The future of Corporate Innovation Centers, Processes and Champions

Jack Hipple
Senior Consultant

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Abstract

It is important once in a while to look back over time at grand experiments that have been tried, evaluate how they have worked, and try to predict what their impact has been and what the future of the experiment might be. This is the case with the concept of a corporate innovation center, or a central place and function, which was designed to foster and accelerate the growth of new businesses and new business concepts within the context of a large organization with perceived stagnant growth. Most of these centers were established in the 1980-1990 time frame, but have virtually disappeared, along with their champions and leaders. This paper will review these efforts, what worked and didn't work, and what the future has in store.

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Background

More has been written about corporate innovation than most other subjects have. There are countless numbers of consultants and tools available to improve creative ability and the organizational climate for innovation and creativity. Why is this? Because there is always a feeling that people and organizations can be more creative and innovative than they appear to be. This is important because there is an assumed linkage between an organization's ability to generate new ideas and business concepts and the long term growth and economic viability of an organization.

Since this issue is perceived to be so important, it is not surprising that corporations have spent hundreds of millions of dollars on corporate innovation programs and efforts. Many of these have involved setting up and funding innovation centers of one sort or another, with the specific charter of stimulating new business and product ideas. After 10-15 years of these programs, most of these programs have been terminated and most of the individuals have started their own consulting businesses. Why were these efforts perceived to be unsuccessful? What, if anything has replaced them? What is the future of these types of programs? This paper attempts to answer these questions.

Sources of Information

In addition to personal experiences in this area in the chemical and materials area with 3 major corporations and four years of consulting work, two additional sources were important in this study. First, a project was initiated by the Association of Managers for Innovation, an informal group of organizational innovation leaders, which meets under the umbrella of the Center for Creative Leadership. This group has been meeting for over 20 years to discuss experiences and technology related to the area of organizational innovation. Many of its original members were corporate innovation managers of Fortune 500 companies, and had responsibility for a corporate innovation center and effort. In the early 1990's it was observed, within this group, that many of these individuals had lost their positions through downsizings and the elimination of these responsibilities and the innovation centers associated with them. It was decided to interview and analyze these individuals' experiences to summarize their experiences for future learning. The individuals and organizations involved in this study have asked to retain confidentiality.

A second source of information was a medium sized city business group that worked on a special project to identify the contradictions in setting up corporate innovation programs. My involvement with this group was in a group exercise to take these contradictions and use the TRIZ separation principles to identify possible solutions for them.

Finally, recent publications, such as "Crisis and Renewal" by David Hurst, have been used as stimulus and structure for some of the recommendations.

What Was Tried?

There were many types of structures and organizational approaches taken in these efforts, including concepts such as independent funding, simple facilitation and encouragement by a small staff, and novel meeting and ideation rooms. In all cases, an effort was made to make this effort distinct from normal business activities, and in many cases, the funding was taken from the normal business unit funding. One senior manager typically led and controlled the effort. Sometimes these programs were also combined informally with an acquisition or venture capital effort. Virtually all of these efforts were centralized within the R&D organization of the corporation with little involvement of the other business functions.

What Worked?

Without question, all of these programs generated new ideas, sometimes generating significant new businesses. The presence of the program itself also stimulated many different kinds of activities varying from regular brainstorming sessions to technology fairs to a higher than normal level of interaction between research and development personnel and customers. Though the details of accomplishments and new products that resulted from these efforts cannot be shared, suffice it to say that many new products currently seen in the marketplace can be identified, many years later, with these programs.

The real question is why these programs were terminated. Even if they succeeded in producing new businesses and products, there is always the question of the level and number of these successes vs. expectations, the process used to achieve these results, and the changes in business climate over time.

What Didn't Work

The biggest barrier to success in these programs was their nearly exclusive focus on the research and development function. In many cases, these programs were funded at the expense of existing business technology budgets and had virtually no involvement of the commercial or marketing arms of the corporations. This type of sponsorship opens the door for subtle forms of sabotage as the current business units can look upon the "innovation funding" as inhibiting their ability to accomplish short-term objectives and take care of current customers.

Second, the efforts, both financial and personal, required to have a major impact on large corporations, was usually significantly underestimated. The costs and impact of these programs were not clearly thought out ahead of time in a way that could be communicated clearly to senior management.

Third, the sponsorship was too narrow. The leadership of only one or two senior managers, frequently near retirement, was also too shallow to have staying power. These programs sometimes withered on the vine primarily because of the retirement of just one key person.

Lastly, the time horizons for bottom line impact were usually seriously underestimated. Most of these companies involved in this study were not software companies, but materials and chemical companies with relatively long product introduction cycles. The desired new business impact and its associated time and costs was usually not communicated clearly and sometimes not known at all, setting up surprises down the road for senior management paying the bills.

The consequences of these factors were loss of credibility over time, subtle forms of sabotage from the existing business units, and straightforward competition for funds. This last point clearly got in the way of true corporate teamwork on the innovation efforts. In some cases, competition for funds resulted in "double" budgeting, making the innovation budget appear larger than it actually was, setting up longer-term expectation problems.

Two concepts proved invalid through these programs were:
1. A centralized "creativity" or "innovation" center (a unique physical room or location) can significantly impact the bottom line of an organization.

2. The R&D function, alone, can significantly affect an organizations' long term bottom line or new business development.

Three concepts that were proved valid during these efforts were:

1. People within an organization do have novel and unique ideas, which are outside the normal realm of their responsibilities.

2. There are new business opportunities that will not be discovered by normal marketing and business efforts.

3. An independent funding mechanism, no matter what kind, can stimulate different activities.

What's Changed?

In the intervening time between the start of these programs and their demise, many things have changed in the business world. These would have a significant impact on how these centers of innovation could and should be run in the future, or more importantly, whether they should be re-instituted in some form.

1. Most organizational structures are now business and customer driven rather than functionally driven. This means that most technology and research programs have a strong customer driven component to them.

2. Many corporations have a "core competency" model for their technological organizations, allowing a broader vision of opportunities.

3. Alliances and partnerships, sometimes only of a temporary nature, are far more common, allowing the sharing and trading of technology.

4. There are new and more productive innovation and creativity tools such as TRIZ. These complement and provide greater breadth to innovation technology vs. some of the older tools such as brainstorming, Lateral Thinking' Six Hats', etc.

5. Finally, employee loyalty is at an all time low after the loss and shuffling of millions of professional jobs within the Fortune 500. This turnover in people also facilitates and accelerates the loss of core competencies and knowledge as illustrated in Figure 1.

The AMI Study

A key part of the learnings for this summary has come from a study, led by this author, under the auspices of the Association of Managers for Innovation. AMI is an informal group of about 50 innovation leaders from around North America that meets twice a year under the sponsorship of the Center for Creative Leadership in Greensboro, NC. It was established in 1986 and has outside speakers for creative and innovative stimulation as well as sharing of experiences and needs within the group itself. Initially, this group consisted primarily of innovation leaders of the types of programs outlined previously. Over time, these positions and programs were eliminated and the people in these positions typically started consulting companies or joined startup companies. The percentage of the group in this position approached 20-30% of the membership, causing many questions to be asked, including the one on which this paper focuses: Why is this position untenable? It was agreed to survey these individuals for learnings. This study was completed in late 2000 and the significant results are incorporated, anonymously, in this paper.

AMI Study Results

As part of the survey done of these "ex-innovation" champions, both MBTI and KAI® assessment/scores were obtained. The reader is referred to the references for details on these assessment instruments.

MBTI is an assessment tool which measures the style of one's social interaction in four different areas:

1. Extraverted/introverted (E/I)
2. Sensing/Intuitive (S/N)
3. Thinking/Feeling (T/F)
4. Perceiving/Judging (P/J)

There are 16 possible combinations, not all equally likely. The profile of an individual could be, for example, ESTJ. This particular designation would imply someone highly extroverted in a social sense and in their interactions with others, someone who relies primarily on hard data, someone who relies on an orderly thinking process, and one who can easily make judgments and comparisons.

In this survey of ex-innovation champions, it was found that 85% of them were NT's in the Meyers Briggs vernacular, implying a strong intuitive, thinking behavior style. Normally, this pairing occurs in less than 5% of the population. In contrast, previous studies of corporate managers and business leaders have shown over 80 percent are ST's, typically ESTJ's. This simple disconnect between NT and ST style of problem analysis, problem solving, and vision sets up some interesting challenges as it is well known that these differences between NT's and ST's are readily seen:

1. NT's are far more comfortable with change in general
2. Any change always seems bigger to an ST than an NT

Therefore, if the "change" desired is not clearly understood by both parties, potential conflicts can arise. For example, if the leader of the innovation program/center is told, "we need to do different things" or "do things differently" in this company, what does this mean? Get into an entirely new business or process existing orders more efficiently?

In addition, a company or organization can also have "culture" along the lines of MBTI profiling, based on long term hiring trends of "like hiring like" or certain types of individuals being hired during a particular business condition. For example, an SJ organization might like stage gate processes and continuous improvement teams. A NJ organization might like very targeted breakthrough efforts and SP organization might like a "bottoms up" approach and continuous improvement. Finally a NP organization might like internal venturing and staying with new ideas longer than normal.

Knowledge of both the personal and organizational "styles" can go a long way in assisting in the design and operation of any corporate wide innovation program.

The second assessment tool used was Michael Kirton's KAI® (Kirton Adaptive Innovative) assessment tool. If one thinks of the MBTI as an instrument which measures how we relate to other people, the KAI® can be described as measuring how we relate to problems, or our problem solving style. The instrument itself is 32 question with a numerical answer range of 1-5 on each, resulting in a minimum score of 32 and a maximum of 160. It is made up of three sub-scores which, when totaled, give an accurate overall assessment of an individual's problem solving style. These three sub-scales measure:

1. Originality, or our natural ability to generate a large quantity of original ideas
2. Rule and group conformity, or our desire to conform to known rules of behavior and group expectations
3. Efficiency, or our desire to be efficient in our problem solving process.

The norm of the population is in the low 90's and the managerial norm in corporations between 95-100. When these assessment scores are known in a group setting, it is very easy to see group conflict when the differentials are +/- 15 points apart and one can frequently see internal group warfare at a difference of +/- 30 points. People with scores in the 90 range are typically bridgers within a group, helping to balance and translate between high adapters and high innovators.

When these scores for the "ex-innovation" champs were collected, the results were dramatic. The average of all these 15 individuals was 135, compared with the managerial norm of 95-100 mentioned previously. See figure 2. This kind of differential in styles of problem solving would set up all kinds of potential conflicts in the areas of "replacing" vs. "improving", reaction to internal vs. external threats, appreciation for details in proposals and business plans, and accounting for risk.

Strong difference in both KAI® and MBTI can be a recipe for disaster in such a program, to the point that differences in style can overwhelm the normally expected objective analysis of information and project data. Charlie Prather, a well-known innovation consultant, captured this point elegantly in a four-quadrant graph shown in figure 3.

In addition to the objective MBTI and KAI® data from the ex-innovation center champions, many personal, after-the-fact, learnings were shared:

"Needed support beyond one (near retirement) executive"
"Needed top level support"
"Needed to better understand the political and business culture, recognizing that your efforts could be a threat"
"More education on the role of innovation"
"Needed succession planning"
"Need to treat innovation as a business process"
"Use the 'coin of the realm' in discussions and planning"
"Innovation needs to be a corporate, not a research process, and needs marketing and commercial support"
"Both successes and failures need to be shared"
"Process successes need to be shared"

Medium Sized City Company Study of Innovation

A medium size industrial city had an informal series of meetings to discuss the challenges of innovation in several of its large companies. The discussion finally centered on identified paradoxes associated with corporate innovation. The TRIZ problem solving separation principles were used to analyze these contradictions and suggest some simple solutions for consideration and use:

1. It needs to be somebody's job vs. everybody's job. It was recognized that it was desirable to have everyone be innovative, but at the same time someone had to handle the existing business, orders, etc. It was suggested that time and condition separation could be used to handle this contradiction. First, specific innovation tasks, exercises, etc. could be given or used at particular times to involve a broader group. These could take the form of simulations or changing conditions or emergencies.

2. Inside business structure vs. outside business structure. Many new and novel business and product ideas that come from internal sources do not always fit the existing business structure and focus, requiring the establishment of separate or "new venture" type of activities.

3. Chaos vs. discipline. The early stages of any new idea or business are typically chaotic. The necessary analysis and evaluation must be separated from these ongoing activities in such a way as to not diminish the enthusiasm and entrepeneurship of the new business development group.

4. Passion vs. objectivity. As in #3, there is a time for passion and a time for objectivity in the innovation process. These must be separated in time and upon condition so as not to diminish the enthusiasm nor hinder objective business decisions.

5. Risk vs. job security. Once a person working on slightly different business or technology venture experiences a "downsizing", and the fact that risk and termination are associated with each other, the organizational learning kicks in very fast. People learn not to volunteer new ideas or to work on them and feel much safer working on existing product and business areas.

These paradoxes and contradictions should be factored into any innovation process design.

The Future

It is unlikely that corporate innovation and creativity centers, in their traditional sense, will return to the corporate scene anytime soon. However, the need for innovation and creativity has not diminished in any sense and so future efforts to generate unique, profitable, protectable ideas will continue. In terms of setting up processes and systems to aid in this effort, several factors are present now that were not significant 15-20 years ago. First the cost of generating information, which is critical in the early stages of new technology and product development, has been rising rapidly. Figure 4 is a simple representation of this fact. Sometimes we confuse information generation with information dissemination. The latter has gotten extremely inexpensive with the explosion of information sharing tools, but the cost of generating the original information has skyrocketed with the need for detail, accuracy, and corroboration increasing. This means that the challenge to properly define a problem or opportunity right the first time is more important than even. Organizations cannot afford to launch major new business initiatives based on incomplete information. In this same vein, the rapid turnover in personnel through downsizings, etc. has put the loss of information into play as a major variable.

Figure 5 shows a longer-term perspective on corporations and organizations as presented by David Hurst from the University of Waterloo in his recent book. It shows the grand cycle of corporate growth, followed by the crisis of conservatism and paralysis which occurs when a crisis confronts a large, bureaucratic organization that is nothing like its startup venture decades ago. These kinds of crises are typically the catalysts for the demise of any corporate innovation program. When these programs are terminated under these conditions, it is extremely difficult to restart them or convince the organization's employees that innovation and creativity have any value. Innovation and creativity, however, are needed constantly in any organization under any circumstances. New products are always needed. Cost reductions are always needed. New customers and business channels are always needed. Turning the organizational innovation spigot off and on as a function of condition is a recipe for disaster.

Each phase of an organization's existence may require different aspects of innovation. In the early stages, intellectual property issues and freedom to explore new frontiers in a new area of science or technology may be most important. In the rational action phase, decisions must be made and prototypes must be built, but these tasks also require innovation. Even the early thoughts about marketing and delivery are not beyond the need for dramatic breakthroughs. In order to prevent getting into the crisis/confusion phase, innovative thought and action are required to figure out who might replace your product or service and how to talk and meet with who might replace your current customers. The newer innovation techniques such as TRIZ can also be used to predict areas for breakthrough to allow better focusing of technology development efforts as well as the nature and backgrounds of new employee hiring.

And so we finally come to two basic questions:

1. Are corporate innovation "centers" needed?

The answer, in the sense they have existed in the past, is no. However, the need for corporate innovation is as strong as ever and new and different ways to produce innovation, organization wide, are needed.

2. How should we organizationally innovate? What does the corporate innovation "center" of the future look like?

Here is the checklist:

First, all functions must be involved in the effort. It is no less important to have the field seller in an organization figuring out how to deliver and invoice more efficiently and to be calling on potential new clients than it is to have a researcher discovering a new molecule.

Second, both the skills of "hunting" and "gathering" must be present everywhere in the organization. These are not often contained in the same people and both skills are required to deal with new ideas.

Thirdly, there must be broad-based leadership and support.

Fourth, there has to be a process in place to identify not only long term trends in the current business, but a mechanism to identify what might replace those customers and businesses.

Fifth, whatever the program is, it must be consistent or it will lose credibility both long and short term as memories and legends linger a long time.

Sixth, a serious effort to broaden the base and value of intellectual property resulting from innovation efforts must be in place.

Seventh and last, there must some source of independent funding available that is not aligned with the existing business structure.

If your corporate innovation program is successful, you will see the following:
1. People volunteering to work on risky new business ventures.
2. Management is receiving unsolicited new business plans from employees
3. Ideas are coming from strange places and meetings
4. People are telling you about new tools and processes
5. You are having a difficult time choosing from among novel ideas to improve manufacturing plants, building a new prototype plant, or making an acquisition to help get you into a new business.
6. Your customers are raving about your uncanny knack of anticipating their next generation product needs.

If these things are not happening within your organization, take the appropriate steps to make it happen!

Acknowledgements

The efforts of David Hardy (Bank of Montreal) as well as Steve Wilson and James Michalski from Eastman Chemical in the AMI/CCL study are gratefully acknowledged. The co-operation of personnel from Idea Connections is also recognized.