Organizational Models for Breakthrough Innovation

As we have suggested earlier, innovation activities that are radical or disruptive in nature, should be separated from incremental innovation around a company’s established core business. The main reasons are:

• Required capabilities, structures, approaches, success metrics and culture for radical/disruptive innovation are highly incompatible with those required for incremental innovation.
• Radical/disruptive innovation activities need full-time resources to get executed properly and time-efficiently.

However, separation is a two-edged sword: on the one hand it helps secure protection of novel ventures from a company’s dominant core and nurtures their development. On the other hand, it bears the risk of isolation from the rest of the company, which may prevent scaling and corporate learning. Eventually, successful execution of innovation activities entails a “partnership” (i.e. collaborative exchange at selected touchpoints) between a dedicated innovation team/unit and established operations. Almost all innovation initiatives build upon a company’s existing resources, know-how and assets.

One major question to be answered prior to forming and implementing an innovation team is: What are the responsibilities of the dedicated team vs. the responsibilities of the company’s established units and functions in the course of a considered innovation initiative? Naturally, decision makers tend to assign as much as possible to the established organization. It already exists and functions well. But its capacity is limited while facing priority of maintaining excellence in ongoing businesses. Vijay Govindarajan and Chris Trimble give the following advice on these limitations of the performance engine:

The performance engine has two essential limitations. The first is straightforward. Any task that is beyond the capabilities of the individuals within the performance engine must be assigned to the dedicated team. The second limitation is less obvious. It involves work relationships. What Person A and Person B can do together is not just a function of A’s skills and B’s skills. It is also a function of the way A and B are accustomed to working together. As long as A and B are working inside the performance engine, their work relationship is extremely difficult to change. It is reinforced daily by the demands of ongoing operations. (…)

Therefore, the performance engine should take on only tasks that flow along the same path from person to person that ongoing operations do – at the same pace and with the same people in charge. To ask more of the performance engine is too disruptive. It embeds conflicts between innovation and ongoing operations so deeply within the performance engine that they become impossible to manage.

Findings from the recent Arthur D. Little Breakthrough Innovation Survey support the argument of dedicated innovation teams as organizational model. ADL define “Breakthrough Innovation” as radically-new products, performance features, business models or market space. They outline in their report:

Having a Beakthrough Team is considered to be the most effective basic approach and yields 15% higher satisfaction than companies with no dedicated organization. Working with a dedicated team is also the choice of the more experienced companies. Crucial to any dedicated team’s success, however, is that it is implemented in a way that suits the nature of the issue at hand (see figure below). The complexity and novelty of the technology, product or service for the company can provide some guidance on the best way to organize Breakthrough Teams.

For example, if the domain is known to the organization, the R&D function or an existing BU may be the best home for the Breakthrough Team. If it is unknown, stand-alone teams may be more suitable. Similarly, if the domain is highly technology-intensive or complex with high investment needs, a centralized rather than divisional or BU approach may be preferable. Large companies may choose to, and often do, use more than one model simultaneously.

We identified four generic organizational models which are effective in different circumstances:

Business Unit/Division R&D Breakthrough Teams are good “minimum investment” options where the ideas or concepts are not “new to the world” and the technical complexity does not require major long-term effort and investment. Such a team is however unlikely to be able to cope with high complexity and risk, and is susceptible to short-term BU reprioritization pressures.

Corporate R&D Breakthrough Teams are better suited to more technology-intensive or higher investment domains where a longer-term perspective and specialist technical skills are required. However, teams parented under corporate R&D are susceptible to over-emphasis on “technology-push”, becoming misaligned with the business (“ivory tower” syndrome), and being stifled by corporate control and culture which may act as a major barrier to breakthrough thinking.

Internal Dedicated Breakthrough Teams, with multifunctional membership, separate from corporate R&D and reporting directly to the top team, enjoy the freedom to operate outside core product development procedures and controls. They may be more effective in pursuing areas of more uncertainty requiring greater stretch, but they also need careful governance to avoid becoming disconnected from the business, and to ensure that they deliver short-term value. They are often susceptible to cuts as a result of short-term pressures.

The Breakthrough Factory focuses on development of a pipeline of “grand-challenge”-led radical or game-changing innovations that push the boundaries of science. It uses mainly external hires with time-limited contracts, led by an internal senior project leader with deep technical or scientific knowledge as well as entrepreneurial capabilities. This model is especially effective in technologically-complex domains with high uncertainty where faster progress is needed. Time-limitation means that best individuals can be hired on merit, even if they don’t fit the typical corporate profile.

Whichever model is adopted, the survey revealed a number of key success factors for making it work effectively:

Cross-functionality: Ensure genuine co-involvement of a wide range of functions including research & development, manufacturing, marketing and customer insight. The more successful companies actively engage and involve cross-functional resources rather than simply having cross-functional steering groups.

Ring-fenced funding: Establish ring-fencing to enable stable investment over the longer timeframe needed for Breakthrough projects and prevent short-term cannibalization. Staged funding release can help to manage the risks involved.

Intrapreneurs: Employ and encourage strong intrapreneurs as breakthrough leaders to drive concepts through to commercial exploitation. Intrapreneurs, like successful entrepreneurs, are individuals with the ability pursue a commercial vision with dedication, inspire others to join the cause, take measured risks, and protect an effort through to market, securing needed resources along the way.

Takeaway

Research suggests that separating breakthrough innovation from incremental innovation by means of dedicated, cross-functional teams/units is the organizational model of choice. Responsibilities of those teams and the way they should get implemented mainly depend on

• innovation horizon (H1: known to company, H2: unknown to company, H3: unknown to world)
• complexity of the initiative
• established work relationships

ADL’s suggested four organizational models are instructive, while not complete. For instance, instead of an internal “Breakthrough Factory”, a company could also think about “outsourcing” the development of a novel technology or business model to an external startup team in order to increase speed and to decrease uncertainty. Startup engagements of big companies are continuously gaining traction and are particularly targeted at the ‘high complexity – new to the company/world’ segment in most cases. Moreover, it’s also quite interesting to see in the displayed chart above that even for H1 activities, tending to range closer to a company’s core business, dedicated teams seem to be indicated.