Despite businesses focusing their efforts on improving breakthrough innovation performance, many still fail to create sustainable new businesses of scale. The Breakthrough Incubator model, a new approach built on radical collaboration across the innovation ecosystem, covering the entire process from idea to commercialization, is already demonstrating that it can overcome the challenges that hold back performance.
The search for growth is usually near the top of the CEO agenda. This can be challenging when core business growth prospects are limited, or when disruptions or convergence mean that growth requires the company to move into new or unfamiliar areas. Large-scale acquisition may be prohibitively expensive. Breakthrough innovation – creating new step-out businesses offering new products and services – is seen by many CEOs as a more attractive way to overcome the growth gap. Consequently, many companies today have internal units or programs to drive breakthrough innovation. Some success is undoubtedly being achieved, but all too often the results fail to live up to the original ambition in terms of creating sustainable new businesses of scale. Usually this is not due to lack of good ideas, concepts or even prototypes, but rather because it remains difficult for companies to truly embrace the idea of investing in unfamiliar, non-core business opportunities which involve significant commercial risk and require new competencies.
However, as experience with “hyper-collaboration” models grows, companies are finding new ways to overcome the challenges through working differently with partners. In this article we explore one of the most promising breakthrough growth models we at Arthur D. Little have successfully applied in both B2C and B2B businesses. This model delivers major benefits in terms of speed, cost and likelihood of success. It involves radical collaboration across the innovation ecosystem, and covers the entire innovation process from idea to commercialization, including strategic, commercial and operational, as well as technical, aspects. We call this the “Breakthrough Incubator” model.
The real challenges of breakthrough innovation
Breakthrough innovation, by which we mean developing and launching radically new products, services or businesses that deliver significant value, is the holy grail of innovation management. Today it is an essential part of any large company’s innovation effort, complementing incremental and shorter-term approaches which usually focus on the core business.
Achieving growth through systematic, repeated breakthrough innovation often poses a challenge to large companies because it is inherently risky and frequently requires competences and approaches which are not part of the mainstream of the organization. In many large companies, internal bureaucracy and red tape tend to stifle the required creativity, and internal R&D teams may struggle to think sufficiently “outside the box”. Creating a stand-alone, semi-independent breakthrough team focused on step-out/adjacent opportunities or grand challenges is a common first step that companies take to address these barriers. Increasingly, companies are also looking to start-ups to access emerging technologies, bring in fresh thinking, and introduce more innovative ways of working. This has led to a major increase in the application of startup-incubator, accelerator and corporate-venturing schemes. “Intrapreneurship” approaches and competitions to encourage entrepreneurial activities within the company are also becoming more commonplace.
However, despite some successes, many companies are finding that these initiatives still fall short of expectations in terms of significant new-business creation. For example, in our own breakthrough innovation survey , more than 85 percent of companies were unsatisfied with their breakthrough innovation performances. In our work with clients on innovation strategy, we encounter some common reasons for this, many of which are connected with the fact that companies tend to place too much emphasis on the front end of the innovation cycle, and too little emphasis on the end-to-end business creation process. Common failings include:
- Limited scope of internal breakthrough innovation units: These units usually focus on ideation, concept exploration and product development as far as the prototype stage. The prototype may be successful in itself, but all too often the next stage of scale-up, launch planning and commercialization falters when more thorough market/consumer testing is conducted, or when the practicalities of large-scale material sourcing and manufacturing are properly assessed.
- Internal rejection of radical new products: Many large companies have built-in “antibodies” that hinder or reject radical new innovations. They are seen as either immaterial (“won’t move the needle”) or threats to existing business (“cannibalization”). Truly radical innovations also require resources, management styles and funding mechanisms that are, at best, unfamiliar to many organizations. External start-ups have similar issues to deal with, but they, at least, are driven by entrepreneurs with mentalities and ambitions that are all but absent in most corporates. This makes it difficult to create the right environment for a great but radical idea to prosper.
- Brand constraints on breakthrough innovation: In most B2C and some B2B businesses, brand is king. Sometimes great new innovations are killed prematurely during development or scale-up because they don’t easily fit with the existing portfolio of brands. Brand constraints can limit the scope and novelty of innovations, and introduce an unwanted bias into assessment and evaluation of new concepts. Moreover, companies can be nervous about testing new products in the marketplace if their corporate identities are recognizable, because of the reputational risk and the possibility of competitors rushing “metoo” products into the market once they get wind of what’s happening.
- Scale-up risks: In many companies, concepts and prototypes stay on hold for years and are either never properly commercialized or finally killed off. This can be due to the investment required versus the residual risks of failure, or lack of a powerful champion to garner the required internal-stakeholder support. Stagnation is especially a problem when prototypes are “thrown over the wall” by technical functions to marketing, commercial and operations after the prototype stage. Even if there is cross-functional representation on new-product development governance committees, the barriers can still occur once the scale-up and operational requirements are assessed in more detail – and especially if there is no clear “home” for the prototype.
In our experience it is these practical downstream issues, rather than any lack of creativity, good ideas or technical ingenuity, that tend to be the real barriers to effective breakthrough innovation.