Jun 19, 2012 - Ultimately, the business need for breakthrough innovations overlaps with the societal need for a brighter
breakthrough innovation your guide to innovating for a brighter future
David Bent and Zoe Le Grand Made possible by the members of the Sustainable Business Model Group:
executive summary Cafédirect introduced fair trade coffee to the UK. The mainstream changed to followed suit. Nissan has developed the Leaf electric car. It’s been heralded as the first of many. The cost of solar power is falling dramatically, reaching the same price as current energy from the grid in Brazil last year. We’re on the cusp of a shift in energy generation. ZipCar, the world’s leading car sharing network, was profitable for the second half of 2011. You no longer need to own a car to use a car. What do these stories have in common? They are all breakthrough innovations for a brighter future, by which we mean: A product or service to customers which (1) creates a new market or shifts an existing one and (2) creates superior sustainability outcomes. This guide will help you, whether you are a senior executive, a sustainability champion, or someone charged with innovation, to organise your company so that you too can deliver breakthrough innovations which drive both business success and help to create a more sustainable world.
the need for breakthroughs on sustainability The breakthrough innovation described in this guide is needed for two reasons: so companies can be successful in a world shaped by sustainability issues; and to create a brighter future for us all. Breakthrough innovation is not the only thing needed for either of those two to happen – but it is vital to both. At Forum for the Future we work with dozens of companies on their sustainability efforts. Generally, companies start with a compliance approach then move on to risk management and start to realise the cost savings gained from efficiency. For a while now leading companies have been looking to the opportunities that the sustainability agenda presents. They recognise that to realise these opportunities they need innovation. For many companies this has meant improving their existing products and services through incremental innovation, perhaps with an ‘eco’ product line. Towards the end of 2011 some of the leading companies we work with (see box on Sustainable Business Model Group) told us they wanted to go further and needed help to produce the innovation that disrupted the status quo and would help them to fully realise the opportunity presented by the sustainability agenda. This guide is the response to this request. Sustainable Business Model Group The Sustainable Business Model Group is a specialist network for our partners who are creating the next wave of corporate sustainability. The focus is on practical ways they can create step-change towards ‘sustainable business models’. It connects global pioneers from across different sectors who learn from each other, have access to a growing body of knowledge, and can shape Forum’s work. We want the Group to provide the practical basis for the required revolution in how business is conducted.
These companies are interested in breakthroughs because they want to drive long-term value creation. They can see sustainability issues are eroding the foundations of their current business models – through energy and commodity price rises, worries on security of supply, demands on transparency and more. Incremental innovations are not enough. Breakthrough innovations do more than help the company succeed. The growth of Cafédirect, for instance, has improved the lives of coffee producers and made fairtrade a quality mark for consumers.
The systems we all rely on – such as food, energy and finance – are stuck and need many interventions to shift to a sustainable path (something we call ‘system innovation’, see box). Ultimately, the business need for breakthrough innovations overlaps with the societal need for a brighter future. Activities that take global society in the wrong direction will be more expensive, more regulated, more criticised and difficult to maintain. Activities that contribute to a sustainable future will become more profitable. Markets will only endure where they deliver superior sustainability outcomes. Companies attempting breakthrough innovation as described in this guide are laying the foundations for their own success, and for a brighter future for us all.
what you can do in your company Everyone agrees that breakthrough innovation is difficult and rare. Add in the intent to create a brighter future, and, you have something even more difficult and rarer. The fact that leading companies asked us to work on this topic is an indication that there are few hard-and-fast answers at the moment. We have worked with these leading companies, read the best we can find and had comments from a variety of experienced practitioners. Our recommendations are offered in the spirit of breakthrough innovation: confident they are worth trying, and knowing that feedback will improve them over time. We have deliberately focused on what a company can do to get breakthrough innovations to the point that they are ready to scale. We have drawn three broad conclusions on what a company can do internally: 1. have a balanced portfolio of innovation; 2. embed breakthrough innovation in your culture; and 3. set up management structures that spot and nurture breakthroughs. There are different ways of doing each. The best way of using this guide is to pick out insights and apply them to your company.
1. have a balanced portfolio of innovation You should make sure at least some of your innovation activity has the potential to make breakthroughs for sustainability. Incremental improvements to existing products and services are required, but not sufficient. This cannot be all of your innovation activity. You will need to regularly check the whole portfolio and individual concepts as they mature. This is explained in more detail on page 9.
2. embed breakthrough innovation in your culture A company’s culture sets the context in which people make decisions, large and small. We’ve gathered many recommendations on how to embed breakthrough innovation under the four aspects we use to understand culture: purpose, procedures, people and their networks. The most important aspect is to do with purpose, and answers the question “what is sustainability?”. You must set direction, and provide permission for breakthroughs, by describing how sustainability affects the future success of the company, and vice versa. It should articulate how the company can succeed by delivering social value within environmental limits, and do so in way that will be relevant into the future. Armed with this understanding, you will be able to judge whether the ideas in development can be breathroughs for a brighter future. For more on embedding see page 10.
3. set up management structures that spot and support Companies need specific management structures that protect and foster breakthrough innovations. We have found ten such structures, and arranged them from most internal- to most externallyfacing. Each of these provides a vehicle for protecting and nurturing ideas through the various stages of innovation. Most companies use more than one of these. You will need to choose the ones which will work with your culture. Each structure is discussed in depth, with strengths, weaknesses and examples, starting at page 14.
the way forward We believe that sustainability will affect every business, indeed it is already being felt by many. Companies will need breakthrough innovations to succeed; we all need those breakthroughs to help create a brighter future. We hope you can use this guide to enable your company to thrive by shifting the wider world to a more sustainable path. It is our summary of an emerging field. We appreciate your thoughts, feedback and suggestions on how to go further, faster. If you have any questions or would like to get in touch please contact Zoe Le Grand at
[email protected]. Additional copies of the guide can be downloaded from the Forum for the Future website (http://www.forumforthefuture.org/).
System Innovation We know that to address the big challenges we’re facing, such as climate change, resources and supply chain risk, we need to go beyond incremental change and match individual endeavour with collaborative action. Organisations working towards sustainable development need to change internally and also work with others to change the system in which they operate. We use a ‘system innovation’ approach – creating interventions which together add up to a shift in the system as a whole. This approach enables us to act on complex problems in a way that is deliberate and focused on where action is more likely to have an effect. More information on our approach can be found here. Breakthrough innovations are one such intervention that can have a system-shifting effect. But it is not the only one, and will have more chance of success used alongside other interventions.
Forum for the Future At Forum for the Future, we are passionate about creating a brighter, more sustainable future for everyone. We are an independent non-profit who work globally with business and government to inspire new thinking, build creative partnerships and develop practical solutions. We share what we’ve learned so that others can benefit – and act. Working with pioneering partners, we transform the essential systems of food, energy and finance to secure a more fulfilling life for us and future generations. Registered charity no. 1040519.
contents Introduction ........................................................................................................................................ 2 Why try breakthrough innovation for sustainability? ........................................................................... 7 Understanding breakthrough innovation............................................................................................. 8 What can you do? .............................................................................................................................. 9 1.
Have a balanced portfolio of innovation ................................................................................... 9
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Embed in your culture ............................................................................................................ 10
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Set up management structures that spot and support ........................................................... 12
1. Everyone has designated ‘innovation time’............................................................... 14 2. Competitions ............................................................................................................ 15 3. Innovation Fund ........................................................................................................ 16 4. Hot Housing.............................................................................................................. 17 5. Central Team ............................................................................................................ 18 6. Skunkworks .............................................................................................................. 19 7. Conscious Collaboration .......................................................................................... 20 8. Open Innovation ....................................................................................................... 21 9. Corporate Venturing ................................................................................................. 22 10. Mergers and Acquisitions ......................................................................................... 23 Bibliography ..................................................................................................................................... 24
acknowledgements The authors wish to thank: • The members of the Sustainable Business Model Group for their support and input: B&Q/Kingfisher; Bupa; Marks and Spencer; O2 Telefonica UK; TUI Travel; and Unilever. •
Forum colleagues for their input, especially Sally Uren, Jacqueline Culleton, Fiona Bennie and Hugh Knowles plus Gemma Adams, Louise Armstrong, Rodrigo Bautista, Stephanie Draper, Jonathon Porritt, and Anna Warrington
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External interviewees and reviewers: Charles Ainger – Cambridge University, Dr Jean Boulton – Claremont Management Consultants, Albrecht Enders- IMD, Neil Harris- Cisco, Dax Lovegrove- WWF, Carmel McQuaidMarks and Spencer, Eliot Metzger- WRI, Samantha Putt Del Pino- WRI, Hugo Schonbeck – GPX, Hilary Sutcliffe – Matter for All, Nick Valentine – Wildfire Communications.
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Design: Joana Casaca Lemos (diagrams) and Jennifer Maddock (layout)
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Communications support: Anna Guyer and Susie Taylor of Greenhouse PR
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Front page image: istock/thinkstock
why try breakthrough innovation for sustainability? The foundations of your current business are being eroded The issues that come under ‘sustainability’ – climate change, resource constraints, food security, population growth, inequality and more – are so large, so pressing that they are changing your operating context for business. They are eroding the foundations of your current business model. They will drive waves of change in sectors and in the over-arching context of our lives - affecting customer needs, technologies available, resource availability, investor expectations, regulatory requirements and much more. One company we work with says their past success was built on access to cheap, predictably-priced labour, raw materials and energy. After a very profitable twenty years, they are now struggling. Labour prices have gone up. Commodity prices have doubled since 2000, and have become much more volatile. This company, and other sustainability leaders, has realised that to be successful it needs a new business model: one that has foundations that will be true in a future driven by sustainability issues.
Incremental innovation will not be enough Existing companies are brilliant at exploiting their existing capabilities and resources. They excel at replacing current products or services with slightly better ones, sell more to existing customers or reach new ones. These incremental innovations are necessary and useful, but they are not enough. They will not deliver a new business model with enduring foundations. If incremental innovation was going to create a sustainable world, we’d be there already.
The returns of breakthrough innovation are disproportionately large The returns from incremental innovation are predictable but small. The returns from breakthrough innovation are unpredictable but occasionally vast. The opportunity cost is small compared to the potential pay-off. Therefore, it is worth focussing a part of your innovation portfolio on disruption. Take the story of how Richard Branson established Virgin Atlantic. He arranged to borrow a plane for a year. If things went well he could scale up; if not then he had only incurred an ‘affordable loss’. Limiting the financial and reputation risks of a breakthrough innovation opens up the opportunity for large returns.
Markets will endure only where they deliver superior sustainability outcomes We believe that activities that take global society in the wrong direction will become more expensive, regulated, criticised, and difficult to maintain. Activities that contribute to a sustainable future will be more profitable and welcomed in our future society. We believe that the only markets worth shifting or creating are those that deliver better sustainability outcomes. There will continue to be short-term opportunities that do not contribute to a sustainable future, and short-term profitable sustainable opportunities. But breakthrough innovation for sustainability is the best way to forge businesses with solid foundations.
understanding breakthrough innovation Breakthrough innovation doesn’t come naturally to most businesses. Large successful companies often have a disruptive past. They take a new idea and launch it, and those that grow successfully turn previously ad hoc methods into consistent, systematic routines. Established organisations are brilliantly set up for incremental improvements: the company defines its purpose in terms of its current activities; staff are attracted to its current operations and are trained and rewarded based on delivery; everything fits together, reinforcing the current set-up. Often, what cannot fit are breakthrough ideas which fall outside of the defined purpose. People often don’t have the skills, time or rewards to foster them. Structurally, there can be no space to develop disruptive ideas. At the same time, senior executives often take the safe bet, opting for incremental improvements with small but predictable returns; these incremental improvements are preferable to breakthrough ideas which can be unclear how to execute.
Why breakthrough innovation is key to a brighter future It isn’t just companies that settle into a mature phase where there is only space for incremental innovations. These same dynamics are played out in markets and sectors. Before Cafédirect, the established way of operating in the coffee market meant that smallholders were very exposed to global commodity prices. Cafédirect has disrupted the sector, adjusting some of its norms; and now, most coffee companies have at least one UK product which contributes to a brighter future – be that fair trade, organic, Rainforest Alliance or something else. Cafédirect’s influence is wider than coffee: there has been a growth in fair trade products more generally, as consumers developed preferences for it and companies realised its potential. Breakthrough innovation is more successful when combined with other interventions. For instance, Cafédirect aligned their brand messages with NGO campaigns on supporting people in developing countries. Sometimes these barriers can only be addressed by collaboration, such as establishing a common standard, or other ‘system innovations’. We need to see change across every sector. Breakthrough innovation from products or services has a crucial role in shifting market outcomes so companies can succeed while also creating a sustainable society.
what can you do? Companies need to organise themselves to increase the chances of supporting a breakthrough concept at each step – from setting the challenge, inspiring and generating ideas through piloting and evaluating – to the point that they are ready to scale. As you will see in the detail below, committing to breakthrough innovation means making tough choices. Companies that have a consistent track record, such as Amazon, are willing to cannibalise their own sales in the short-term for the sake of long-term value creation. The message from our work is that you can act differently to make room for breakthrough innovation. Each company can find the right combinations of: 1. A balanced portfolio of innovation 2. Embedding innovation into culture 3. Choosing the right management structures to support potentially ground-breaking concepts
1. have a balanced portfolio of innovation We have adapted an existing framework for prioritising innovation to create the matrix below. The horizontal axis gives the impact on the market, from the least disruptive through to the most. The vertical axis gives the impact on the world, from a high to a low contribution to a sustainable future. Note that something can be disruptive to a company but can already exist in the marketplace.
For a balanced portfolio, and to secure long-term value creation, a company needs to have some innovation that is explicitly aiming for a sustainable future. But it takes time to create the breakthrough innovation options needed. In that period the company will need to keep creating enough returns to satisfy shareholders and fund the transition. Therefore, ‘normal’ incremental innovation must continue; in fact many resources will be tied up in this for the short-term. It is necessary but not sufficient.
Some effort will inevitably be incremental innovation for sustainability, for instance with an environmentally-friendly version of an existing product (like Sony’s eco TV range) or launching products which are new to the company but already existed – such as M&S Energy. Some effort must be geared towards disruption. In the automobile sector, we can think of Toyota’s Prius (shifting an existing market) or Nissan’s commitment to the electric car (creating a new market). Of course, many of the examples here are from new entrants. You can think of our suggestions below (embedding in your culture, and management structures to protect) as ways that existing businesses can mimic being a new entrant Using the portfolio framework above, we can describe GE’s Ecomagination as a judicious mix of incremental and breakthrough innovation. GE applied its innovation core competency to existing products such as gas turbines for incremental change, but the sheer commitment and scale of the project has strengthened existing markets for renewable energy generation equipment.
2. embed breakthrough innovation in your culture It’s all very well saying “Put it in your culture!” But what does that mean? At Forum for the Future we view an organisation’s qualities through the lens of these four aspects that describe any organisation:
The most important aspect is purpose, and answers the question “but, what is sustainability?” You must set direction, and provide permission for breakthroughs, by articulating how sustainability issues affect the future success of the company, and vice versa. This understanding will inform the judgements on the contribution to a sustainable future of concepts in your portfolio. There are many different ways of understanding sustainability, including Triple Bottom Line, the Five Capitals Model and more. We have found that companies can use the Sustainable Econonmy Framework (developed with Aviva and the UK Technology Strategy Board) to turn generic broad brush strokes into commercially-relevant specifics. Whatever you use, it should articulate how the company can succeed by delivering social value within environmental limits, and do so in a way that will be relevant into the future.
For breakthrough innovation to succeed it must be present in each aspect. • Define the business you are in so you can thrive in a changing world. IBM is “packaging technology for business use”, not “selling computers”. • Articulate how the company can succeed by delivering social value within environmental limits. Unilever’s Sustainable Living Plan is the plan for how Unilever will succeed by meeting society’s needs for health and nutrition, particularly in developing economies. This articulation is driving lots of innovation throughout the business. • Set very ambitious targets. InterfaceFLOR’s Mission Zero - to eliminate any negative impact on the environment by 2020 – requires them to push breakthrough concepts. • Make it clear that innovation is part of everyone’s job, whether directly or indirectly. Key example: Pixar, which has an unmatched hit rate with its films. • Make it clear that innovation requires ‘good’ failure. At Google they look for: you know why you failed; you have gained relevant knowledge; you failed fast and small enough to protect resources and reputation. • Be prepared to disrupt your current business. Example of when there isn’t the appetite: Kodak killed the ‘film-less camera’. And example of when there is: Amazon shows you better prices from third party sellers. • Have a brand or value proposition that requires being first. Apple must disrupt to live up to their promise to customers, staff and investors. This is also how Method works, they aim to continuously disrupt the personal hygiene and laundry categories • Have a portfolio view of your businesses, so you can move resources to the potential. Virgin moves in and out of potentially disruptive businesses as the situation matures, for instance buying up a cinema chain, running it for 4 years before selling it on. • Commit to ‘questioning’ – and not knowing the answers – as a norm. (See box below.) • HR: hire, train, reward and promote innovation behaviours (see box) • Budgeting: pre-allocate some resources for breakthrough innovation. This is an ‘affordable loss’, given the potential upside. • Planning and strategy: use futures techniques such as long-term trend analysis and visioning to shake your assumptions, set direction and to spot niche innovations with potential. • Metrics: These should be appropriate to the idea’s maturity - early on it is about learning (e.g. each iteration of forecasts is more accurate), only later focus on revenues. • Senior executives and others are well networked in and beyond their sector and so exposed to variety of industries, customers, and adjacent niches • There are formal and informal networks within the business that encourage the mixing of people and information. • Senior executives make the time for innovation behaviours (see box below), and promoting these behaviours in their staff.
• Senior execs are seen to lead through their actions. • Maintain a proportion of people with high discovery skills at all levels, functions and decisionmaking stages.
• Senior management should be ready to take risks that could compromise short-term profitability.
The Innovator’s DNA, according to Dyer, Gregersen and Christensen These leading researchers interviewed successful innovators, surveyed many more and found some vital personal behaviours that drive innovation. Innovators often employed four ‘discovery behaviours’: Questioning allows innovators to break out of the status quo and consider new possibilities. Through observing, innovators detect small behavioural details—in the activities of customers, suppliers, and other companies—that suggest new ways of doing things. In experimenting, they relentlessly try on new experiences and explore the world. And through networking with individuals from diverse backgrounds, they gain radically different perspectives. Innovators have a particular way of treating the ‘data’ from these behaviours. They associate – successfully connect seemingly unrelated questions, problems, or ideas from different fields – to cultivate new insights. The main conclusion of the research is that you are not pre-determined to be innovative or not. We can all cultivate these behaviours in ourselves.
3. set up management structures that spot and support Companies need specific management structures that protect and foster breakthrough innovation. We have found ten such structures, and arranged them from most internal to most-externally facing. Each of these provides a vehicle for the stages of innovation (see box). The box also gives some critical success factors that apply across all of the different structures. You can apply these structures to whole businesses or individual business units. The resources to make each happen will vary from one organisation to another. Most companies use more than one of these. You will need to choose the ones which will work with your culture.
The subsequent pages have more detail on each structure, including strengths and weaknesses, what would make it a good or bad choice for your company and examples. There are some common critical success factors to using these different structures. We have explained these by looking at what you need to do for breakthroughs for each stage of innovation (see box).
Stages of innovation
There are similar phases to any innovation journey. We have distilled our experiences into the stages above, which we use to guide all our innovation work. The management structures protect a breakthrough concept through to the end of the Build stage. We believe that specific actions at particular stages increase the chance of breakthrough innovation for a brighter future. 1. Set the challenge - Give permission to disrupt existing business and markets from both a senior champion and a clear, shared case for action. Know from the start the level of ‘affordable loss’, the amount of time and resource available for the project. - Have a focused question (e.g. “How can we help this specific segment meet that specific challenge?”; not “how can we help people be more sustainable?”) - Smaller teams can identify with the task. This avoids committee behaviour and representing their ‘home’ department. - Involve people with a range of knowledge, traits and aptitudes; include skills in innovation, execution and sustainability. - Plan to get an outside viewpoint, whether at a distance (e.g. focus groups, interviews) or more closely (for instance, part of generating ideas in the Build stage). 2. Inspire - Good ideas can come from the collision of very different worlds; seek inspiration from outside your company, industry or normal spheres of interaction; listen to stimulus that is seemingly irrelevant. - Use futures material – trends, scenarios – to stimulate and inform. 3. Create - Generate many concepts to choose from. Sometimes the first ones are familiar, but a later wave of ideas can be more exciting. - When generating ideas keep breakthrough intent in mind, for instance by focusing on the long-term horizon. 4. Build - Identify the most critical assumptions then test these as early, cheaply and often as you can – so you can adapt. - Work through what the concept can borrow from existing business, what it must forget and what it must learn from scratch. - With each successive prototype: o keep the breakthrough intent, o get closer to the final launch product or service, o each successive forecast should be more accurate, indicating a better working knowledge. - It is best to launch a final pilot in a foothold market before trying to scale up and grow. 5. Scale - Select the successful pilots which have breakthrough potential. - Make sure there is a path forward that can deliver the breakthrough successfully. What are the external barriers and how will you overcome them. Breakthrough innovations need more and different initiatives to reach the mainstream than incremental innovations; plan how you will manage uncertainty; what path(s) forward can deliver the breakthrough successfully. What are the external barriers and how will you overcome them? - Avoid using controls and procedures appropriate for mature business.
Everyone has designated ‘innovation time’. What is it? Formal and informal structures support people in every department, at every level, to have the time to develop and look for new ideas. Staff have access to communications channels and can collaborate with colleagues to implement their ideas. Strengths
Weaknesses
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The ideas produced are more likely to be practical and implementable because the people developing the new ideas have a good understanding of the business and have access to the implementation stage. Reinforcing innovation is seen as everyone’s job. Builds sustainability understanding across the business.
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It is hard to implement in an existing company. There is a risk that people will not be able to protect their designated time. This could be because formal incentive structures are not aligned with innovation or the informal culture does not support it. There is a danger that the ideas produced will be incremental. Just giving unstructured time can leave staff stressed about what to do.
Good choice if:
Avoid if:
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You have creative staff that are able to think about the bigger picture and naturally seek out the next big thing. Your staff understand and are aware of long-term sustainability issues. You have an organisational structure that encourages the free flow of information through the organisation both informal and formal channels. Innovation is prized within your organisational culture so staff can protect their innovation time.
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You are an existing business, and innovation is not seen as an integral part of the culture. Your staff are task orientated and have little experience of being creative. The information channels in your organisation are slow and bureaucratic. The business units that implement good ideas are separated physically from the rest of the staff.
How to do it well: Unlike the other structures below, this approach has little formal protection, therefore, it is essential that the company culture is geared towards it. • Ring-fence a certain amount of time. This could either be a specific time or a percentage of staff time which has to be spent on innovation. The amount of time set aside could vary depending on the business unit. Setting aside a physical space might also help to stimulate creative thought. • Get commitment and buy in from the CEO and Board so they can protect the innovation time from other business drivers. • Integrate into incentive structures. The incentive structures need to encourage people to take risks and reward effort as well as success. For instance, incentives could be process based, i.e. number of ideas generated, rather than outcome based. There needs to be recognition that to be innovative you need to be prepared to fail and credit should be given for attempts and failures.
EXAMPLES Google Google allows its engineers to spend 20% of their time on the projects that they are really passionate about. It is an informal system where engineers can work on a new product or fix something that is broken. For example, a project to roll out ultra-fast broadband to a small number of communities had three full time staff and the rest of the staff were made up of “20% ers” – engineers using 20% of their time to work on the projects that interest them. The results of this approach include the development of Google Suggest and Adsense for Content.
Internal Competitions What is it? A mechanism to encourage internal staff to submit ideas. The competition is usually time limited and has clear assessment criteria. The winning idea is rewarded with some form of prize which could be funding, the promise of implementation or a personal or team reward. Strengths
Weaknesses
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Builds on existing team dynamics and can be integrated into existing business structures. It is a good signal of serious commitment to sustainability from the organisation and helps to make it exciting. As well as generating new ideas, the competition can have additional benefits, like improving sustainability understanding.
Good choice if: • • • •
Staff are already engaged but have limited opportunities to conceive or develop new ideas. Your staff culture is naturally competitive. Teams and individuals thrive on public recognition for good work. Your staff have ideas outside of their immediate day job but sometimes their ideas are stifled. Sustainability ideas often fall between departments and so cannot be funded from existing budgets.
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There is no built-in, on-going structure to implement the ideas once they have been generated. People who have not been successful in the competition could feel disheartened if managed properly. The competition could be unsuccessful if people are not given the time and space to enter it.
Avoid if: • You have a collaboration culture. There is a risk that rewarding individuals or teams could be divisive. • There is no chance to set aside time for people to enter the competition, and people have no support to create that time.
How to do it well: • Allow people the time to enter the competition. It shouldn’t be seen as something additional that people do in their own time. • The competition needs to be tightly managed to ensure that good ideas are put forward in the first place and there is a clear process for taking them forward. • Design a process to help people to come up with the ideas in the first place. Consider how you are going to support and communicate- a digital platform might help with this. The process must be clear with public criteria for success and should be communicated comprehensively. Don’t rely on “if we build it, they will come”. Ideas should still require a business case and demonstrate how they could become self- sustaining in the long run. Successful ideas could be rewarded both with funding and internal recognition. • There needs to be clear, quick and well-funded implementation process so that momentum isn’t lost and a clear process for how to deal with the ideas that have not been taken forward. • You could consider having a rolling competition that is repeated annually, or an on-going suggestions box where the best ideas are rewarded quarterly.
EXAMPLES Bupa Bupa used an internal competition to help to engage staff in all their global business units in sustainability challenges. They appealed to their sustainability champions across the world to submit applications to receive match funding to implement their idea. Successful applicants were taken through a face to face ideas development process. The ideas were developed and then submitted to a panel of judges who will pick the ideas that will be implemented.
Innovation Fund What is it? A ring-fenced budget which is used specifically to fund or part-fund innovative products or services, especially those which are difficult to fund with existing budgets. Strengths • Innovation projects can be perceived as high risk. Having a ring-fenced budget with different rules can make innovation projects possible. • Sustainability innovations are often required to meet extra criteria such as carbon foot-printing. The innovation fund could help to subsidise the time needed to fulfil these. • Sustainability projects often require large upfront investment with long payback periods. Having a ring-fenced budget may help to overcome the need for short term return.
Good choice if: • There are ideas or initiatives that need additional funding or match funding to make the business case.
Weaknesses • Having a separate fund separates out the innovation activity from the mainstream activity. • Risk that administering the fund becomes as bureaucratic as other processes.
Avoid if: • There is no clear implementation channel for the ideas.
How to do it well: • Ensure that the people administering the fund have sufficient sustainability skills and knowledge. • Apply different rules of success to the innovation fund. For instance, projects funded by the innovation fund may not have to make a profit at the same rate as projects funded in more traditional ways. These criteria should be clear and shared. • Consider segmenting the fund to ensure a balanced portfolio. Focus on the short term ideas initially. This will help to demonstrate the fund’s value quickly.
EXAMPLES P&G P&G has established the P&G Corporate Innovation Fund (CIF) to finance the development of disruptive innovations and of new businesses. The fund specialises in high-risk, high-reward ideas; it is essentially an in-house venture capital firm that does initial concept, design, engineering, and qualification work and then hands over successful ideas to the appropriate business unit. Siemens Siemens Austria’s innovation fund focuses on projects that could not be implemented quickly enough or at all without additional support. The fund functions as internal venture capital for projects with high risk with regard to both technical feasibility and successful market introduction. One particularly innovative aspect of the fund is that it is jointly supported by the employee representation system and the company management.
Hot Housing What is it? A group of people from an organisation are put together, possibly with a small number of trusted outsiders, to take part in a time-limited, intensive problem-solving session. Strengths
Weaknesses
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This approach can be useful if an organisation has become stuck with a specific problem which it cannot solve within the constraints of its normal operations. Having a time limited process can make it easier to attract senior staff.
Good choice if: • •
Staff need time and space outside their day jobs to spend on innovation and problem solving. There are new or existing problems that need solving and can’t be solved through existing channels or there are existing products and services that need developing.
There is a risk that, unless there is a clear structure for how the solution will be taken forward, it will get stuck within the existing organisational structures that prevented the problem being solved in the first place.
Avoid if: • Staff are not inclined, or given permission, to take time out of their day jobs to spend on the session. • Your organisation does not welcome or take on board external advice.
How to do it well: • Make sure there are a mixture of people at the hot housing session including creatives and visionaries. The group must represent a cross-section of people involved in the specific problem. Sometimes, it’s useful to include some trusted outsiders who can provide challenge and are not bound by the constraints of the existing organisation. • The problem must be focused and specific, and staff must be prepared to leave their day job on hold for a limited period of time. • The process must be well organised and the selection criteria for the problems should be clear and publically available. As the session is strictly time limited it must be tightly facilitated.
EXAMPLES Capgemini – Accelerated Solutions Environment The Accelerated Solutions Environment (ASE) brings business stakeholders together to work on their business strategy, technology architecture and key business improvement initiatives. It takes place in a space that is flexibly used (environment) where the aim is to reach a group decision or next step (solution) in a short period of time (accelerated). Key elements include using a flexible and inspiring environment with a short time period that can make it easier to attract senior managers. Sony and FutureScapes Sony worked with Forum for the Future on a hothousing project to explore how technology can enable sustainable lifestyles in the future. The project brought together a range of expert thinkers; designers, futurologists and writers, as well as inviting contributions from the general public throughout Europe to explore the opportunities and challenges of life in 2025, and to consider the potential contribution that technology can make in shaping a better, more sustainable future. The culmination of the first stage of the project involved using different scenarios of the future to spark innovative ideas during time limited, intensive workshop sessions.
Central Team What is it? A team dedicated to producing innovative ideas. This could either be an entirely separate team or new roles within existing teams with a common purpose. Strengths • •
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Innovations often cut across categories or new markets and therefore a cross cutting team can be really effective. Assigning responsibility to one team can increase their focus and therefore ensure that maximum effort and maximum speed is applied to the innovation. Other teams can focus on implementation. The team’s specific innovation skills could help to encourage long term and abstract thinking resulting in more radical ideas.
Good choice if: • There is a lack of innovation skills within the business. AND • There are other efforts to embed innovation in culture.
Weaknesses • • •
Innovation is seen as one team’s job and the rest of the organisation does not come up new ideas. The ideas that come from the team are not owned by the implementation team and feel imposed. There is a risk that ideas created by the team will be watered down by the constraints of the organisation. This will result in only incremental innovation and a demotivated team.
Avoid if: • Concepts generated will have a tough time being accepted or resourced in existing business units.
How to do it well: • Ensure that the incentive structures for the central team encourage experimentation and risk taking. The budget for the team could be set at an amount that the organisation can afford to lose. • The team needs to report to the head of the division rather than the head of the category or brand. There also needs to be a direct line from the team to senior management so it is protected from the rest of the organisation. • The innovation ideas need to be assigned to a division, category, product group or brand and have a “home” for future commercialization.
EXAMPLES P&G Procter & Gamble has central innovation teams at the corporate level called FutureWorks. Their responsibility is to create, incubate, and scale transformational new business models, new categories, and service experiences that capitalize on consumer-driven, disruptive market innovation. The FutureWorks leadership team also manages the P&G Corporate Innovation Fund, which directly-links FutureWorks and their projects with the CEO, Chief Financial Officer, Chief Marketing Officer, and Chief Technology Officer. This enables them to access the capabilities and resources of all of P&G, but also have the agility of their own dedicated pool of entrepreneurial and experienced professionals from all functions and disciplines needed to operate their businesses.
Skunk Works What is it? A group within an organisation given a high degree of autonomy and protected from the organisational bureaucracy. It is often placed in a physically separate place and works on secret projects. Strengths • •
•
The Skunk Works team are less likely to feel restricted by existing organisational norms and can think more freely and more long term. The Skunk Works team will be extremely focused on the task. Staff come up with ideas and then take them forward through the Skunk Works. The rest of the organisation is less likely to feel threatened, especially if it’s taking place in secret. Keeping an element of secrecy allows for fewer distractions, fewer compromises and a great ability to fail.
Good choice if: •
Your organisational culture can accommodate a separate, secretive group.
Weaknesses • •
•
The knowledge of how to pull off breakthrough innovation can get stuck inside the Skunk Works group. A Skunk Works could be seen as a signal of management dysfunction. It could imply that the regular structure can’t handle radical innovation so must form a new, separate organisation based on exclusivity, in order to be innovative. Having ideas developed in separate organisation can increase silos and thus lead to resentment within the rest of the organisation.
Avoid if: • Your organisation wants to create a pervasive innovation culture throughout the organisation.
How to do it well: • Ensure that the person managing the Skunk Works is in complete control of all aspects of their programme and reports to the division president or higher. Those working in the Skunk Works need to be comfortable not having clear direction from management and be comfortable with failing, and the Skunk Works should be given different targets or no targets at all. Any members of staff with strong ideas should be allowed to go into the Skunk Works. • The Skunk Works needs to have a portfolio approach with long term programmes that accept that there will be some failure. • The Skunk Works should not only be culturally distant from the rest of the organisation but physically and geographically different as well. The distance is in part symbolic, but it has other effects. For example, the distance can help to rapidly create group cohesiveness, which can be instrumental in group dynamics and performance. • The output from the Skunk Works needs to be protected and separate from usual organisational constraints or there is a danger that it will be diluted or lost. • There need to be networks (either formal or informal) between the Skunk Works and the rest of the organisation to ensure that the Skunk Works is using the very latest knowledge from within the organisation and doesn’t lag behind.
EXAMPLES Lockheed Martin The term Skunk Works was originally coined by Lockheed Martin to describe its advanced development project unit, a secret unit charged with developing the first jet fighter plane. The engineers were housed in a separate unit and encouraged to break company rules in the name of innovation. They developed a stream of highly successful spy-planes including the u-2 and supersonic bombers that set new standards for performance and were delivered ahead of schedule and below budget.
Conscious Collaboration What is it? Two (or more) organisations approach each other specifically to produce an innovation in response to a joint problem, challenge or opportunity. They work in partnership to develop and, in some cases, deliver the innovation to market. Strengths • • • •
•
All parties can bring different expertise, experience, tools, techniques and networks. Working with those outside of your immediate sector can bring in new viewpoints and creativity which can help to stimulate innovative thinking. The collaboration can be a test bed for future partnership work. Looking outside the organisation to others in a similar space can help to identify solutions that get to the heart of a customer or systemic problem. Can be a means of learning from others and extending the product/service portfolio into areas previously inaccessible by capitalising on the brand strength or partners.
Good choice if: • • •
Your organisation is used to working in partnership and is willing to do this in an equal manner, rather than a client/supplier relationship. Your organisation is willing to share IP. There are customer problems that you could solve more effectively by working with another organisation.
Weaknesses • •
•
The partnership will need close management which takes time and resources. The expectations and abilities of the partners need to be explicit and aligned otherwise there is a risk that the partnership will become uneven. Coming together publically with another brand could bring a reputational risk as the activities of both companies are seen in tandem.
Avoid if: • You are used to working on highly competitive products and service development that requires confidentiality during the development stage. • You do not have the time or resources to manage the partnership closely or cannot find an appropriate third party to facilitate the collaboration. • Your organisation is culturally resistant to working with other organisations in a non-competitive, non-supply chain relationship.
How to do it well: • Agree the objectives and boundaries of the partnership early on to avoid any conflict over IP later. • Include review points in the project plan to ensure that the collaboration is still meeting the needs of all parties. • It may help to choose partners that have similar values and ways of working. This will help with communication between parties and reduce the risk of partnership breakdown. • Make sure that implementation channels are considered throughout. This will help to ensure that the collaboration produces something that is implementable and adds value.
EXAMPLES M&S and Oxfam A collaboration between M&S and Oxfam allows M&S customers to take their unwanted clothes to M&S stores instead of throwing them away. Unwanted items are resold, reused or recycled by Oxfam. The partnership aims to reduce the amount of clothes going to landfill and Oxfam hopes it will help to raise an extra £2m for Oxfam.
Open Innovation What is it? Open innovation is putting a call out to the general public or to a specific group to suggest ideas or submit proposals to solve a specific problem. It often uses a digital platform. Strengths
Weaknesses
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•
• • •
It allows the organisation to access a large pool of experience in a quick, cost effective way. It attracts ideas from people outside the organisation who are unencumbered with organisational norms and values. Specialized innovators might prefer to work toward mutually beneficial royalty deals with suppliers and buyers. The ideas come from a range of sectors and places and this can be particularly effective for systemic sustainability issues.
Good choice if: • • •
Your organisation has strong links to networks of entrepreneurs and other sources of new ideas. Your organisation is comfortable and confident using online platforms and multiple forms of communication. Your organisation has a relaxed attitude towards their IP.
• •
•
The organisation has less control over the process and any IP that is generated may not be fully owned by the company. Quality control can become an issue and there can be a lack of fit between the idea and the organisation. It can be a very time intensive process to manage as there may require a lot of interaction between the people submitting the ideas and those within the organisation. New ideas and ways of working could remain within the partnership boundaries and not spread to the other parts of the organisation.
Avoid if: • The organisation wishes to keep innovation tightly within organisational boundaries. • There isn’t the time or resources to manage the process properly or thoroughly. • The organisation is culturally resistant to ideas that were not produced internally.
How to do it well: • It is important, initially, to determine the extent to which open innovation overlaps with the core IP of the organisation and any risks that open innovation could pose to the company. • The internal team must be willing to share and learn from new ideas. • The criteria for the acceptance of ideas should be clear. Make the application process easy to access. • Proactively tap into to relevant networks of entrepreneurs and other sources of new ideas.
EXAMPLES Google Google put out an open call to Google users: “What would help” and “What would help most”. The project, called 10 to the 100, attracted 150,000 ideas in response to the call. They narrowed these down to 16 key themes and the public voted for the top five ideas. The ideas included: make educational content available online for free; enhance science and engineering education; and, make government more transparent. Google then chose to fund five organisations using a total pot of $10m. Unilever Unilever has recently launched a website to gather and assess ideas from outside the company to bolster sales from new products and improve environmental practices. Unilever will ask for ideas from universities, engineering and design companies, and environmental groups around the world. Since Unilever established a so-called open innovation unit to work with outside partners in 2009, the share of external ideas that are adopted by the company’s business units has increased from 25 percent to 60 percent.
Corporate Venturing What is it? A large firm takes an equity stake in a small but innovative or specialist firm aiming to gain a specific competitive advantage. Strengths
Weaknesses
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It allows the organisation to access sustainability skills, experience and new ideas quickly that have been produced free of the constraints placed by large organisations. It can help businesses to look more widely for solutions without needing direct business unit sponsorship.
Good choice if: •
• •
Your organisation has staff with experience in venture capital. It might also help to employ people who have been entrepreneurs themselves. The organisation has access to networks of entrepreneurs and start-up companies. You need to access new skills and ideas quickly.
•
Keeping the innovative companies at arm’s length does not help to build up internal capacity and the ideas generated as a result could face difficulties in implementation. The innovative ideas are kept separate to the core business.
Avoid if: • The organisation is seeking to integrate innovation into its core DNA • There are no channels for cross learning between the core company and the new company.
Tips on how to do it: • The corporate venturing unit should be perceived as independent by the companies they invest in, by other venture capitalists and by partners. • To allow room for innovation the acquired companies may need different rules for success, i.e. different rates of return from the core business. • Regularly review the portfolio and have discipline in divesting where it is not working out.
EXAMPLES Unilever
Unilever’s European Corporate Venturing arm is called Unilever Ventures. They invest capital in three ways: • • •
Start-up capital – they provide strategic and business planning advice and can help assemble high quality management teams around exciting new business propositions. These opportunities will typically originate from within Unilever and typically use Unilever IP or brands. Expansion / Development capital – they invest in more established businesses that require funding to accelerate growth. Buyouts – they consider buy-outs as a lead or co-investment in businesses with a capitalisation of up to €50m. Companies must fit their investment criteria either as stand-alone investments or as strategic additions to one of their existing portfolio companies.
Mergers and Acquisitions What is it? Gaining access to innovation by acquiring companies with relevant skills, processes or products. Strengths
Weaknesses
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•
• •
An organisation can significantly strengthen its innovation pipeline through acquisition. The larger organisation can take the innovation developed in the smaller organisation to scale much more quickly. The large organisation can learn from the smaller organisation’s approach to supply chain management etc. and vice versa.
• • •
Integration of the new businesses into the larger organisation can be difficult. Acquiring a company does not help to build innovation capacity within the parent organisation. Ideas are not generated as a result of business needs and so could face difficulties in implementation. There is a risk that the acquisition will dilute the brand of the organisation that has been acquired.
Good choice if:
Avoid if:
•
•
•
You know you need new business lines that would take too long or be too expensive to grow organically. You will be able to integrate the acquired company.
There is no prospect of integrating well.
Tips on how to do it: There are at least two different uses of mergers and acquisitions for sustainability: 1. Acquiring an established, smaller business that has sustainability at its core. 2. Acquiring companies for their breakthrough potential. This is usually for their technology or business model. • • •
Ring fence core elements of the brand of the acquired company to protect them from being diluted by the larger company. The values of both businesses should align. If they don’t, it can lead to negative press as one company is perceived as having “sold out” to another. Staff need to be well networked with entrepreneurs and start-ups, and have up to date knowledge of where the cutting edge companies producing sustainability innovations are.
EXAMPLES Ben & Jerry’s and Unilever Ben & Jerry’s makes premium ice cream and was established in 1978. It was taken over by Unilever is 2000. This takeover was unusual as it was a hostile takeover which meant that the values of Ben and Jerry’s were more at risk. Jerry Greenfield (Jerry of Ben & Jerry’s) is sceptical about the amount of influence that the small company can have on Unilever. However, Ben & Jerry’s has managed to maintain its social and environmental values. For instance, it still operates the Ben & Jerry’s climate change college which gives six students per year the chance to learn about climate change through workshops, internships and a trip to the arctic.
Bibliography Blogs and Articles Amabile, T and Kramer, S (2012) “How Leaders Kill Meaning at Work” McKinsey Quarterly, available online at http://www.mckinseyquarterly.com/Governance/Leadership/How_leaders_kill_meaning_at_work_2910, accessed 19.6.12 Alexy, O and Reitzig, M (2012) “Managing the Business Risks of Open Innovation”, McKinsey Quarterly, January 2012, available online at http://www.mckinseyquarterly.com/Strategy/Innovation/Managing_the_business_risks_of_open_innovation_2911 , accessed 19.6.12 Birkenshaw, J (2012) “A Time and A Place for Innovation” Lab Notes, London Business School, Issue 21 January 2012, available at http://www.managementlab.org/files/site/publications/labnotes/mlab-labnotes-021.pdf accessed 19.6.12 Clemmer, J (2012) “Innovation Champions, Skunkworks and Organisational Learning”, ManagerWise, available online at http://www.managerwise.com/article.phtml?id=241, accessed 19.06.12 Gauptmann, I (2012) “What is Radical Innovation Anyway?”, available online at http://6-heads.com/category/radicalinnovation/, accessed 19.6.12 Gaule, A and Moore, M (2004) “Review of Leading Corporate Venturing Units”, Henley Incubator, available online at http://www.strategicventureassociation.com/pdf/Review_of_Leading_Corporate_Venturing_Units.pdf accessed 19.6.12 Jaruzelski, B Loehr J, and Holman, R, (2011) The Global Innovation 1000: Why Culture is Key Booz and Co, “Strategy and Business”, Booz and Co, Winter 2011 available online at http://www.strategy-business.com/article/11404, accessed 19.6.12 Lawrence, J (2012) “Last minute rush for SME investment tax breaks”, Inspiresme, available online at http://www.inspiresme.co.uk/news/finance/last-minute-rush-for-sme-investment-tax-breaks-09762/ accessed 19.6.12 Lindegaard, S (2010) “Is Open Innovation Replacing Corporate Venturing?”, Innovation Excellence, available online at http://www.innovationexcellence.com/blog/2010/09/15/is-open-innovation-replacing-corporate-venturing/ accessed 19.6.12 Paap, J and Katz, R (2004) “Anticipating Disruptive Innovation”, Research Technology Management, available online at http://www.jaypaap.com/articles/Paap-Katz-Disruptive%20Innovation-sep-04-p13-mod.pdf accessed 19.6.12 Trimble, C (2010) “The Surest Way to An Innovation Initiative”, HBR Blog Network, available online at http://blogs.hbr.org/cs/2010/09/the_surest_way_to_destroy_an_i.html?cm_sp=blog_flyout-_-cs-_the_surest_way_to_destroy_an_i accessed 19.6.12
Reports and Books Allianz, IDEO, Skoll Foundation, SustainAbility (2008) “The Social Intrapreneur”, available online at http://www.sustainability.com/library/the-social-intrapreneur?path=library/the-social-intrapreneurs accessed 19.6.12 Christensen, C, Dyer J, Gregersen H, (2011) “The Innovator’s DNA”, Harvard Business School Press Moss Kanter, R (2009) “SuperCorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good”, Crown Business WWF and Verdantix (2011) “Green Game-Changers”, available online at http://www.wwf.org.uk/what_we_do/working_with_business/green_game_changers/ accessed 19.6.12
Websites CapGemini: www.uk.capgemini.com P&G: www.pg.com P&G Futureworks: www.futureworks.pg.com Product Arts: www.product-arts.com Siemens: www.cee.siemens.com Six Heads: www.6-heads.com Search CIO: www.searchcio.techtarget.com The Chemical Engineer: www.thechemicalengineer.com The Five Capitals (explanation): http://www.forumforthefuture.org/project/five-capitals/overview The Sustainable Economy Framework: http://www.forumforthefuture.org/project/framework-sustainableeconomy/overview Triple Bottom Line (definition): http://en.wikipedia.org/wiki/Triple_bottom_line
