Breakthrough innovation: enhancing efforts and creating competitive advantage
Management consultancy Arthur D. Little conducted a survey of over 80 large organisations to explore best practices for how to deliver a consistent pipeline of breakthrough (or radical) innovations – meaning radically new products, performance features, business models or market space. The results were both expected and unexpected, and yielded a lot of valuable insight. It is increasingly important for companies to be able to deliver constant breakthrough innovation in order to respond to emerging competition, disruptions to core business, and increasing customer power.
How companies see their current breakthrough innovation efforts
The surveyed companies expected 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%. They also believed the expected contribution from incremental innovation would rise much more slowly. (See Figure 1.) Surprisingly, ADL’s survey revealed that 88% of companies were unsatisfied with their current breakthrough innovation performances, with none reporting being very satisfied.
Although nearly 90% of companies recognised the importance of defining specific strategic objectives for breakthrough innovation, only about half reported currently doing so. Those that did define specific breakthrough objectives and goals were, on average, nearly four times more satisfied with the results than those that did not, and the more explicit the goals were, the higher the success rate. ADL also found that companies with more experience of working with breakthrough innovation in a structured way had more explicit breakthrough innovation objectives than others, and that the more successful companies had specific target allocations for the resources they expected to dedicate.
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 a cause and allowing short-term objectives to cannibalise breakthrough efforts.
Breakthrough teams and organisational models
Having a dedicated breakthrough team is considered the most effective basic approach and yields 15% higher satisfaction than no dedicated organisation. 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 organise breakthrough teams.
ADL identified four generic organisational models to guide companies in their choices: business unit/division R&D breakthrough teams, corporate R&D breakthrough teams, internal dedicated breakthrough teams with multifunctional membership, and “breakthrough factories” (which focus on development of a pipeline of “grand-challenge”-led, radical or game-changing innovations that push the boundaries of science).
The survey also revealed a number of key success factors for making the chosen model work effectively: cross-functionality, ring-fenced funding, and “intrapreneurs”. 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.
Management of breakthrough efforts
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 (e.g. 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.
Individuals involved in breakthrough efforts are encouraged to stretch themselves beyond their comfort zones in environments that allow failure. ADL’s findings confirm that a culture that does not accept failure is one of the most significant barriers to achieving breakthrough innovation. The key to success is to have a portfolio approach to breakthrough innovation and to ensure that the there is always another project to move on to.
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 partially satisfied or unsatisfied with their efforts. The best performers in this area have developed clear strategies for innovation ecosystem management and its contribution. They recognise that working within the ecosystem is a two-way process. They work to develop a shared vision within the ecosystem, and they agree transparent IP arrangements and frameworks, while being 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.
About the Authors
Ben Thuriaux-Alemán is a Principal in Arthur D. Little UK with 18 years of consulting experience. He works both with Energy clients and on more general issues in the area of R&D, Technology and Innovation Management. Ben has an MBA from RSM and Chicago GSB, a MSc in Science and Technology Policy, and a BSc in Physics. In addition to client work in the area of innovation management, he has led a number of ADL studies on innovation and technology management.
Rick Eagar is a partner in Arthur D. Little UK where he leads the Technology and Innovation Management Practice. He has over 24 years 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.