporting our entrenched ways of transportation.

So why can’t we embark on a more radical approach? One thought is we don’t have the innovation capacity to do so given our sunk costs in highways, gas stations, car dealerships and culture around the importance of large homes on large pieces of property.This suggests we have to reshape our innovation capacity – change some of the linkages and types of institutions that are key players in the energy and transportation sector. We have to refocus our priorities and values and how we think about transporting ourselves. All of this is an arduous, political and very futuristic, long time endeavor. But it does strike me that if some of the stimulus money was spent on novel types of infrastructure we might begin the process of exploring new ways of thinking about transportation. Yes, the administration wants shovel ready projects, but couldn’t there be a requirement that a certain percentage of these would have to identify how innovation was being taken into account and paving the way to potential new futures? This gets me to my fifth rationalization point. In order deal with the realities of globalization and the rise of China and India and the environmental impact they are and will continue to have, we have to begin to think systemically about innovation. We not only need to lead the way with new technology but also with new ways of deploying it.