Evolution of Corporate Innovation Programs

Enterprises of every size are focusing more attention on innovation.  The number of books, articles, seminars and conferences which cover innovation seem to be multiplying at a dizzying rate.  And of course, the emergence of professional innovation gurus clearly evidences that we have reached some new milestone in the science of innovation.

Underlying all of this activity is an ongoing evolution in organizational innovation strategies.   At its core is the expansion of innovation from the realm of the few to the domain of the many.  As innovation strategies evolve, I believe they will be characterized by an ever expanding number of people who become part of the innovation process.

In 1876 Thomas Edison moved his employees to Menlo Park, New Jersey, (menloparkmuseum.org) where he established the worlds’ first research and development facility.  At Menlo Park, Edison and his team created over 400 inventions including the phonograph and the electric light.  Edison coined the term “Invention Factory” to describe what was happening in Menlo Park. This approach to innovation is a core part of virtually every organization’s innovation strategy.  Bell Laboratories, Microsoft Research and the Xerox Palo Alto Research Center (PARC) are the modern equivalents, founded on the notion that innovation and invention are best performed by a select few.

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More recently organizations have realized that their innovation strategies must evolve to enable a greater number of employees to participate in the process.  In 2006, Matthew May wrote The Elegant Solution:  Toyota’s Formula for Mastering Innovation in which he described how Toyota managed innovation:

“Defining innovation as an incremental process, in which the goal is not to make huge, sudden leaps but, rather, to make things better on a daily basis…  And so it rejects the idea that innovation is the province of an elect few; instead, it’s taken to be an everyday task for which everyone is responsible.  Toyota implements a million new ideas a year, and most of them come from ordinary workers.”

Toyota realized that by expanding the number of people involved in innovation — from the relative few who worked within their R&D labs to almost everyone within the organization — they could dramatically increase the speed of innovation.  Today many companies (including my own) are incorporating Toyota’s organizational model innovation into their own strategies.

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Even as companies work to extend innovation to their entire organization, it is clear that there is yet a further stage of innovation expansion.  Open innovation expands the potential source of innovation far beyond the bounds of any single organization. As Henry Chesbrough wrote in Open Innovation: Researching a New Paradigm (2006):

“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.”

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A handful of pioneers have already begun the open innovation process.  In the book Game Changer, A.G. Lafley — recent chairman and CEO of P&G — describes how P&G’s approach to open innovation is instrumental to their ongoing success.  In contrast to conventional wisdom that true game changing innovations come mostly from small companies, Lafley shows how open innovation has enabled P&G to become one of the most innovative and successful companies of the 20th century.

Open innovation is also at the core of the open source software development model (en.wikipedia.org/wiki/Free_and_open_source_software).  Individual software developers from around the world collaboratively developed the Linux operating system.  It is widely believed that the Linux quality meets or exceeds the quality of more traditionally developed commercial software and was developed with far less resources.

Each innovation strategy, from laboratory to organization to open should be considered as part of every corporate innovation strategy.  Laboratory models have had the greatest success in creating dramatic innovations while organizational models have been used to create large numbers of small, incremental innovations.  Open innovation is in its relative infancy but early results indicate it may have the greatest potential of all.

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3 Responses to Evolution of Corporate Innovation Programs

  1. Christopher L Wasden says:

    This is an important point that new innovators sometimes don’t realize as they innovate. They find that they can create successful incremental innovations and assume that their innovations could be the basis for external funding and the launching of a new business. When we look at such innovations it is important to understand the value creation potential of the innovation so as to know the amount of capital to put at risk and the level of new structures and practices required to bring them to market.

    Generally speaking, incremental innovations are only valuable in the hands of an incumbent that can apply it to its existing core capabilities and base business. Such innovations enable an organization to continue to expand its product’s life through continual improvement until a new paradigm emerges and disrupts their products and markets (the innovator’s dilemma).

    The central tension within all organizations is how to continually innovate in an incremental fashion while at the same time innovating in a more radical fashion to create the new paradigm – most organizations are not ambidextrous enough to do both. We refer to this as the exploration/exploitation tension and is the central point of my upcoming article in the View on innovation.

    We are currently working with a $7 billion client who is experiencing this tension and struggling to create radical innovation while successfully incrementally innovating. They are unable to do any radical innovation within their current organizational structures and practices due to its risk averse and bureaucratic culture, which is useful in commercializing incremental innovation. We are helping them identify the risks to radical innovation and the structures and practices that they must have to mitigate and manage these risks to bring more radical innovations to the marketplace that could be the basis for the new paradigm.

    Not surprising, this client is finding that the incremental innovation they can continue to do well within their current structures and practices, block their ability to radically innovate. Consequently, they are exploring the creation of new structures and new practices outside the boundaries of the current organization, but still affiliated with the mother ship, and the vehicle for this other form of innovation.

  2. Doug Kalish says:

    The comment above hightlights the biggest challenge of open innovation: changing the corporate culture. Implementing open innovation requires a ‘leaky funnel’ – research projects have to leak out, as well as leak in. The so-called risk averse organization may be encouraged to accept ideas from the outside (leak in), but try to convince them to share their non-core innovations. In my experience, the minute an outside organization shows the slightest interest, the innovation suddenly becomes a highly-valued core component of the strategy. Key indicator: the organization tries to minimize the risk of losing a piece of innovation, instead of managing the risk of not having enough external partners and ideas.

  3. Jeremy says:

    Surely by opening up the innovation process their will be some organic changes within corporate culture?

    Allowing more and more workers to be involved in creative process and encouraging them to offer operational insights will not only increase the loyalty of a worker by creating a sense of ownership. But also output as people get to positively affect their own work environment.

    I would suggest opening up innovation infrastructure will only be a boon to those companies who try to control their corporate culture in a less than natural way. I also believe that the collaboration between smaller dynamic firms we are now seeing more and more will provide increased competition to larger, indolent firms.

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