Innovation interview: Robert Shelton

Our guest blogger series continues this week with Robert Shelton’s take on incubating innovation for breakthrough growth.

He is the co-author of “Making Innovation Work,” which challenges common misconceptions about innovation and helps senior managers create the foundation for developing and measuring the results of a company’s innovation efforts. Robert is a director at management consulting firm PRTM, where he leads the firm's global innovation practice.

Senior executives today are concerned about reinvigorating growth, and rightly so: many companies are simply not up to the task. At PRTM, we are helping companies redefine their innovation strategies, operational models, and execution capabilities to meet their growth goals. In some cases, we are actually involved in creating and commercializing new products and services. This breadth of activities gives us a unique perspective on the challenges and opportunities of growth and innovation.

Business units are usually good at incremental innovations — making the small changes required to maintain existing product and services. Without incremental innovations, market share erodes, margins decline, and the core business deteriorates.

But the substantial growth that companies seek now requires a different order of capabilities entirely.  It means not only using next-generation technology to develop breakthrough new products and services, but using this innovative technology hand-in-hand with new business models.

Easy to say — not so easy to do. The challenge for many companies is coming up with a compelling new business model within their existing business units. For one thing, it’s hard getting executives in existing business units to envision alternate approaches; ensconced in their business model, they often think change is unnecessary.  In addition, they are afraid alternate business models will cannibalize revenues, so organizational “antibodies” somehow are created to mitigate the supposed threat. Third, because business units are set up for efficient operations and incremental improvements, they lack the right people, tools, and governance needed for breakthrough innovations of any kind.

Some leading companies are taking a completely different route to develop new business models. They’re using incubators — smaller organizations that operate separately from existing business units.  Why? People in an incubator think and act differently from other employees. They think like intrapreneurs — entrepreneurs working inside the company.

Since incubation requires things to happen at a much faster rate than in the rest of the organization, a successful incubator requires special skills, processes, and governance.

First, you need an intrapreneurial team — nimble, smart, and passionate about finding and commercializing the next new thing. Incubator teams use prototypes to test, learn, improve and test again and again until they find the best combination of business model and technology. So it’s critical that this is their full-time activity. That way they can focus on developing the breakthrough business models and technologies that will drive the company’s next new areas of growth.

Project governance is different as well. Project development meetings are more like venture capital investment reviews than phase-gate reviews.  Incubator governance discussions focus on how to create maximum value. That includes adding more resources if needed or killing projects to free up resources that can be better used elsewhere.

Finally, fast clockspeeds of breakthrough innovation depend on aggressive and extensive partnering. Incubator teams grab the very best resources from both inside and outside of the company when they are needed. They then pull them into the team and work seamlessly.

Leading companies like Cisco, HP, and Houghton Mifflin Harcourt are using incubators to sidestep the shortcomings of traditional innovation capabilities and achieve significant levels of growth. They understand that, as the competition for profits and market share intensifies, traditional capabilities are no longer enough.

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