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