Beyond the Champion

Institutionalizing Innovation Through People

Gina Colarelli O'Connor, Andrew C. Corbett, Lois S. Peters

• Publisher: Stanford Business Books
• Year: 2018
• ISBN:
  9781503604506
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

Large, mature companies often struggle when it comes to the uncertain process of breakthrough innovation. But innovation is an imperative in today's cutthroat business environment. To fulfill its potential, there has to be a better way—and there is.

Beyond the Champion argues that innovation is a talent all its own that requires distinct skills and expertise, just like finance or marketing. Viewing innovation as a discipline in its own right, it is easy to see that breakthrough wins require an organizational design with clearly delineated roles, responsibilities, and career tracks for those who shoulder the responsibility for new products. Drawing on the results of a four-year study and two decades of related research, this book outlines three fundamental competencies necessary for innovation: discovery, incubation, and acceleration. Mapping these skills onto roles and opportunities for advancement, the authors deliver a pioneering blueprint for sustainable innovation.

1

WHY AREN’T COMPANIES GETTING BETTER AT BREAKTHROUGH INNOVATION?

Together with a research chemist he had hired, George Eastman founded the Eastman Kodak Company in 1892 after a fifteen-year series of inventions and refinements that ultimately led to the ability to take a snapshot picture and develop film using a novel rolling technique. The inventions included dry plate photography; the equipment to produce such plates; “negative” paper; transparent, flexible roll film; and the camera that would enable its use.¹ Kodak became an icon among large industrial companies, providing the mass market access to the hobby of photography through its development and commercialization of the pocket camera. Subsequent business platforms were based on Kodak’s later inventions of motion picture film, color film, and film that enabled “talkie” movies.

As late as 1976, Kodak commanded 90 percent of film sales and 85 percent of camera sales in the United States.² By 1988 Kodak employed more than 145,000 workers worldwide.³ By its peak year, 1996, Kodak held more than two-thirds of global market share in film and cameras and was worth more than $31 billion. The Kodak brand was the fifth most valuable in the world.⁴

In January 2012, just fifteen years later, Kodak declared bankruptcy. Its global workforce had shrunk from its 1988 height to thirteen thousand.⁵ Ironically Kodak is recognized as holding the patents that claim the invention of the digital camera. Yet not only did this great company fail to commercialize the digital camera first; it resisted embracing the business opportunity even as digital technology was licensed from it and came to market through others.

Kodak is not unique in its near-death experience associated with refusing to engage in the new technological order. Nortel Networks hid its head in the sand in June 2009 as its core business was shattered by the advent of Internet-based communications.⁶ There are countless examples of companies that flourished on the basis of successful introductions along predicted technology trajectories but that simply could not arrange themselves to accommodate major technological or market changes, much less lead them. Even more frustrating, many of those same companies harbor advanced technologies that could bring immense value to the marketplace; however, they lack the expertise to innovate beyond their core products. Many potential breakthroughs are left sitting on the shelves in R&D labs, collecting dust.

It is not that Nortel didn’t see it coming, and the same can be said for Kodak. In fact, both had established innovation hubs: groups or departments whose mandate was to develop breakthrough new businesses for their companies. At Kodak the group was the Systems Concept Center. At Nortel it was called the Business Ventures Group. Both were run by smart people who reported directly to their companies’ chief technology officers. Why didn’t it work? Indeed, why do we hear these failure stories over and over again?

WHAT IS THE REASON?

As obvious as the problem is, explanation as to why it endures is up for debate. Several reasons have been accepted as conventional wisdom, thereby allowing leaders of large companies to shrug their shoulders and indicate there’s not much that can be done. These include the following.

Core Capabilities Become Core Rigidities.⁷ Most would agree that the culture of operational excellence necessary to keep customers and stockholders satisfied precludes the kind of exploration, learning, and redirecting that is natural for developing and commercializing breakthroughs. These potential new business platforms are fraught with high levels of ambiguity and risk, and so they require different processes, systems, metrics, and talent than mainstream management systems are designed to support. Mainstream cultures thrive on leveraging what they know rather than pioneering the unknown. The original breakthrough innovation that fueled so many companies’ infancy and growth becomes the barrier to their next frontier. What starts as a core capability, a company’s sustainable competitive advantage, becomes a ball and chain around its neck. Chemical film processing put the chokehold on Kodak. It was the telecommunications infrastructure at Nortel. IBM’s near-death experience in the late 1980s was due to its worldwide success in mainframe computing. Ironic, right?

Over time companies stultify innovation. Processes become more influential than people. They take on a life of their own. New product development processes are well honed in companies today, but they are designed to produce incremental innovations that serve current markets and leverage what the company knows best. They don’t produce new platforms of business born of novel technologies that require different business models. Metrics that measure progress and success are based on knowable, predictable market and financial returns. None of these exist in the world of breakthroughs, which oftentimes upend current markets completely. We have seen over and over that large established companies fail to leverage new opportunities even when they themselves create those possibilities.

Senior Leadership Incentive Structures. A second reason offered for failure to successfully experiment with path-creating change is the financial incentive system for corporate leaders and boards, especially in US-based companies.⁸ A recently published study of CEOs and CFOs reported that, to avoid missing their own quarterly earnings estimates, 80 percent were willing to forgo R&D spending.⁹ Political pundits suggest that SEC rules in the early 1980s easing stock buybacks have enabled executives to manipulate share prices through the timed release of positive news so that their incentive compensation payouts are maximized.¹⁰ Stock-based incentive compensation for executives encourages them to make decisions based on what traders and hedge funds want, which are short-term gains in stock price.¹¹

Indeed, pressures to elevate short-term stock prices at the expense of long-term investments are so enormous that some US-based companies are moving their legal homes to other countries whose infrastructure and financial markets place greater value on long-term investments. The CEO of Mylan N.V., a drug manufacturer who moved from Pennsylvania to the Netherlands to avoid a hostile takeover, is quoted as saying, “This is a stakeholder company, not a shareholder company.”¹² Recognizing an organization’s multiplicity of constituents may cause leaders to take a longer-term view, and that sounds reasonable. Yet in both the United States and in Europe, private-equity companies are buying seats on company boards to eventually take over voting rights and flip the companies for large financial gains, after stripping them of corporate-level, long-term investment capabilities.¹³

While these explanations are surely important influences on behavior, we’d like to offer a third that we believe bears examining and could diminish the impact of the first two. Companies need to develop bench strength for innovation. What are we doing about selection, development, and retention of innovation talent? Could companies build a talent base and infrastructure system to create “newstreams” just as well as they reinforce “mainstreams?” What if we could identify expertise in this arena and institutionalize it? Would companies improve their capability for commercializing innovation? Would the financial markets recognize this investment?

We believe the answer is a clear yes. Management theory and practice has become increasingly sophisticated over recent history. We’re expert in marketing, finance, and in information systems management. We have cracked the code on manufacturing systems management, on quality management, and we are attacking data analytics now. It’s time to step up and become expert on innovation . . . the kind that brings new orders of magnitude of value to the marketplace and therefore to the company. We’ve been researching this phenomenon, which we’ve labeled “breakthrough innovation,” for decades now and have learned a lot. It is time to put it to practice. To do so will require new thinking about innovation talent management.

Our research shows that, in large part, companies have shot themselves in the foot when it comes to building a sustained capability for breakthrough innovation. They’ve not taken as strategic an approach as is necessary to develop innovation capability. A large part of that problem has to do with how companies manage one of their most precious assets: human capital. In Kodak, Nortel, and many other companies, the roles and responsibilities required for a successful breakthrough innovation capability were not clarified, described, or institutionalized. People volunteered. There were no tools, frameworks, or attention given to recruiting, selecting, and developing innovation talent. People cycled in and out of innovation hubs that had cool names but no staying power. In a number of the companies we researched, innovation hubs existed but were populated with part-timers or people cycling through for short-term professional-development experiences. The “other part” of their jobs required attention to near-term, immediate issues focused on current customers, current operations, and the consequences of those issues on the next quarter’s stock performance. In some cases the groups we studied were filled with inventive, creative types, but they lacked personnel to incubate, experiment, and grow the businesses that resulted from the creative genius of their “think tank” partners.

In all these cases, and for any one of these reasons, the innovation hubs did not have the opportunity to develop expertise they could leverage over and over again. They could not practice, improve, and become increasingly sophisticated at what they did. Of the companies we studied, talent management practices for people who filled innovation roles were lacking. Selection, development, and retention approaches for innovation personnel were overlooked, undervalued, and/or misunderstood.

The people who work on the breakthrough innovation efforts are considered off the beaten path. For any ambitious employee looking to become a person of influence in the company, time spent in an innovation role is considered a “time-out” in his or her career. In fact, participants were viewed as misfits in the organization. There was no career path for people who prefer to work on developing potential breakthrough new businesses other than a higher potential of being released during lean times or when the flavor of the day was something other than innovation. The average life span of a new ventures group in large companies is just a little more than four years,¹⁴ and the personnel affiliated with breakthrough innovation projects and hubs are not always treated well when the dissolutions occur.¹⁵

Conventional wisdom holds that breakthroughs occur when highly driven project champions, shielded from company rules and policies by a senior leader sponsor, are allowed the freedom to break conventional practices and do what needs to be done. Some companies call them mavericks. Some call them hero-scientists, and others call them intrapreneurs. Once in a while this approach works, but more often they are the outliers. In most cases, in the stories you never hear about, the champion model fails. The disgruntled intrapreneurs leave the organization or remain and burden themselves and their organizations with cynical attitudes or deflated spirits. Even in those instances when it works, intrapreneurs contribute to company folklore but may not be willing or able to help the company develop a sustained innovation competency.

Returning to the Kodak story, the employee who invented the digital camera, Steven Sasson, was clearly a brilliant R&D scientist and a phenomenal inventor. In fact, President Barack Obama awarded him the National Medal of Technology and Innovation in 2009. In conferring its Innovation Award on Sasson in 2009, the Economist called the digital camera a “seismic disruption” that rendered the existing technology virtually obsolete.¹⁶ And his alma mater (Rensselaer Polytechnic Institute) inducted him into their hall of fame in 2011 . . . just before Kodak declared bankruptcy. Steve Sasson was a great inventor, but he was not an intrapreneur. He did not have the championing qualities companies seem to depend on to push, prod, cajole, and nag leadership to respond to opportunities or to impending threats. He invented the digital camera in 1975 and moved on to his next project. Did he do his job well? Yes! But there were multiple other tasks and activities that needed to occur, and no one was assigned to take them up.

This book is predicated on our belief that companies cannot improve their innovation outcomes unless there are people charged with managing a system devoted to that objective. While this sounds obvious, the fact is that there are few companies today with formal, consistent roles associated with new business creation that leverage R&D investments beyond the core business. There may be projects, task teams, and passionate people who make up interesting titles for their business cards (and we’ve seen a number of them!), but few companies have a clear, enduring organizational design for commercializing new business platforms based on breakthrough discoveries, inventions, or strategic objectives. Few have clear roles articulated, personnel selection criteria delineated, or career development opportunities embedded, as is the case for virtually every other function in the company.

Through our research we have identified a number of interesting roles and responsibilities that companies experiment with. No single company has the whole picture. Our results derive from assimilating best practices, observing challenges companies and individuals face in executing innovation, and filling in the gaps. Companies can get better at breakthrough innovation and develop a capability for what we call strategic innovation. Senior leaders say they want just that. We believe this book will help speed the process.

ORGANIZATIONAL EXPERIMENTS

Since the 1970s and 1980s when this problem was first articulated, companies have experimented with a number of approaches to get breakthroughs.¹⁷ They’ve tried process-based, cultural, and structural approaches of many flavors, along with financial approaches. Some companies cycle through them all, again and again. So far none have endured or become the template for others to follow. Your company probably has remnants of each.

Process-Based Approaches. When Robert Cooper recognized and described the weaknesses in large companies’ new product development process, and prescribed a Stage-Gate^® approach to improve it, he took the world by storm.¹⁸ The insight was to work in a cross-functional team, and to consider marketing, engineering, manufacturing, and cost implications as needed in pursuing a new product concept through a prescribed series of development steps. Gate reviews imposed discipline and enabled the company to make explicit decisions at specific junctures as to whether or not to continue investing. Gate reviews resulted in “go” or “kill” decisions, thus allowing decision makers to prevent losses on...