Thursday, September 14, 2006

Sustaining Innovation in larger firms

Let's face it - innovation is easy in an entrepreneurial firm. After all, an entrepreneur seeks to upset the status quo and has nothing to defend. A large firm has established products and services, and first seeks to defend its market share and customers. This fact is one of the reasons that large firms struggle to innovate consistently - they are playing defense rather than offense.

In this post I'd like to consider a couple of different innovation approaches that larger firms are taking in order to keep the innovation edge. The approaches are:

- Skunkworks
- Innovation teams
- Innovation Center of Excellence
- The Thermo-Electron approach
- Buying innovative ideas from smaller competitors

My bias going in is that the smaller the organizational structure and the less it believes it has to defend, the more likely the organization is to create and produce new innovations. Also, the more management attention and focus on innovation, and the less on quarterly results and other distracting factors, means more innovation.

Skunkworks

Made famous by Lockheed, a skunkworks is a secret team in a secret location working on a secret project. This approach is used when the concepts are secret necessarily (ie Government Research) or when the ideas are radical and the CEO is afraid the culture might kill the concept before it gets a chance. A skunk works demonstrates that the CEO is serious about innovation, but also generally indicates that he or she is afraid that the culture will expel the innovation quickly. A skunk works isn't really scalable so it does not necessarily lead to consistent improvements in innovation - rather it indicates that there are clearly two types of people in the firm - those the CEO thinks can innovate (a very small team) and those not trusted to do so.

Innovation Teams

An innovation team is formed when a business unit or product team determines they need something new. Most innovation teams are formed, live and then broken apart once a new product or service is launched. They live a short life and birth one or a couple of products. They differ from a skunk works in that they do their work in the open, and their ideas and products are recognized by the rest of the organization. An innovation team often does not receive the funding or tools that a skunk works provides, and uses what is at hand to get their innovations done so they can get back to their "real jobs". Again, there's not a lot of institutional learning in a temporary innovation team, and few processes and tools are captured for reuse.

Innovation Center of Excellence

Remember when the CoE was a real focus. Every firm needed a Center of Excellence for virtually any process or business function. Many firms are beginning an innovation Center of Excellence for innovation. In one sense, I think this is a great idea. If the center of excellence can become the librarian of the processes and tools and approaches that have been used before, innovation teams will be able to reap the benefits of knowledge generated previously. If an innovation Center of Excellence can provide tools and processes to teams, even better. However, an Innovation Center of Excellence cannot become the final arbiter or generator of ideas or be the only judge and jury for ideas. Centralizing the knowledge is valuable - centralizing the generation and evaluation of ideas is risky.

Thermo-Electron

Thermo-Electron is a firm that attempted to keep its teams small. As a new innovation grew, it would form a new company focused on just that new innovation. In this manner they attempted to stay focused on innovation and rapid growth by creating small companies that lived under the Thermo-Electron umbrella. I don't know if Thermo-Electron still retains that concept, but what was great about it was that a new product or service quickly became a new company without the overhead or need to defend old turf. In this way Thermo-Electron became a holding company with lots of smaller firms underneath it. Obviously the challenge is to manage a large portfolio organization, but it is a viable alternative.

Buying Innovation

Let's face it - larger firms are recognizing that they simply cannot keep up with consumer demands in a global economy. There is simply too much innovation, too much science happening in India, China, Brazil, Europe...you get the point. Larger pharmaceutical firms and some consumer packaged goods firms have recognized this and shifted some of their innovation focus to "business development" - which means scouting and finding new technologies and products that small firms have created but don't have the marketing heft to get it to a large customer base. This places the risk on people (enterpreneurs) who are inherently ready to accept it and lets the larger firm defend its existing market position and quickly bring new products to market with little risk or investment. Frankly, this may be the best approach for larger organizations until and unless they are ready to make internal innovation important and urgent. There are just too many smaller firms and competitors in many locations willing to attack large existing markets - and larger firms have honed their capabilities to retain existing customers, not fight for new ones with new products.

Of course there are hybrids. Many firms are using a Center of Excellence model combined with a business development model to sustain innovation. Many large firms have recognized that innovation is a key ingredient to organic growth and are attempting to re-introduce the original entrepreneurialism that the firms were founded on, but the pressures of quarterly results and competitive threats are too great to keep management attention for long. What we need in a large firm is a startup's mentality and fearlessness connected to a large firm's marketing and distribution capability.
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posted by Jeffrey Phillips at 5:18 AM

42 Comments:

Anonymous Innovation Zen said...

Those approaches can work to a certain extent, but I think the problem comes before that stage. Large organizations were not built to innovate but rather to be efficient. In the future we will need to completely restructure them if we want them sustain innovation over the long term.

1:15 PM  
Anonymous G.K said...

One thing is generally true about large firms...they have enough slack..

They are run by operational excellence whip wielders...who would love to use the innovative folks, but the two live in different planets...Net: Possibility is rich...probability poor...

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Blogger James V Reagan said...

Read the book Fast Second... it provides an alternative to the conventional wisdom you describe, Jeff. I commented on the book about a month ago, so I won't repeat it here :)

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