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We're continuing our conversation with
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Kim Wagner of the Boston Consulting
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Group about corporate innovation. Kim's
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an expert in this area and she's
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co-author of a recent study by BCG
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titled Managing the Unmanageable Radical
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Innovation. And uh it turns out uh based
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on your study that you co-authored that
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radical innovation, everyone might think
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that it's up because we've got all these
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wonderful products and you hear a lot
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about Apple and and Uber and a lot of
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innovation going on, but actually when
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you look at the numbers as you did, um
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radical innovation is down from 20% of
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an average company's innovation
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portfolio back in 1990. It's down from
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21% to just 10% today. That'll probably
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surprise a lot of people because uh it's
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you know the innovation is a
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high-profile thing. It gets a lot of
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coverage. But when you're looking at the
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whole base and you're saying it's not
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not the best picture.
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Well, it's not that it's a bad picture.
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So, I mean, think about what 1990 was,
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right? 1990 most people didn't have an
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email address. Nobody had desktop
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internet access. It was something you
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went to the public library to get or a
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university library to get. Um many
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people didn't carry a laptop.
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uh companies were just starting to
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implement enterprisewide systems where
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they would actually understand what
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inventory they had where you know who
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was where all the employee database was
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in one place. So you know 1990 was a
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point where there was a lot of incentive
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to all of a sudden track things, monitor
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things, put metrics against things and
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the infrastructure, the IT
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infrastructure was in place to make this
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happen. And so innovation did not escape
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this this you know this desire to have
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metrics and measurement and so people
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started to measure how many projects do
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we have? What kind of projects you know
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do we have a future cost of goods
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associated with each project? Do we have
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a future revenue stream associated with
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each project? Do we know exactly how
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many people are on it? And when you
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start to put all those metrics in place,
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you start to say, hm, there's a whole b
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bunch of stuff we're investing in that
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is potentially very high return if we
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would actually do the calculation
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intuitively, uh, but is really high
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risk. And so since we want to be
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efficient with our investments and
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efficient with our resources, let's
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focus on the things where we can be
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where things can be predictable. And so
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there was a big move towards making
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investments in innovation much more
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predictable and that inadvertently drove
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most innovation portfolios to being very
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incremental.
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Incremental and more of a linear process
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than an imaginative one.
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Well linear. Yeah. So linear like you
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know I I have a a particular food item.
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I can make it low fat. I can make it um
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I can add ingredients to it. I can make
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a new flavor of soft drink. you know,
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very, you know, I can I can change the
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color of the toilet paper, that kind of
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incremental thing, or I can make a new
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packaging. Um, and the new packaging may
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actually create new um benefits to the
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consumer, but it's it's not what you
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would call a breakthrough,
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right?
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So, these are refinements.
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They're product enhancements and
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and that kind the management processes
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that were trying to get more more
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control over the process ended up
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probably changing it into being one of
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more refinement than
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Exactly.
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managers got tracked on how well did
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your metrics come out. And when your
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metrics started to be what was the
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success to move from one gate of the
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process to the next gate, any manager
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would choose those projects that are
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more likely to get from gate one to gate
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two and gate two to gate three. And so
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through both the the talent management
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process and the project management
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process, there was a an enrichment of
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those projects that were of lower risk
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and therefore more incremental. And it
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took a lot of courage, thought and and
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basically senior management air cover to
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keep those truly innovative breakthrough
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high-risk projects in the skunk works.
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And as one of your college men uh
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colleagues mentioned in a different
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setting that sometimes uh you can get
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overly concerned about metrics and
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forget about the goal and you just I'
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I've completed step one, time for step
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two, time for step three and oh pretty
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soon you're worried about step five and
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six and not where you're supposed to be
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ending up.
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Yes. And sometimes you can even invest
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overinvest in a project because you were
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doing the check off the list steps as
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opposed to thinking do I really need to
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do that for this project? makes it hard
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to change and innovate mid-stream. Maybe
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you're going in the wrong direction and
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you should be checking what you're doing
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and and and moving.
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You wouldn't do Yeah. And this wouldn't
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open it because you wouldn't want to
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introduce a loop,
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right?
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And so even if the interesting thing is
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if you look at most companies um and and
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again I'm talking about 10 years ago, if
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you looked at their processes, there's
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flexibility for loops. There's
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flexibility for going back. And so if
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you look at it on paper, you'd say,
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well, the most breakthrough and
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innovative is probably not going to make
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it through. But reasonably good and
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breakthrough in quotes incremental will
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probably get through. But the other
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management metrics around it
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disincentivized anybody from going back.
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You know, it was almost a demerit if you
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had to do a loop back.
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Um, in a breakthrough world, actually,
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it's all about learning. You don't have
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a failure if you've learned something.
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It's a lot like science. And so, you
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know, that that those two systems just
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didn't jive.
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You you were punished in a way if you if
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you took too many risks.
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Well, at least you believed that you
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were going to be punished even if you
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weren't overly punished.
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So, are there other root causes uh when
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innovation fails? Root causes of the
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problem.
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Well, oftentimes um so even now
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companies will say I I want to devote a
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portion of my portfolio, my portion of
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my investment to breakthrough. Um
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oftentimes kind of forgetting that
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breakthrough doesn't happen very
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quickly, meaning it's not going to be an
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18 months to market or a two years to
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market. And it will often take different
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forms as it evolves through the
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pipeline. And so what often happens is
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um a couple of things. one two or three
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years later there's some need to cut a
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budget and somebody will say well what's
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this crazy project we've been investing
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in that nobody knows about and it gets
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cut or it doesn't get cut but somebody
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goes and says if you can't turn this
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around pretty quickly it's going to lose
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its resource. So something like that
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might happen. The other thing that can
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happen is oftentimes to keep those
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projects going, they kind of get put
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into a skunk works hot house in a back
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lot somewhere and they get forgotten and
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because they get forgotten they can
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never get incremental resource or or
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keep going with support.
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So no internal champion,
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no or or a weak internal champion or the
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internal champion is thinking about
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bigger things as opposed to this project
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and they'll say, "Yeah, I have to I have
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to give it up." What about the risk with
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this of trying to predict the
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unpredictable, right? Trying to I mean,
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so you know, Steve Jobs was famous for
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saying, I mean, in a way, I'm not really
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worried about what our customer thinks
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because I know what they want before
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they know it, which is the opposite of
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how, you know, customer centricity in a
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way of trying to understand customer
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needs and anticipating needs and that
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sort of thing. You know, there's a
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balance in there. But um so someone
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that's going to be out there and says
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yes, I want I I want the next flying
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saucer that's you know going to operate
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on magnets like Dick Tracy days or
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something, right? And someone has to be
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there to say we love your creativity but
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you know you need to reel it in a little
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bit. So how do you how do you you know
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encourage but also reel in when you need
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to and still encourage the right things.
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I mean it's got to be more than pizza
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parties, right?
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Exactly. Exactly. And and customer
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centricity is still important because
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it's it's not about asking your customer
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what they want. It's about knowing your
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customer so well that you know what they
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want before they can even articulate it.
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Um they may be able to tell you about a
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need and you can find a way to to fill
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that need. And so under deep customer
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understanding is actually very important
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for breakthrough innovation because it
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gives you the rationale. It's the goal.
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you know, I am I am creating this
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product in order to serve this need. Um,
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and so in in that instance,
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you you know, how do you how do you keep
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the Dick Tracy stuff from coming up? You
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know, one is some structure around is
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the technology there to make this
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happen. You know, let's take a step back
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and say, do I have all the pieces in
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place and what are the risks associated
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with it? Is the risk that I can't get a
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certain raw material? is the risk that I
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this thing can't even be created or it's
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just the risk I'm not sure if anybody's
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going to buy it and I don't know if I
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can manufacture it reliably because some
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of those risks around manufacturing and
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around marketing you can derisk in an
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organized way something like I need a
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new type of plastic that does not exist
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right now that's really early technology
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development that's not ready for radical
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product development
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so you have to legislate keeping an open
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mind somehow Yeah.
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And and and that's part of culture also
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which I think you referred to uh from
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your recent best most innovative
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companies in 2014 report where culture
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uh and encouraging that culture is of
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course very important
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right and and it's also understanding
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that there are sometimes great ideas but
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not great ideas for that company and
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then the question is do you have a piece
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of the puzzle and it's about potentially
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finding partners and then as part of a
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joint venture or as part of a licensing
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agreement um you can make something
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happen. The other thing I think that was
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interesting in your study about radical
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innovation was that that the companies
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that aren't doing so well that you tend
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to notice a lack of collaboration within
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the company departments or whoever
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should be collaborating isn't so much
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but also interestingly externally.
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They're not collaborating enough with
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suppliers in the supply chain or
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collaborating enough with customers and
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however whatever ways that they're able
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to do that.
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Right? And actually the data in our 2014
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most innovative companies report like
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reinforced that exactly. You know
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companies the difference between
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companies that um are strong innovators
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but incremental in nature and strong
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innovators versus breakthrough. One of
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the things that differentiates them is
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their comfort with external alliances
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and and partnerships. Um and and how
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important it is to bring that in. You
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know, typically when you're out when
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you're out there in the brand new space,
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there's a lot of unknowns and risks that
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you're trying to manage. And it would be
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foolish to think that all of the experts
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you need to derisk those problems are
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within your four walls because you're
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talking about something that you don't
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do right now. So, of course, you're
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going to go out and find an expert.
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Now, there are some companies that
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really go out and find an expert. I'm
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thinking right now of the state of the
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pharmaceutical industry where they've
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had some acknowledged problems of coming
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up with with new blockbuster drugs. So,
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one of the strategies to to look around
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and see what are some of the smaller
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biotech companies that are doing some
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really innovative radical stuff. Um, and
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there's going to be winners and losers
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there. So, part of their job now is to
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identify who the winners might be and at
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some point they step in with their
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checkbook and y
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or credit card and they they take them
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over. they bolt them on to to their
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company. So, that's a strategy that can
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be very workable, right? If you're big
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enough,
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it's workable. You have to be careful
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because you're going to pay a premium.
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So, think of it this way. Um,
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tens of thousands of flowers can bloom
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around and you know that one of them is
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going to give you the, you know, the the
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the black rose, you know, the thing that
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everybody is after. One of them is going
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to deliver that and you just don't know
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which one. So you can let them all go
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and then you find it and you then say,
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"I'm going to pay you a premium for it."
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Or you can be the one that tries to grow
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them all, all 10,000 of them. You pay
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for all 10,000 of them. You have 9,999
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failures that you've paid for and then
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you have the one that you got quote at
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cost, but it's at a huge cost because
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you paid for all those failures. So it's
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what many people don't realize is that
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the science underpinning mechanisms of
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disease and the pharmaceutical industry
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is moving so fast in so many exciting
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ways that no one company can do it all
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and they've realized that and that's a
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wonderful thing and so now it's about
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how do you quickly incorporate the new
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science as the proof of concepts are
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coming. There's also uh some findings in
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your study about how autonomous
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organizations with minimal supervision
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can work well uh depending on the right
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circumstances versus other kinds of
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organizations. Could you talk about that
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dichconomy of what that balance is about
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because that seemed an important element
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also.
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Right. So one of the challenges is
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sometimes you uh you figure for
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breakthrough innovation to survive in
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your big company of tens of thousands of
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people, it needs its own little garage
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to work in. and you're trying to kind of
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recreate Five Guys in a garage, um, that
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can backfire if they don't have a
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connection back to the mothership, you
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continue to need to have access to
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everything that is in the big company.
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You continue to need the senior
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management um, support and funding and
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and
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help essentially to get through the
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process. And then ultimately to get a
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product to market, that new great
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innovative thing is eventually going to
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have to click back into the process um
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to get through engineering and
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manufacturing and and the supply chain.
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Um so what happened in the past is
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oftentimes they would get left in the
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garage alone and then somebody come back
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two years later and say, "What have you
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done for me lately?" Now there's the
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realization that they need connections
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back into the organization and it's when
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they're more tethered in that it's it's
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more helpful. The same has been true for
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incubators. So in the past old school
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incubators you wrote a check they were
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off doing their thing and then if it
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worked out you basically had rights to
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license the technology and the people
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back. Now it's usually a much more
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collaborative. So it's almost like a
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joint project type incubator
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that ties into the idea of lack of
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collaboration. And if you leave them off
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on their own, they're not interacting
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with, you know, the marketing folks are
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going to say, "That's a great spaceship
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you've built, but there's only one
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customer." And if they don't want it,
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we're, you know, we're in trouble here.
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Yeah. The other thing that's important
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is most people think about, you know,
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crossf functional as crossunctional
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within the technical lines or the
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engineering lines or the manufacturing.
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Crossfunctional is really everybody.
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It's the deep customer discovery people
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with the science and technology people
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with the marketing people and the sales
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people and and supply chain and
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manufacturing. It is truly crossf
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functional. It's all of the functions of
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the company and oftentimes the HR person
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is the most important part because as
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you think about spooling this thing up
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finding the right talent is non-trivial.
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What else is it important to know about
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radical innovation that we haven't
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covered?
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It's exciting. I think
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that might be number one. Yeah, I think
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the the most important thing is that it
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is something to embrace, not be afraid
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of. It is something that should be
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managed and controlled, but in a way
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that allows the organization to learn as
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opposed to in a way that squaltches
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things. And if you have kind of two
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paths um and there's many different ways
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to make that happen, you can do it
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successfully.
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Thank you very much.
00:15:37
Thank you.
