The Stage Where Most Innovation Projects Fail31 May, 2017 / Articles
When a CEO announces a major initiative to foster innovation, mark your calendar. Three years later, many of these ambitious ventures will have quietly expired without an obituary. Among those that have met that fate in recent months are initiatives at Target, Alaska Airlines, Coca-Cola, the New York Times, and Chubb.
The problem isn’t that large companies lack good ideas. In most cases we’ve studied at Innovation Leader, an online resource for people responsible for innovation and R&D, there’s a surplus of good ideas for new products, services and business models. Often, there is early data that shows customers are willing to buy.
The problems arise when projects need to be transferred to the business units for a large-scale launch. Is there enough communication? Does the business unit feel like the project is something they had a hand in shaping — or is it like a perishable package left on a doorstep? Are people moving from the innovation lab or pilot test team to help with the roll-out? Are there sufficient resources devoted to solving issues that occur with scale-up? Is anyone responsible for ensuring these projects don’t fall through the cracks, or drop to the bottom of the sales force’s priority list?
In a recent survey of 164 executives at companies with more than $1 billion in revenue, 26% of respondents told us the transition from innovation or R&D group to the business unit “needs serious work” at their company. Another 16% described it as “terrible,” and said they’d seen multiple projects wither following the hand-off to a business unit. Most respondents admitted that there was room for improvement.
So how to improve? At many companies, new innovation initiatives get the blessing of the CEO — but have little interaction with the business units. Each initiative thus becomes like a satellite orbiting the earth, communicating sporadically only with a few senior executives on the ground. Freedom to explore long-term ideas and emerging technologies is important. But most of these new teams will require help from the business units to make it out into the “real world,” and generate substantial revenues.
One way to create an alliance is to invite business units to lay out targets or problem areas for the innovation or R&D group to explore, or supply funding so they have skin in the game. Forty-six percent of our survey respondents said that some of their funding came from business units; another 24% said business units provided the majority of their funds. And the vast majority of respondents told us that business unit leaders were either “somewhat involved” (59%) or “extremely involved” (26%) in setting the agenda for innovation efforts at the company. Yes, too much involvement can lead to a fixation on incremental improvements that can be shepherded to market quickly, to impact the next quarter’s results. But it also ensures that the innovation group isn’t drifting off into deep space.
April Bertram, a business development director who works on a startup inside of GOJO, the Ohio-based maker of Purell, talks about letting business unit leaders design “guard rails.” You don’t want to rein in creativity, she says, but you do want to focus an innovation team on things that could realistically be commercialized.
At Aon Health, part of $11.7 billion Aon Hewitt, chief innovation officer Jim Winkler says that as part of the annual budgeting process, “we have a day-long innovation session with our line of business leaders and a lot of our product people, folks from IT, etc. who walk through where we see the marketplace evolving to, and the competitive landscape. …The line of business leaders are very vocal participants in that process.”
Consumer packaged goods giant Clorox has decided to move most innovation roles into the business units over the past five years. A central corporate team focuses on coaching and improving processes, but “each brand has an innovation team composed of marketing, research, and R&D folks planning one to five years out,” says Patrick O’Loughlin, Innovation Business Leader at Clorox.
Those three companies are pursuing what might be called “intertwined innovation,” where the interests and needs of the business units are woven into the mandate of an innovation team or individual staffers charged with hunting for new opportunities and growth. (The opposite of that is “insulated innovation,” when you set up a skunkworks facility or a group of high-powered researchers, and don’t require much on-going engagement with the business units. Google’s X division is a good example of that model, as is the global network of innovation labs set up by Lowe’s, the home improvement retailer.)
“Working hand-in-hand has proven to be much more effective, in my career, than those skunkworks ‘go away and come up with a magic box and bring it back to the business and have them figure out how it will best fit in,’” says Scott Burns, Head of Customer Experience at Reliant Energy, a Houston energy services provider.
To make the intertwined model work, some companies are also rotating business-side people through the innovation group — often to provide commercial expertise, or help make introductions to customers who might be willing to test something new and provide feedback. Or they are exporting innovation team members to the business unit that will be responsible for launching a project, so there’s someone involved who is knowledgeable and passionate about it. “Don’t call it a hand-off,” one survey respondent advised. “It needs to be a transition.”
But as that transition plays out, few companies are paying sufficient attention to creating accountability and incentives for success. The transition is one of the most vulnerable phases of innovation. Is the CEO or another senior executive paying attention to the milestones it is expected to hit, and asking whether members of the innovation team are continuing to support it as promised? Is the business unit being measured not just on how much revenue they generate from new products, but how many times they drop the ball or under-resource something that has been developed for them? This area is the black hole of innovation — no matter how much you’re spending on staff, training, new tools and software, and nifty innovation centers, so much value can just vaporize at this stage.
Innovators thrive on discovery and nurturing new ideas. Operators in the business units love hitting goals and finding new efficiencies. While their motivations are very different, it’s time to acknowledge that they need one another to succeed in the market. And CEOs need to foster constructive connectivity between the two groups if they intend for innovation to deliver real impact after the initial press release.