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I want to welcome Kim Wagner to
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knowledge at Wharton today she's a
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partner and a managing director at
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Boston Consulting Group also BCG and Kim
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is an expert in corporate Innovation
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which is a topic near and dear to almost
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every company's heart these days and
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she's also the author of a piece of BCG
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research titled managing the
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unmanageable radical Innovation so
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radical Innovation for
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corporations that's quite something so
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tell me about why radical Innovation is
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important sure so first thanks for
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having me um why is radical Innovation
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important first let's define it so
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radical or breakthrough Innovation is
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where you're creating a new market or a
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new category of of products so it's when
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the iPod was first introduced it's when
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the cell phone was first introduced um
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it's remember when the wman was first
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introduced which now we think of as
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something archaic but at the time it was
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pretty
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revolutionary and so that's the category
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of of new products that we're talking
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about if you are a startup company um
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you start in typically the garage um the
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person who has the idea has the
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technology has the vision maybe in it
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may be in one brain it may be in Two
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Brains it's not in 5,000 brains so it's
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very easy to manage all the cross
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functional pieces you need to get a
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product to Market because it's in a
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limited number of people's minds or in
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their in their concept when you move to
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Corporate America the idea that you're
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going to do something breakthrough
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radical you know really different is
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really hard to do because you have a
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huge company with lots of processes and
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a history to protect and and numbers to
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hit and when you start to bring the idea
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of something really breakthrough and a
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lot of rules together it starts to get
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very difficult
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nevertheless it's important and great if
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you can do it if you can produce the
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next iPod so companies do want to do
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this they definitely want to do it
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interestingly our research shows that
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there's two kinds if you think about
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strong Innovative companies there's two
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kinds there's ones that say radical or
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breakthrough Innovation is an important
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part of my portfolio of products so I'm
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going to spend a certain amount of my
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time doing continuous Improvement on
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products that I have and then I'm going
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to spend another
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portion of my resources on things that
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are truly new to the world and apple
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kind of epitomizes that if you think
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about every Apple product there's always
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the next version the next version the
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next version but at the same time
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everybody's waiting for what's that hot
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new thing what's the Breakthrough thing
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and when you don't deliver that
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breakthrough thing there's huge
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disappointment there are other companies
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um and oftentimes it's it's you know
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your standard consumer goods companies
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but not always who do more incremental
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Innovation and they do a very good job
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of it they're extraordinarily successful
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they return well to their shareholders
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but they've focused their Innovation on
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incrementally adjusting either things
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that other people produce so fast
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follower or their own products
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creativity and Innovation are abstract
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ideas and people immediately seize on
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the on the idea that you you can't sort
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of legislate creativity or innovation
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and so it's hard to take processes and
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so forth and get them you know put put
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inputs in and have them go through a
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process and come out with creativity and
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Innovation um how do you view this yeah
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it's it's true you can't um but you sure
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as heck can take whatever creativity
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exists in an organization and kill it
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very quickly and so if you think about
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think about the evolution of of where
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you know kind of in the early 90s um
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Innovation and new product development
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was um that was the time that big
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Enterprise software packages were
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getting introduced into Corporate
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America there was a a desire to control
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things people were worried about waste
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they were starting to think am I
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investing too much in research am I
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getting out what I was supposed to get
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out and so a lot of um management
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science started to get applied to the
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Innovation process there started to be
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more metrics more forms more gates more
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if you want Capital you will need to
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jump through these hoops and so all of
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these processes serve to take the
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creativ that existed in any organization
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and make it
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very straight path so think of yourself
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as moving from side streets to Super
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highways it basically said we want to
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move on super highways and so all of a
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sudden um that shift makes the idea that
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you would like get off on an exit and go
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to a local diner for dinner it just
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doesn't happen CU you're on the Super
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Highway and you're trying to get to the
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next toll road so that process very very
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much took creativity out of
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organizations sounds like it would yeah
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yeah and now if you go talk to companies
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if you talk to the very senior folks
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often times they'll say we don't have
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the ideas we don't have the creative
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ideas if you talk three or four layers
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into the organization at the rockface
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what you hear is we have a lot of
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creative ideas we just can't fill in the
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form to get permission to be part of the
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portfolio anymore and so that starts to
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get it things like typically the quote
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form to enter the portfolio requires you
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to have some sense of what the forward
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Revenue stream would look like not only
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how much is it going to be what's the
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cost of goods going to be and when can
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we expect it is this three years out or
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five years out and and often for a
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breakthrough Innovation you can't even
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comprehend that yet you're still at the
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stage of I need resources to test if
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this is even possible as opposed to I'm
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ready to tell you how much money you're
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going to
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make you have an interesting example on
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your paper I think Corning for example
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and it's people may not realize they
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used to make cookware right they still
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do and and and Industrial things too but
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then suddenly uh with the world of of
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the internet Digital World fiber optics
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and so forth the the products that they
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made were uh lent themselves incredibly
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well to to that industry but but they
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made all these things and somewhere
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inside a coring was a division that was
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working on that how did they I mean how
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did they break through and get
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management to to pay attention or was it
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just so obvious that hey we've got the
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right technology here to do this this is
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a no-brainer it wasn't a no-brainer was
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it it wasn't a no-brainer but remember
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it came out you know this is all stuff
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that happened in the 50s 60s early 7s so
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it was the same time as Bell labs and
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IBM labs and lots of labs and so a lot
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of industrial companies had these almost
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pure research institutes associated with
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them and that was great and and there
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was a lot of great Innovation that came
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out of it
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there was a prior work that was done by
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many other scientists both in academic
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labs and other commercial Labs that
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showed that you could pass light through
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fibers in a way that you didn't have to
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add a lot of repeaters so basically the
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the technology was if you could imagine
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sending a signal down a copper wire the
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signal could only go so far before it
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faded out and you had it to reamplify it
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with a light path you could go much much
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further and so the the there was a lot
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of technology and and proof of concept
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around we could make a fiber and and it
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started off as just I want to make a
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optic fiber like I would a copper fiber
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and so it wasn't for the why there was
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already some uh evidence that showed
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that you could send a signal down it you
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could send an audio track down it you
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could send an image down it that was all
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academic work but you know what I mean
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by down it is not like miles and miles
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away it was like from a point B really
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close in a
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lab so they started that in the 70s they
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proved that they could make that cable
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so to speak they then in the late 70s
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formed a a joint venture with another
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company to start thinking about how do I
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commercialize it the research that they
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started with happened in the 60s so
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you're going from the 60s to the late
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70s before you're even thinking about
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commercialization and then there were
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many kind of mistakes along the way or
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you could call them learning
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opportunities like in the' 70s we
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weren't quite ready for a video phone
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yet you know it was technically possible
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but the idea that the infrastructure
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would be out there and people would
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start buying them was really not there
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yet except at Disney world except
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possibly at Disney World or in other
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proof of concept type situations and so
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um you know there were opportunities for
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Corning to learn as they go and and go
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down some paths and decide maybe it
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wasn't time yet back out and go down
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other
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paths uh there's also an idea that you
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can't follow every idea this was a great
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idea and it worked out most of them are
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dead ends how do you know how far do you
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follow them and uh how do you figure out
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which ideas give you the best odds for
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Success yeah this is where you have to
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remember that Innovation is part science
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and part art and actually if you think
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back to what we did in the 90s when we
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tried to really industrialize Innovation
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is we tried to take all the art out of
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it almost push the button and hope that
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innovation comes out and actually that
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works very well if all you want to do is
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change the flavor of something change
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the packaging of something so
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refinements yeah refinements and
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incremental Innovation if you want to
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actually go to the the step of something
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new to the world um there you have to
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bring back the art and often times when
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you know is when you reach the end of a
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of an investment period and you sit back
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and you say what do I know and based on
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everything that I know now can I get a
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product I think or not
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and what are the critical risks to
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getting a product and then that's what
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you test next so you take an incremental
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learning approach and if each time
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you're getting closer and closer to a
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product you keep going if all of a
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sudden something happens and you realize
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that the risks are too high the
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technolog is not in play you either
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shove it you sell the IP or or you stop
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another point that you make in this
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paper which I think is maybe not
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surprising but really important is that
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old ways old processes just looking at
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kpis uh and that kind of thing the way
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companies typically go about things can
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actually not just not Foster Innovation
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they can actually kill it or hurt it
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slow it down so how are companies
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supposed to think about that on the one
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hand these tools are good for certain
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things but you have to be careful how
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how you use them right and and you don't
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want to completely abandon them because
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you know this radical Innovation project
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this breakthrough innovation has to
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exist within the confines of the
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corporation where you're doing
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incremental innovation in parallel so
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it's mostly about thinking how do you
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learn with a program and so um often
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times uh companies will have a stag gate
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process where in order to get say a
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release of capital funds you need to
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check off certain boxes around future
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Revenue future cost of goods uh proof of
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concept you design criteria and the like
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um rather than thinking about checklist
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and stages and that you think about
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learning and you think about how what
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are my unknowns and what do I need to
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learn to go to the next level and if you
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keep this rigorous learning process
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going then you can quickly decide do I
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have something there or do I not have
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something there but none of this is
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going to be a metric of what's the
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future Revenue yet eventually you'll get
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there I mean eventually you have to get
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to the point where you manufacture
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whatever you're going to manufacture and
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it has to fit into your manufacturing
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plants just like every other product so
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it's not that you abandoned it it's just
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that early on you need to protect it
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from the metrics killing it because if
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you do a pure rack and stack on things
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like probability of success this is
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going to have a low probability of
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success but a high potential return in
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the event of a success and that you know
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just drawing a line on a rack doesn't
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doesn't help so it says balancing
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between creativity and Serendipity even
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and having some some hardcore process to
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kind of monitor what's going on and
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measure and make some judgments along
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the way right right you need to govern
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it you just can't overover it so and
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successful companies rarely follow
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traditional management practices they
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have some quirky way or some different
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way of doing things can you talk about
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what right can you generaliz can you
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generalize about creativity so so what's
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interesting is if you if you talk to
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companies that have very rigorous
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processes in place which so first thing
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um what we've learned is that to be a
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good breakthrough innovator you have to
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start by being a strong innovator so
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there's a certain base of you need to
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know how to do innovation in a corporate
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setting in order to be a breakthrough
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innovator in a corporate setting so if
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you want to go to kind of plan B and and
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break a piece of your portfolio off into
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in into breakthrough you need to start
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um by saying what do I need to Shield
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this
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from there are some companies that have
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a thoughtful process they maybe call it
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a swim lane or a breakthrough path or
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something that allows it to exist in its
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own type of governance for a period of
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time until it has to intersect with the
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regular process um companies that are
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not as proactively thoughtful but still
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successful it turns out that they had a
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skunk ORS they had somebody who was very
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senior who thought that this product had
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to go forward it had to be protected
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they found a way to make it happen they
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kind of broke the rules on the side they
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had their little team and then when it
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was ready for prime time it got
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introduced into the portfolio so um that
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latter one's harder to replicate right
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that's it's much harder to replicate an
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entrepreneur in your midst and and
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someone somehow they got to a position
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of power where they could just let it
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run right but what you often find so if
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you go into a company and they say we
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really want to get good at this you
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start by asking them what were the
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Breakthrough products that they've
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launched over their history and then you
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start to understand how that got through
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how did you manage that and then you
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start interviewing people and you you
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talk to the older folks that were there
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then or were actually Junior then so
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they're senior managers now but they
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were on the working team back then and
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you often find the examples of the Skunk
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Works thing worked so how do we now make
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that a normal part of business how do we
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accept the fact that this is a piece of
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radical Innovation and and now how do we
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control it in an appropriate way it's
00:15:01
already in the culture so try to harness
00:15:03
that in some way or it used to be in the
00:15:05
culture and don't be afraid of it right
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okay because you may have squashed it
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out of the culture so
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um do you have a a kind of sounds crazy
00:15:14
to talk about Blueprints and creativity
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Innovation but we're talking really
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about balancing the two with some kind
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of processes so do you have a u a list
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of processes that companies can follow
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to help them as they allow the
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creativity to run wild in their
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companies well you don't want it to run
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wild so so they don't run wild so so
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typically um you know what we find again
00:15:34
being a strong innovator is important so
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you need Senior Management um support
00:15:39
for this and you often need more Senior
00:15:41
Management visibility and support to do
00:15:43
radical well than just merely being a
00:15:46
strong innovator um there's typically a
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focus on intellectual property um
00:15:51
interestingly radical innovators not
00:15:54
only worry about intellectual property
00:15:56
from the perspective of can I protect my
00:15:59
product and do I have the permission to
00:16:01
operate in this space they also think
00:16:04
about it in can I create a business
00:16:06
around this IP on top of it so they
00:16:08
often have a side business around
00:16:10
monetizing intellectual property that
00:16:12
they create um they have strong
00:16:14
portfolio management processes they have
00:16:16
strong project management and new
00:16:18
product development and governance
00:16:20
processes um and they have a customer
00:16:23
focus they're very focused on what their
00:16:25
customers need um and not necessarily
00:16:28
what their customer customers tell them
00:16:29
they need but what they intuitively know
00:16:32
is an unmet need of a customer so focus
00:16:34
on customers but not overly reliant on
00:16:37
focused groups yeah because you I mean
00:16:40
if I asked you 15 years ago do you want
00:16:43
an iPad you would say why would I need
00:16:45
such a thing because 15 years ago you
00:16:48
were just getting used to lugging around
00:16:49
a laptop so you know if you think about
00:16:52
it in those terms you just you kind of
00:16:55
have to have the vision always something
00:16:56
new Under the Sun right all right well
00:16:59
thank you thank you
00:17:03
[Music]
