00:00:02
We're continuing our conversation with Kim Wagner of the Boston Consulting Group about corporate innovation. Kim's
00:00:09
an expert in this area and she's co-author of a recent study by BCG titled Managing the Unmanageable Radical
00:00:16
Innovation. And uh it turns out uh based on your study that you co-authored that
00:00:23
radical innovation, everyone might think that it's up because we've got all these
00:00:27
wonderful products and you hear a lot about Apple and and Uber and a lot of innovation going on, but actually when
00:00:32
you look at the numbers as you did, um radical innovation is down from 20% of an average company's innovation
00:00:40
portfolio back in 1990. It's down from 21% to just 10% today. That'll probably
00:00:45
surprise a lot of people because uh it's you know the innovation is a high-profile thing. It gets a lot of
00:00:51
coverage. But when you're looking at the whole base and you're saying it's not
00:00:54
not the best picture. Well, it's not that it's a bad picture. So, I mean, think about what 1990 was,
00:01:00
right? 1990 most people didn't have an email address. Nobody had desktop internet access. It was something you
00:01:06
went to the public library to get or a university library to get. Um many people didn't carry a laptop.
00:01:13
uh companies were just starting to implement enterprisewide systems where they would actually understand what
00:01:19
inventory they had where you know who was where all the employee database was in one place. So you know 1990 was a
00:01:27
point where there was a lot of incentive to all of a sudden track things, monitor
00:01:32
things, put metrics against things and the infrastructure, the IT infrastructure was in place to make this
00:01:38
happen. And so innovation did not escape this this you know this desire to have metrics and measurement and so people
00:01:45
started to measure how many projects do we have? What kind of projects you know do we have a future cost of goods
00:01:52
associated with each project? Do we have a future revenue stream associated with
00:01:55
each project? Do we know exactly how many people are on it? And when you start to put all those metrics in place,
00:02:00
you start to say, hm, there's a whole b bunch of stuff we're investing in that
00:02:05
is potentially very high return if we would actually do the calculation intuitively, uh, but is really high
00:02:12
risk. And so since we want to be efficient with our investments and efficient with our resources, let's
00:02:17
focus on the things where we can be where things can be predictable. And so there was a big move towards making
00:02:24
investments in innovation much more predictable and that inadvertently drove most innovation portfolios to being very
00:02:32
incremental. Incremental and more of a linear process than an imaginative one. Well linear. Yeah. So linear like you
00:02:40
know I I have a a particular food item. I can make it low fat. I can make it um I can add ingredients to it. I can make
00:02:48
a new flavor of soft drink. you know, very, you know, I can I can change the color of the toilet paper, that kind of
00:02:55
incremental thing, or I can make a new packaging. Um, and the new packaging may actually create new um benefits to the
00:03:02
consumer, but it's it's not what you would call a breakthrough, right? So, these are refinements.
00:03:06
They're product enhancements and and that kind the management processes that were trying to get more more
00:03:13
control over the process ended up probably changing it into being one of more refinement than
00:03:19
Exactly. managers got tracked on how well did your metrics come out. And when your
00:03:24
metrics started to be what was the success to move from one gate of the process to the next gate, any manager
00:03:31
would choose those projects that are more likely to get from gate one to gate two and gate two to gate three. And so
00:03:38
through both the the talent management process and the project management process, there was a an enrichment of
00:03:46
those projects that were of lower risk and therefore more incremental. And it took a lot of courage, thought and and
00:03:53
basically senior management air cover to keep those truly innovative breakthrough
00:03:58
high-risk projects in the skunk works. And as one of your college men uh colleagues mentioned in a different
00:04:04
setting that sometimes uh you can get overly concerned about metrics and forget about the goal and you just I'
00:04:11
I've completed step one, time for step two, time for step three and oh pretty
00:04:16
soon you're worried about step five and six and not where you're supposed to be
00:04:20
ending up. Yes. And sometimes you can even invest overinvest in a project because you were
00:04:24
doing the check off the list steps as opposed to thinking do I really need to do that for this project? makes it hard
00:04:30
to change and innovate mid-stream. Maybe you're going in the wrong direction and
00:04:34
you should be checking what you're doing and and and moving. You wouldn't do Yeah. And this wouldn't
00:04:38
open it because you wouldn't want to introduce a loop, right? And so even if the interesting thing is
00:04:44
if you look at most companies um and and again I'm talking about 10 years ago, if
00:04:48
you looked at their processes, there's flexibility for loops. There's flexibility for going back. And so if
00:04:55
you look at it on paper, you'd say, well, the most breakthrough and innovative is probably not going to make
00:05:00
it through. But reasonably good and breakthrough in quotes incremental will probably get through. But the other
00:05:07
management metrics around it disincentivized anybody from going back. You know, it was almost a demerit if you
00:05:13
had to do a loop back. Um, in a breakthrough world, actually, it's all about learning. You don't have
00:05:20
a failure if you've learned something. It's a lot like science. And so, you
00:05:24
know, that that those two systems just didn't jive. You you were punished in a way if you if
00:05:29
you took too many risks. Well, at least you believed that you were going to be punished even if you
00:05:34
weren't overly punished. So, are there other root causes uh when innovation fails? Root causes of the
00:05:42
problem. Well, oftentimes um so even now companies will say I I want to devote a
00:05:49
portion of my portfolio, my portion of my investment to breakthrough. Um oftentimes kind of forgetting that
00:05:55
breakthrough doesn't happen very quickly, meaning it's not going to be an
00:05:59
18 months to market or a two years to market. And it will often take different forms as it evolves through the
00:06:06
pipeline. And so what often happens is um a couple of things. one two or three years later there's some need to cut a
00:06:13
budget and somebody will say well what's this crazy project we've been investing
00:06:17
in that nobody knows about and it gets cut or it doesn't get cut but somebody
00:06:22
goes and says if you can't turn this around pretty quickly it's going to lose
00:06:26
its resource. So something like that might happen. The other thing that can happen is oftentimes to keep those
00:06:32
projects going, they kind of get put into a skunk works hot house in a back lot somewhere and they get forgotten and
00:06:39
because they get forgotten they can never get incremental resource or or keep going with support.
00:06:44
So no internal champion, no or or a weak internal champion or the internal champion is thinking about
00:06:52
bigger things as opposed to this project and they'll say, "Yeah, I have to I have
00:06:57
to give it up." What about the risk with this of trying to predict the unpredictable, right? Trying to I mean,
00:07:04
so you know, Steve Jobs was famous for saying, I mean, in a way, I'm not really
00:07:10
worried about what our customer thinks because I know what they want before they know it, which is the opposite of
00:07:16
how, you know, customer centricity in a way of trying to understand customer needs and anticipating needs and that
00:07:22
sort of thing. You know, there's a balance in there. But um so someone that's going to be out there and says
00:07:26
yes, I want I I want the next flying saucer that's you know going to operate
00:07:30
on magnets like Dick Tracy days or something, right? And someone has to be there to say we love your creativity but
00:07:36
you know you need to reel it in a little bit. So how do you how do you you know encourage but also reel in when you need
00:07:42
to and still encourage the right things. I mean it's got to be more than pizza
00:07:46
parties, right? Exactly. Exactly. And and customer centricity is still important because
00:07:51
it's it's not about asking your customer what they want. It's about knowing your
00:07:55
customer so well that you know what they want before they can even articulate it.
00:08:00
Um they may be able to tell you about a need and you can find a way to to fill that need. And so under deep customer
00:08:08
understanding is actually very important for breakthrough innovation because it gives you the rationale. It's the goal.
00:08:14
you know, I am I am creating this product in order to serve this need. Um, and so in in that instance,
00:08:22
you you know, how do you how do you keep the Dick Tracy stuff from coming up? You
00:08:26
know, one is some structure around is the technology there to make this happen. You know, let's take a step back
00:08:33
and say, do I have all the pieces in place and what are the risks associated with it? Is the risk that I can't get a
00:08:40
certain raw material? is the risk that I this thing can't even be created or it's
00:08:44
just the risk I'm not sure if anybody's going to buy it and I don't know if I
00:08:48
can manufacture it reliably because some of those risks around manufacturing and
00:08:53
around marketing you can derisk in an organized way something like I need a new type of plastic that does not exist
00:09:01
right now that's really early technology development that's not ready for radical
00:09:06
product development so you have to legislate keeping an open mind somehow Yeah. And and and that's part of culture also
00:09:13
which I think you referred to uh from your recent best most innovative companies in 2014 report where culture
00:09:21
uh and encouraging that culture is of course very important right and and it's also understanding
00:09:25
that there are sometimes great ideas but not great ideas for that company and then the question is do you have a piece
00:09:30
of the puzzle and it's about potentially finding partners and then as part of a
00:09:35
joint venture or as part of a licensing agreement um you can make something happen. The other thing I think that was
00:09:41
interesting in your study about radical innovation was that that the companies that aren't doing so well that you tend
00:09:48
to notice a lack of collaboration within the company departments or whoever should be collaborating isn't so much
00:09:54
but also interestingly externally. They're not collaborating enough with suppliers in the supply chain or
00:10:00
collaborating enough with customers and however whatever ways that they're able
00:10:05
to do that. Right? And actually the data in our 2014 most innovative companies report like
00:10:10
reinforced that exactly. You know companies the difference between companies that um are strong innovators
00:10:18
but incremental in nature and strong innovators versus breakthrough. One of the things that differentiates them is
00:10:24
their comfort with external alliances and and partnerships. Um and and how important it is to bring that in. You
00:10:32
know, typically when you're out when you're out there in the brand new space,
00:10:36
there's a lot of unknowns and risks that you're trying to manage. And it would be
00:10:41
foolish to think that all of the experts you need to derisk those problems are within your four walls because you're
00:10:48
talking about something that you don't do right now. So, of course, you're
00:10:51
going to go out and find an expert. Now, there are some companies that really go out and find an expert. I'm
00:10:56
thinking right now of the state of the pharmaceutical industry where they've
00:11:00
had some acknowledged problems of coming up with with new blockbuster drugs. So,
00:11:04
one of the strategies to to look around and see what are some of the smaller biotech companies that are doing some
00:11:10
really innovative radical stuff. Um, and there's going to be winners and losers
00:11:14
there. So, part of their job now is to identify who the winners might be and at some point they step in with their
00:11:20
checkbook and y or credit card and they they take them over. they bolt them on to to their
00:11:26
company. So, that's a strategy that can be very workable, right? If you're big
00:11:30
enough, it's workable. You have to be careful because you're going to pay a premium.
00:11:35
So, think of it this way. Um, tens of thousands of flowers can bloom around and you know that one of them is
00:11:42
going to give you the, you know, the the the black rose, you know, the thing that
00:11:46
everybody is after. One of them is going to deliver that and you just don't know
00:11:51
which one. So you can let them all go and then you find it and you then say, "I'm going to pay you a premium for it."
00:11:57
Or you can be the one that tries to grow them all, all 10,000 of them. You pay for all 10,000 of them. You have 9,999
00:12:04
failures that you've paid for and then you have the one that you got quote at
00:12:08
cost, but it's at a huge cost because you paid for all those failures. So it's
00:12:14
what many people don't realize is that the science underpinning mechanisms of
00:12:19
disease and the pharmaceutical industry is moving so fast in so many exciting ways that no one company can do it all
00:12:26
and they've realized that and that's a wonderful thing and so now it's about
00:12:29
how do you quickly incorporate the new science as the proof of concepts are coming. There's also uh some findings in
00:12:39
your study about how autonomous organizations with minimal supervision can work well uh depending on the right
00:12:46
circumstances versus other kinds of organizations. Could you talk about that dichconomy of what that balance is about
00:12:52
because that seemed an important element also. Right. So one of the challenges is
00:12:57
sometimes you uh you figure for breakthrough innovation to survive in your big company of tens of thousands of
00:13:02
people, it needs its own little garage to work in. and you're trying to kind of
00:13:06
recreate Five Guys in a garage, um, that can backfire if they don't have a connection back to the mothership, you
00:13:15
continue to need to have access to everything that is in the big company. You continue to need the senior
00:13:21
management um, support and funding and and help essentially to get through the process. And then ultimately to get a
00:13:29
product to market, that new great innovative thing is eventually going to have to click back into the process um
00:13:36
to get through engineering and manufacturing and and the supply chain. Um so what happened in the past is
00:13:45
oftentimes they would get left in the garage alone and then somebody come back two years later and say, "What have you
00:13:51
done for me lately?" Now there's the realization that they need connections
00:13:54
back into the organization and it's when they're more tethered in that it's it's
00:13:59
more helpful. The same has been true for incubators. So in the past old school incubators you wrote a check they were
00:14:06
off doing their thing and then if it worked out you basically had rights to license the technology and the people
00:14:11
back. Now it's usually a much more collaborative. So it's almost like a joint project type incubator
00:14:18
that ties into the idea of lack of collaboration. And if you leave them off on their own, they're not interacting
00:14:22
with, you know, the marketing folks are going to say, "That's a great spaceship
00:14:25
you've built, but there's only one customer." And if they don't want it,
00:14:28
we're, you know, we're in trouble here. Yeah. The other thing that's important
00:14:31
is most people think about, you know, crossf functional as crossunctional within the technical lines or the
00:14:38
engineering lines or the manufacturing. Crossfunctional is really everybody. It's the deep customer discovery people
00:14:44
with the science and technology people with the marketing people and the sales people and and supply chain and
00:14:50
manufacturing. It is truly crossf functional. It's all of the functions of the company and oftentimes the HR person
00:14:57
is the most important part because as you think about spooling this thing up finding the right talent is non-trivial.
00:15:04
What else is it important to know about radical innovation that we haven't covered?
00:15:08
It's exciting. I think that might be number one. Yeah, I think the the most important thing is that it
00:15:14
is something to embrace, not be afraid of. It is something that should be managed and controlled, but in a way
00:15:23
that allows the organization to learn as opposed to in a way that squaltches things. And if you have kind of two
00:15:31
paths um and there's many different ways to make that happen, you can do it successfully.
00:15:36
Thank you very much. Thank you.