In today’s hypercompetitive and fast-moving world, breakthrough innovation is more important than ever. Examples of breakthrough innovations include LED lights, LCD screens, and hydraulic fracturing technologies in the oil and gas industry. However, systematically delivering a series of breakthrough innovations is extremely challenging for a number of reasons:
Companies expect the revenue contribution from breakthrough products and services launched over the last three years to double in the next five years, from 8% to 15%, but the contribution from incremental innovation will rise much more slowly. (See Figure 1.) Surprisingly, our survey revealed that 88% of companies were unsatisfied with their current breakthrough innovation performances, without a single respondent reporting being very satisfied. Improving breakthrough innovation performance is thus a high priority. The study revealed several key success factors.
Although nearly 90% of companies recognized the importance of defining specific strategic objectives for breakthrough innovation, only about half reported currently doing so. Those that did were, on average, nearly four times more satisfied with the results than those that did not, and the more explicit the goals, the higher the success rate. We also found that companies with more experience of working with breakthrough innovation in a structured way had more explicit objectives than others. In addition, the more successful companies had specific target allocations for the resources they expected to dedicate.
The time frame of breakthrough projects can be long, which poses challenges to sustaining commitment versus other, shorter-term priorities. Over half of the survey participants quoted average time to revenue of between three and 10 years for breakthrough products and services. The main challenges quoted were conflicting short-term and long-term needs, and difficulties in assessing future value. This further underpinned the need to set clear goals and challenges to overcome, and to set out a stable investment plan with dedicated resources, at least for the coming key stages of a program.
The top-quoted challenges were inability to commit to the cause and allowing short-term objectives to cannibalize breakthrough efforts.
Half of the participating companies regarded their breakthrough innovation leadership and governance structures as ineffective or very ineffective, including both experienced and less experienced practitioners. The top-quoted challenges were inability to commit to the cause and allowing short-term objectives to cannibalize breakthrough efforts.
What sets successful companies apart is not the choice of leadership model – leadership by the CEO, the CTO, an innovation council or committee, and the top team are almost equally adopted. The main differentiator that emerges is whether the company employs a governance approach that ensures long-term accountability and commitment.
Having a dedicated breakthrough team is considered the most effective basic approach and yields 15% higher satisfaction than is found in companies with no dedicated organization. Working with a dedicated team is also the choice of the more experienced companies. Crucial to any dedicated team’s success, however, is that it is implemented in a way that suits the nature of the issue at hand. (See Figure 2) The complexity and novelty of the technology, product or service for the company can provide some guidance on the best way to organize breakthrough teams.
For example, if the domain is known to the organization, the R&D function or an existing business unit may be the best home for the breakthrough team. If it is unknown, stand-alone teams may be more suitable. Similarly, if the domain is highly technology intensive or complex with high investment needs, a centralized rather than divisional or business-unit approach may be preferable. Large companies may, and often do, choose to use more than one model simultaneously.
We identified four generic organizational models that are effective in different circumstances:
Whichever model is adopted, the survey revealed a number of key success factors for making it work effectively:
The more successful companies actively engage and involve cross-functional resources, rather than simply having cross-functional steering groups.
Trend monitoring and business intelligence were rated as the most important and widely used practices to achieve breakthrough results. Traditional approaches to business intelligence involving periodic data gathering and analysis are rapidly being superseded by more sophisticated Internet-based tools. Examples include continuous semi-automatic scanning using algorithms, natural language processing, modeling and simulation, and two-way processes whereby information is shared as well as retrieved. Successful breakthrough innovators make adding to their knowledge a habit, in the same way that top innovators use external sources of business intelligence in structured ways:
Successful breakthrough teams apply agile processes, drawing on approaches used effectively by start-ups. In practice this means firstly being crystal clear about the goal and the technical challenges that must be overcome to achieve the goal. Rigorous quantitative analysis is often required to do this. Secondly, planning should be light and agile, involving several iterations with fast and purposeful meetings (i.e. “scrum” approaches).
Thirdly, where possible, teams should adopt rapid prototyping and try to engage customers early with fast repetition (“build-measure-learn”). Progress is best assessed by tracking iterations to see how they are converging on goals, revealing dead ends, uncovering scientific advances, etc. Fourthly, projects should be killed in a timely way. Setbacks and failures are sometimes the most effective tools for discovery. The project leader should only let the team members proceed if they can see that the approach might ultimately work within the project constraints. If it becomes clear that an approach won’t work or requires “multiple miracles”, then the approach should be shut down and resources shifted elsewhere.
The best performers… recognize that working within the ecosystem is a two-way process – much more than just contracting out some research projects to a university.
Companies in the survey indicated that active management of external networks and partners was very important for successful breakthrough innovation, yet, on average, most were either only partially satisfied or unsatisfied with their efforts.
The best performers in this area have a clear strategies for innovation ecosystem management and its contribution. They recognize that working within the ecosystem is a two-way process – much more than just contracting out some research projects to a university. They work to develop a shared vision within the ecosystem, and they agree transparent IP arrangements and frameworks, remaining open to sharing information once these are in place. They look to lead and influence the ecosystem in the most business-critical areas, and they use the right “enablers” to develop and manage the network (e.g. social networking, virtual environments and physical collaboration spaces).
Individuals involved in breakthrough efforts are encouraged to stretch themselves beyond their comfort zones in environments that allow failure. Our findings confirm that a culture that does not accept failure is one of the most significant barriers to achieving breakthrough innovation. “Infant mortality” is fairly high among radical concepts – most concepts do not make it to “adulthood”. This is normal and should be recognized early on. The key to success is to have a portfolio approach to breakthrough innovation and ensure that the there is always another project to move on to.
Breakthrough innovation requires creativity – but creativity needs the right management framework in order to flourish. If you’re like the 88% of companies in our survey that were unsatisfied with their current breakthrough innovation performances, isn’t this something that deserves urgent attention?
Our survey shows that there is still a long way to go before companies’ efforts match their aspirations. Although there is no single formula for success, it is clear that there are some important key factors.
The first prerequisite is having a well-defined breakthrough strategy and goals. Clear top management accountability and commitment are essential. A company needs to choose the right organizational model for the breakthrough team to suit the nature of the business and its challenges. And it needs to have the right approaches for funding, involvement of multiple functions, intrapreneurship, ecosystem management, agile processes and encouragement of creativity. With all these components in place and unflinching top management commitment, the evidence shows that serial breakthrough innovation is real and achievable for any company.
The original study can be located at http://www.adlittle.com/breakthrough.
Ben Thuriaux-Alemán is a principal in Arthur D. Little UK with 18 years of consulting experience. He works in R&D, technology and innovation management. Ben has an MBA from RSM and Chicago GSB, an MSc in science and technology policy, and a BSc in physics. In addition to client work in innovation management, he has led a number of ADL studies on innovation and technology management.
Fredrik Härenstam is a consultant in Arthur D. Little Nordic and has worked with strategic, innovation governance, and operational issues in a variety of industries including telecom, healthcare, and automotive. Fredrik holds an MSc in industrial engineering from Chalmers University of Technology and has a background in photojournalism.
Rick Eagar is a partner in Arthur D. Little UK, where he leads the Technology and Innovation Management (TIM) Practice. He has over 24 years of consulting experience in R&D, technology and innovation management, and 10 years in industry. He has a BSc in mechanical engineering from the University of Bristol and is chief editor of Arthur D. Little’s management journal, Prism.