Managing Innovation

Today's Wall Street Journal includes an article¹ describing a discussion about cultivating a culture of innovation among senior executives from Cisco Systems, Packet Design, Google, and IDEO.  The conversation spans some topics that I've touched upon recently in this blog, including time span of discretion:

WSJ: In a big company, how do you get people to think beyond 18 months if the whole company is focused on 18 months?

MR. SOLOMON [IDEO]: I think it's very difficult to do in most big companies, and very few big companies have been able to do it.  There are a number of different models that have been tried...But in big companies, they have the resources, but they don't always have the thought processes and the skills to really think outside their current business, nor the permission to really do it.

Judith Estrin, chief executive of Packet Design, notes that part of the problem is the lack of spare capacity:

MS. ESTRIN: One of the challenges I think about is that all of the things that companies have done for quality and efficiency are essentially enemies of innovation.  They are the things that have made us so efficient and so productive, we've taken out all of the slop and all of the room that you need for innovation.

A relatively short time span of discretion combined with a lack of spare capacity is at odds with the observation by Marthin De Beer, senior vice president of the emerging-markets technology group at Cisco:

MR. DE BEER: It probably takes about four years at a minimum to get from an idea to a successful business.

The perception of risk and the cost of failure also come into play:

MR. MERRILL [Google]: Every company in the world says, "It's OK to fail."  And for 99% of them, it's probably not true.

MS. ESTRIN: If you're very successful in one business, it tends to take all of the oxygen of the company.  New ideas--everybody says they're too small.  In order to start an idea, you have to go in front of a committee, you have to show a [return on investment] that's going to meet a certain return over a period of time.  Those types of processes that are put there to vet ideas that stop people from trying are just the type of things that will kill the surprises that are going to end up being big.

  Ms. Estrin draws upon a familiar analogy in order to suggest a way to mitigate the problem:

MS. ESTRIN: In thinking about large companies, think of them as farms.  And what you're trying to do is grow rows of corn.  You don't want surprises, you want it to work well, you apply incremental innovation to be as productive as you can.  And then when you're thinking about start-ups or disruptive innovation, think about that as either a greenhouse or maybe a small garden plot, where surprises are fun...you can decide to develop greenhouses and small garden plots on the farm.  But you have to keep them separate, and then the trick is transplanting...[H]ow are the best ways to transplant...How much do you let the business grow before you transplant it, how do you prepare the soil?

Cisco's industry is characterized by a highly developed venture capital industry that serves as a greenhouse for prospective innovations:

MR. DE BEER: We've acquired 120 companies, most of them small.

The Open Innovation model is more developed in the high technology sector than it is elsewhere, which is not surprising given the sector's relative clockspeed.  The consumer products sector, however, appears to be following on a similar evolutionary trajectory.  That said, there is little venture capital infrastructure that connects big consumer products companies with incubating innovations.  Consequently, a reliance on acquisitions can be expensive.  So, I lean toward Ms. Estrin's perspective:

A systematic approach to innovation mitigates large companies' disadvantages while leveraging its advantages.   The idea would be to incubate products in a small company environment and then facilitate the rapid, and relatively inexpensive, transplant of validated growth opportunities prior to the investment in redundant capacities.  That prescription may be obvious; the trick is in the design of collaborative protocols.

Here's a video excerpt on the topic of "enemies of innovation":

¹Managing Innovation: How to get the most out of your company's big ideas; September 24, 2007; Page R6.