Breakthrough innovation - one step at a time

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.

Happy New Year Everyone! A lot to report, but first on the list is to welcome students back from break.  Lots of cool innovation courses going on this semester…so I look forward to some awesome comments and posts.

Ok..First up. Cool rumblings in the US Federal Government. If we look at what’s going on (and I’m NOT talking about recession), there are interesting developments with implications for companies, entire industries, local regional development, and for universities.

According to recent reports, and directly from President elect Obama’s website he will appoint the world’s first governmental Chief Technology Officer (CTO) “to ensure that our government and all its agencies have the right infrastructure, policies and services for the 21st Century. The CTO will ensure the safety of our networks and will lead an interagency effort, working with chief technology and chief information officers of each of the federal agencies, to ensure that they use best-in-class technologies and share best practices.” Many, many, many posts speculating on who should be appointed to fill those shoes, given the visionary characteristics that must be possessed by this person, and the migration of the role from the Chief Information Officer role that the Bush administration appointed, who did not use the role for much beyond the defensive posture of monitoring cyberspace for security breaches. 

Venturebeat notes that “Obama’s CTO, by contrast, would ensure government officials hold open meetings, broadcast live webcasts of those meetings, and use blogging software, wikis and open comments to communicate policies with Americans, according to the plan… The plan extends Obama’s previous advocacy for more open decision making in government.”

Interestingly, others in the world of innovation are picking up on this cool label of CTO and migrating it to what they, and I, would love to see. And that’s beyond the vision that Obama has so far articulated. It reaches in another direction..that of National Competitiveness, and increasing the standard of living for the entire global economy.

I found this in Forbes: “Think about what you really want in a CTO,” John Doerr, venture capitalist of Kleiner Perkins Caufield & Byers suggests. The U.S. needs clean energy, more students studying science and engineering, more funding of basic research, a “restored” Defense Advanced Research Projects Agency and plans to extend working visas to graduate students who complete their degrees in the U.S., Doerr said. Who could best translate those objectives into action? Doerr names two people, Bill Joy, the former co-founder of Sun Microsystems and Danny Hillis, a long-time inventor, who currently runs a research firm, Applied Minds in Glendale, CA. Both are inventors, serial entrepreneurs, value creators, new business creation experts.  That’s quite a different approach to the job. But truly necessary.  Others are chiming in and their point is that we need someone to stimulate innovation…major innovation, in this country. And by that I mean innovation…more than R&D. Actual commercialization of cool technologies for breakthrough impact which will stimulates more jobs, better standard of living, reduction of poverty…all that.

So…the next cool thing I noted was an article on the NYtimes blog. In early December, Andrew C. Revkin, commented on a white paper by sociologist Fred Block  at UC Davis and his graduate student Matthew Keller, who are proposing that Obama create a cabinet level Department of Innovation (!!!!) to:
•    raise the profile of current federal innovation efforts and improve their coordination. This new Department would also
•    accelerate the deployment of new technologies that meet such critical national needs as energy independence and reducing greenhouse gases.
•    Elevate the need to include innovation spending in an economic stimulus package so we can build for the short term and the long term simultaneously.
•    Create a new financing mechanism that would direct capital flows directly into the small firms that are the core of the innovation economy.

Revkin, the NYTimes writer, leaves the reader with a list of other sites to view to learn of an underappreciated federal system that actually supports R&D and innovation.  But interestingly again, a third recent occurrence has caught my attention.

Did you know about senate bill 3078? A friend, and co-conspirator on building innovation infrastructures called to let us know about it at the Lally school. Introduced last session by Senators Susan Collins, R, Maine,  Hillary Clinton, D, NY and Evan Bayh, D, Indiana, the National Innovation and Job Creation Act of 2008 is right up Professor Block and Mr. Keller’s alley. The Bill proposes the creation of a National Innovation Council (within the Executive office of the President) to improve the coordination of innovation activities among industries in the United States. Among other purposes, the council and its support structure would assist companies with
•    Technology transfer from laboratories to businesses,
•    joint industry-university research partnerships
•    Technology based entrepreneurship
•    Industrial modernization through adoption of best practice technologies and business practices
•    Incumbent worker training.

In addition, the Council’s responsibilities would be
•    To promote  (and help fund) regional cluster innovation
•    To create methods of measuring innovation and productivity.
•    To carry out a program of research on innovation and productivity

The National Innovation Council Board, it was proposed, would be composed of 11 members from the fields of business, economic development, health care, applied sciences, engineering, education or public affairs, but all of whom have demonstrated an appreciation of the value of innovation.  In addition, an Industry research council was proposed, and would be comprised of at least 5 for-profit entities, whose purpose is to advance innovation.
This council will take over responsibilities of many of NIST’s  (National Institute of Science and Technology) programs, and of the National Science Foundation’s Partnerships for Innovation program,  Industry-University Cooperative Research Center program and Engineering Research Center program.

Why, you ask, is this needed? Why is Professor Block and Mr Keller advancing the same thought?  Why must Obama go beyond a CTO to a Chief Innovation Officer???? Well, if you’ve been reading this blog, you know. Companies themselves are beginning to see the need for a senior level officer and support function to ensure that the innovation agenda of a large corporation remains a priority, is resourced, and that the firm builds capabilities in creating and commercializing major, breakthrough innovations.

Why shouldn’t countries behave in the same way? While it’s true, as Revkin mentions in his piece, that most breakthroughs that have occurred have done so with the help of federal funding (in the 12 projects we studied in depth over a period of six years, 9 of them received government funds…!) …how many breakthroughs never see the light of day because we have gaps in the infrastructure for commercializing them? Only with a coordinated effort does this occur.

We can fund all of the basic research we want, but commercializing it is where the hiccup happens.  In companies, in government funded work, and in university research.

P.S. This bill never became law. This bill was proposed in a previous session of Congress. Sessions of Congress last two years, and at the end of each session all proposed bills and resolutions that haven’t passed are cleared from the books. Members often reintroduce bills that did not come up for debate under a new number in the next session.

Last Action: Jun 3, 2008: Read twice and referred to the Committee on Commerce, Science, and Transportation.

Let’s see what Obama does…

We just learned that Booz Allen’s Strategy+Business Magazine has named Grabbing Lightning as one of the best business books of the year. What an honor. We are so proud, and would like to take the opportunity at this juncture to thank the companies who participated in our research:

Gina, Richard, Al & Lois

Spoke on Tuesday last week at the Entrepreneurship, Innovation and Growth conference. Sixty people representing a number of large firms and corporate venture capital organizations, all huddled in a room in a Cambridge Hotel for two days, wondering what the economy is going to do to their companies’ zests for continued investment in innovation. Of course you know by now what I was talking about in my keynote address… innovation as an emerging business function.  And that means, of course, that while budgets might be trimmed during recessionary times, the innovation function cannot be obliterated off of the corporate organization chart, mission statement, and/or investment priority list. Tightened up, downsized, maybe. But not wiped out. And we talked about ways in which that can happen. Slow the pace of the portfolio. Shrink the portfolio a bit. Figure out how to start monetizing opportunities even as they’re still developing. That’s right…it can (and should) happen that way. Leverage university resources. Leverage lots of things. All of that for now.

But the really cool thing about this conference was just how competent the people were. Wow. So much experience in that room. The people who attended spoke eloquently about scoping and evaluating opportunities, about maturing projects, about getting them funded externally as well. Some showed unbelievable savvy at shaping their companies’ future strategies, through developing scenarios about the impact of technological innovation.  Some, for certain, are just starting out. But this was the first time I’ve been in a room with people focused on innovation in which I felt that there is a quorum, indeed a groundswell, not just of firms who say they want to do this, but of firms with some very, very competent people executing on the innovation agenda. They’re strategic, they’re tactics oriented. They’re focused on people and technology and leadership and business models at the same time.

I got their business cards…will be inviting them in as guest speakers to our classes. It’s great to see a good thing start to take off and grow.

Dr Daniel Frye, VP Open Systems Development, IBM gave a talk on “IBM’s Decade of Participation in Open Source Software” at Rensselaer a few weeks back. Dr Frye spoke at length about how IBM setup the Linux Technology Center (LTC) in 1999, and how the unconventional investment in Open Source Technology had started paying off from the first year itself.

Some of my students who attended the talk quizzed Dr Frye on how he was able to convince Senior Management, after all, wasn’t this unlike anything IBM had done before? What Dr Frye revealed was quite unlike the IBM they had read about. It took only one presentation to Senior Management to get approval. The presentation explained how the Linux Model worked, what the market looked like, and IBM’s opportunity to disrupt the competition. It turned out that the developers loved the idea too, only middle management felt threatened. Of course, perceptions have changed over time.

Dr Frye enjoyed highlighting IBM’s strategy on Linux as akin to “scratching your own itch” a phrase he borrows from Eric Raymond’s The Cathedral & the Bazaar. Since Linux communities have their own distinct culture, IBM Developers sign-up on a community and remain silent observers for months together before making any contribution. In such forums, credibility comes with writing good code, and instead of pushing their agenda, IBMers took pains in reviewing others code, pointing out defects, or simply figuring out other ways to make themselves useful. The experience was all about taking small measured steps, developing a reputation and building trust. Often IBM chose to work with existing communities rather than create their own, though they did successfully start a dozen communities, Eclipse being one of them.

IBM’s revenues from Open Source Software products are several times their present $100 million investment. So how does the firm use open source software? IBM has been active in making Open Source find its place at the heart of the enterprise. At IBM, Open Source is used to:

• Run their business
• Operate their hardware
• Its in their software
• As part of service engagements
• As an R&D collaboration vehicle
• As a source of innovation
• Influences the direction of the IT industry
• As a competitive tool
• As a means to create a level playing field
• As a vehicle to enter new markets

Of the $1.5-2 billion invested in improving Linux every year, IBM spends less than a tenth. Among the other firms with significant investments in improving Linux include HPC, Intel, Novell, Oracle, Renesas, MIPS, NetApp, NTT, Sony, Astaro, Monta Vista and SGI. Evidently, leverage happens when others share that very same itch.

Dear Innovation Enthusiast,

I’m writing from Copenhagen, Denmark, where I am teaching in Danish Technical University’s “Certificate in Entrepreneurial Leadership” program.  This is the fourth class for this program. It’s designed for project team leaders who are trying to develop new businesses for their companies based on gamechanging sorts of innovation, where, as you know, ambiguity is high and the risk levels aren’t so pretty.

It’s rewarding to be here teaching, watching these companies adopt the concepts of an innovation management system and adopting approaches like the Learning Plan to drive organic growth through innovation. Denmark is a remarkable country due to its unrelenting focus on innovation. And they’re having their impact in certain industries such as enzymatic processes, oil recovery, biofuels, and cleantech in general.

But I have to ask myself…is the US keeping pace? While Danish companies appear to embrace the latest management practices and learning for developing an innovation competency, what are US companies doing? Trying, flailing about. Putting “innovation” VP’s in place. But how are they learning? Where are the networking communities they turn to for support? How are they gauging best practice, and, indeed, the latest news on how to develop a fully functional innovation capability?

If we ever needed strong innovation functions in our companies, the time is now. With financial markets falling apart, it’s only through strong fundamentals that companies will be able to grow. By fundamentals I mean offering wholly new to the world offerings that provide orders of magnitude differences in how we solve problems of today.

So, how are you progressing on your journey of building an innovation capability in your company? I mean one with staying power. One that delivers. Not the ‘program du jour’ sort of thing that we all greet with cynicism these days.

Held og lykke,
Gina

I have been thinking about A.G. Lafley and Ram Charan’s new book The Game-Changer: How You Can drive Revenue and Profit Growth with Innovation (Crown Business, 2008). I agree that establishing a disciplined, repeatable, and scalable innovation process; creating organizational and funding mechanisms that support innovation; and demonstrating the kind of leadership necessary for profitable top-line growth as well as cost reduction is right on.

My problem is with the intriguing and strong statement that the “Consumer is the Boss”. Such statements need to be provocative – Martin Luther King captured attention by saying “I have a dream”, rather than saying “I have a few ideas!!”… but I think this statement is misleading as far as breakthrough innovation goes.

If the “Consumer is the Boss” is really a company’s mantra, breakthrough innovation wouldn’t happen. Customers are thinking about “now” …..the problems they are experiencing on a day to day basis. Indeed that is important for companies to think about, but I believe the “Change the World” opportunity of breakthrough innovation stems from idealizing customers and envisioning problems and better solutions. Yes you place the customer center stage but you stretch your imagination about making them stars.