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Google X - Think Tanks as a Source of Disruptive Innovation in Large Corporations

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My seminar paper on Think Tanks as a Source of Disruptive Innovation in Large Corporations tries to propose a viable solution to the problem many large organizations nowadays have: robust, inflexible structures, processes and cultures in which the creation and development of disruptive innovations is almost impossible.

My solution: outsourced, creative, clandestine think tanks or labs that are focusing solely on disruptive innovation outside of the core business of the organization. How can this be a viable solution? Google X might be a popular and successful example.

Read my paper to know why!

Published in: Business

Google X - Think Tanks as a Source of Disruptive Innovation in Large Corporations

  1. 1. Google X Think Tanks as a Source of Disruptive Innovation in Large Corporations February 27th, 2015 Thomas Klaffke | Matrikel-Nr.: 4835459 | E-mail: thomas.klaffke@gmail.com Modul: Innovationsforschung und -management | Univ.-Prof. Dr. Carsten Dreher Masterstudiengang Zukunftsforschung

  2. 2. Table of Contents List of Figures 3 1. Introduction 4 2. Barriers to Disruptive Innovation 6 2.1. Defining Disruptive Innovation 6 2.2. What Hampers Disruptive Innovation 8 3. Corporate Think Tanks 11 4. Google X 13 4.1. Google’s Innovation Strategy 13 4.2. Innovation at Google X 16 4.3. Model for Large Corporations? 20 5. Conclusion 23 Bibliography 25 Eidesstattliche Erklärung 29 I
  3. 3. List of Figures Figure 1.1: Attributes of Google’s corporate culture 14 II
  4. 4. 1. Introduction The world is changing - and so is business! Globalization and the dissemination of information and telecommunication technologies have led to an increasingly complex and accelerating world in which change is the only constant. In order to keep up with the disruptive potentials of emerging technologies and the emergence of new startups, large corporations nowadays are challenged to continuously adapt to the changes in their market environment. The most prominent example of a constantly adapting and succeeding1 corporation might be Stora Enso. The roots of this Finnish-Swedish pulp and paper manufacturer - one of the largest in the world - reach way back into the Middle Ages, with a granting concession for its foundation that dates from 1288, making it, as some claim, the oldest existing corporation in the world. Stora, as it was formerly known, adapted to a2 great amount of social and technological changes, surviving „the Middle Ages, the Reformation, the wars of the 1600s, the Industrial Revolution, and the two world wars of the twentieth century.“ Throughout its over 700 years in business, Stora „[…] shifted from copper to forest exploitation, iron smelting, hydropower, and eventually paper, wood pulp, and chemicals.“3 As marvelous and inspiring Stora Enso’s history is, it obviously doesn’t resemble the fate of the ordinary, modern-day company. The transformational shifts during the last decades seem to be much different to what we have seen in the centuries before. From 1920 to today, the average lifespan of a company listed in the Standard and Poor’s 500 index of leading US companies has decreased by 52 years, from 67 to 15 years. As a consequence,4 even longstanding, previously uncontested management and market principles are questioned, as they seem to be unable to provide relevant guidelines for today’s corporations. Ever since renown economist Michael E. Porter began the discussion about competitive advantages, competition-based strategies have been the dominant focus - from see Tidd, Joe et al. (2005), Managing Innovation - Integrating Technological, Market and Organizational1 Change. West Sussex: John Wiley & Sons. Ed. 3. pp. 39-50 see Gittleson, Kim (2012), Can a company live forever? BBC News. http://www.bbc.co.uk/news/2 business-16611040 [24.02.15] see de Geus, Arie (1997), The Living Company. Harvard Business Review. March-April 1997. p. 533 see Gittleson (2012), Can a company live forever?4 !4
  5. 5. choosing a good market position (cost leadership, differentiation or focus) to benchmarking the competition. More recent papers in strategy and innovation5 management, however, propose a parting of these old-fashioned strategies in virtue of new market factors - as renowned business thinker Gary Hamel puts it: „[…] in a discontinuous world, strategy innovation is the key to wealth creation.“ These new endeavors are6 ultimately advising companies to avoid fierce competition and to venture into new uncontested markets and value networks. In his bestseller „The Innovator’s Dilemma:7 when new technologies cause great firms to fail“, esteemed Harvard professor Clayton M. Christensen points out that even well-managed, innovative companies fail to stay atop their industries when confronted with what he coined disruptive technology.8 One way of withstanding the disruptive forces of this changing business world, is to spur and implement disruption oneself. However, as Christensen demonstrates in his book, there is no challenge more difficult for a successful market leader facing disruption than to disrupt itself before a startup or a competitor does it. In order to be able to develop and9 implement disruption itself, an organization first and foremost has to overcome its barriers to innovation. This includes cultural, structural and managerial aspects that more often than not lead to innovation happening outside, by new and quickly found startups, rather than within the company. The question that arises is how a large corporation with all those ingrained structures and values might still be able to stimulate disruptive innovation? One strategy that has been around for many decades but seems to come evermore into popularity, is the establishment of so called corporate think tanks: semi-independent research and development departments, specifically formed to identify, analyze, develop, and implement disruptive innovations. Being one of the current top innovative companies10 see Porter, Michael E. (1985), Competitive Advantage - Creating and Sustaining Superior Performance.5 New York: The Free Press. see Hamel, Gary (1998), Strategy Innovation and the Quest for Value. Sloan Management Review. Winter6 1998. Vol. 39, No. 2. pp. 7-14 see ibid.; Christensen, Clayton M. (2003), The Innovator’s Dilemma. New York: HarperBusiness Essentials.7 ed. 1 and McGrath, Rita G. (2013), The End of Competitive Advantage. Harvard Business Review Press. see Christensen (2003), The Innovator’s Dilemma. p. xviii8 see Christensen (2003), The Innovator’s Dilemma. pp. 257-2619 see Poguntke, Sven (2014), Corporate Think Tanks - Zukunftsgerichtete Denkfabriken, Innovation Labs,10 Kreativforen & Co. Wiesbaden: Springer Gabler. pp. 19-36 !5
  6. 6. in the world, Google has been researching and developing disruptive innovations at its11 own corporate think tank called Google X. With ongoing mega-projects stretching from driverless cars to cancer-searching nanoparticles, Google X has become a decent amount of media coverage since its official launch in 2010. The secretive lab at the edge of the Google campus is specifically designed to find science-fiction sounding solutions to humanity’s big problems while increasing Google’s impact in industries outside of Google’s core business or even creating completely new ones.12 This seminar paper is examining the potential of corporate think tanks as a source of disruptive innovation in large corporations. In the first chapter, a clear definition of the term disruptive innovation as well as factors and mechanisms hampering disruptive innovations in large corporations are outlined and analyzed. The second chapter gives an overview of the types, structures and goals of corporate think tanks, including some examples. The third and last chapter takes an extensive look at Google X. A brief outline of Google’s general innovation strategy is followed by a comprehensive analysis of the structures, processes and principles of Google X. Finally, the lab’s potential as a model for large corporations is examined. 2. Barriers to Disruptive Innovation In order to get an idea on why large corporations have severe difficulties spurring disruptive innovations within their organizations and networks, let us first define what disruptive innovation precisely means, and furthermore explore the factors and mechanisms that specifically hamper the development of disruptive innovations within large corporations. 2.1. Defining Disruptive Innovation It wasn’t before Clayton M. Christensen wrote his famous book „The Innovator’s Dilemma“ in 1997 that the terms disruptive technology and disruptive innovation became see Lidsky, David (2014), The Breathtaking Breadth of Google - Most Innovative Companies 2014. Fast11 Company. February 12, 2014. http://www.fastcompany.com/3026059/most-innovative-companies-2014/the- breathtaking-breadth-of-google [25.02.15] see Gertner, Jon (2014), The Truth about Google X: An Exclusive Look Behind the Secretive Lab’s Closed12 Doors. Fast Company. April 14, 2014. http://www.fastcompany.com/3028156/united-states-of-innovation/ the-google-x-factor [25.02.15] !6
  7. 7. popular in the business world and academia. Although concepts and definitions similar to Christensen’s have always been around in the academic circles of strategy and innovation management, it is Christensen and the insights gathered from his analysis of company failure in the disk drive industry that has shed the most light on the phenomena. In his book, and in various academic papers he has written, Christensen reveals that even well- managed, very innovative companies can fail due to the emergence of disruptive technologies. On the basis of his extensive research, Christensen makes the renowned13 case for differentiating between sustaining and disruptive technologies. Hereby, Christensen uses a broad definition of technology that encompasses marketing, investment, and managerial, in addition to engineering and manufacturing processes. He describes technology as „[…] the processes by which an organization transforms labor, capital, materials, and information into products and services of greater value“ and calls innovation „[…] a change in one of these technologies.“ He than concurs that, while a sustaining14 technology can be either incremental or radical in character, sustaining technologies do not create new markets or value networks like disruptive technologies do. Sustaining technologies rather „[…] improve the performance of established products, along the dimensions of performance that mainstream customers […] have historically valued.“15 Disruptive technologies however, bring a completely different and novel value proposition to a market. They introduce, among others, simplicity, convenience, accessibility, and affordability in markets where high costs and complication are the status quo. A16 disruptive innovation therefore can be defined as a technological change, resulting in a product and/or service that creates new markets and value networks, eventually displacing old technologies. A prominent example of a disruptive innovation is the personal computer. As a simpler, smaller, much more convenient and affordable product, the personal computer displaced the old mainframes and minicomputers in the 1980s. Many of the previously successful and viable companies that were manufacturing mainframes and minicomputers did not make the transition to personal computers which was commenced see Christensen (2003), The Innovator’s Dilemma. pp. xvi-xx13 ibid. p. xvi14 ibid. p. xviii15 ibid.16 !7
  8. 8. by some of todays top brands (e.g. Apple). Christensen’s breakthrough insights reveal17 that companies competing in a contested head-to-head market and focusing on higher margins through sustaining innovations always loose to companies implementing disruptive technologies and creating new value networks. A concept by INSEAD Business School professors W. Chan Kim and Renee Mauborgne called Blue Ocean Strategy comes to a similar understanding and might also be of relevance to the analysis in this paper, especially regarding the applicability of the corporate think tank model to large corporations [see Chapter 4.2]. Kim and Mauborgne argue that accelerated technological advances and globalization have substantially improved industrial productivity and information gain, while profit margins, niche markets, and monopolies dwindled. The rising imperative for companies, they conclude, is to let go of companies’ traditional focus on competition-based strategies and to create blue oceans, i.e. uncontested and untapped markets with opportunities for highly profitable growth, by expanding existing industry boundaries. Kim and Mauborgne’s Blue Ocean Strategy is18 based on value innovation which is defined - similarly to Christensen’s disruptive innovation concept - as creating a leap in value for one’s customers and company, thereby opening up new untapped market space. Likewise Christensen’s work, the Blue Ocean19 Strategy puts the emphasis on needs of new, potential customers instead of catering to and focusing on retaining and expanding existing ones.20 2.2. What Hampers Disruptive Innovation „It seems that the very factors that lead to a firm’s success can also play a significant role in its demise. The leadership, vision, strategic focus, valued competencies, structures, policies, rewards, and corporate culture that were all so critical in building the ibid. p. xiif17 Kim, W. Chan and Mauborgne, Renee (2005), Blue Ocean Strategy - How to Create Uncontested Market18 Space and Make the Competition Irrelevant. Boston: Harvard Business School Press. pp. 4f, 8 ibid. p.1219 ibid. pp. 100ff20 !8
  9. 9. company’s growth and competitive advantage during one period can become its Achilles heel as technological and market conditions change over time.“21 While the previous chapter defined and outlined arguments for disruptive innovation, this chapter deals with the barriers to disruptive innovation within organizations. A look at the literature reveals various kinds of models and studies regarding general hurdles to innovation. This chapter however tries to focus specifically on inhibitors of disruptive innovation. Christensen’s research of company failure in light of disruption, and several22 other studies on the topic, expose the prevailing mechanisms hampering disruptive innovation. Although being somewhat interconnected, these mechanisms can be clustered23 into managerial, cultural, and organizational barriers. The literature analysis leads to three main managerial barriers: the failure to recognize the strategic importance of disruptive innovations, the dominant focus on existing business models, products, and customer needs, and the neglect to capture disruptive ideas of employees. Various examples of company failure due to disruption show that many corporations still lack a fundamental awareness of the imperative of disruptive innovation. In spite of new management theories by Christensen and others, many companies keep on sticking to the competition-based strategy principles of the older days. These companies tend to focus too much on their existing business models and customer needs. They are therefore more occupied with sustaining their current way of doing things, improving existing designs and technologies, than with incorporating new ideas. Thus, innovative concepts by employees are discouraged or left behind and technology-innovation remains path-dependent and foreseeable. The company ultimately becomes hostage to its own Paap, Jay and Katz, Ralph (2004) Predicting the „Unpredictable“ - Anticipating Disruptive Innovation.21 Research-Technology Management. Vol. 74, No. 5. Washington: Industrial Research Institute. pp. 13f see Loewe, Pierre and Dominiquini, Jennifer (2006) "Overcoming the barriers to effective innovation",22 Strategy & Leadership, Vol. 34, No. 1, pp. 24f see Christensen (2003), The Innovator’s Dilemma. pp. 33-68 and Assink, Marnix (2006), Inhibitors of23 Disruptive Innovation Capability: A Conceptual Model. European Journal of Innovation Management, Vol. 9, No. 2. pp. 215-233 and Anonymous (2006), Becoming part of the new innovation paradigm. Strategic Direction. Vol. 22, No. 4. pp. 30-32 and Thomond, Pete et al. (2003), Disruptive Innovation: Removing the Innovator’s Dilemma. Harrogate: British Academy of Management Conference and Paap and Katz (2004) Predicting the „Unpredictable“ - Anticipating Disruptive Innovation. pp. 13-23 !9
  10. 10. success. This is what Christensen calls the innovator’s dilemma or what Paap and Katz call dualism.24 Besides management, a corporate culture can pose great obstacles to developing disruptive innovations. Over the years, companies develop their own, unique culture including specific artifacts, shared basic assumptions, and values. Sometimes these25 aspects are deeply ingrained into the corporate culture, to the extent that the company and its individuals become unable to unlearn and to overcome old logic and mental models. This also prevents the advent of new, innovative, break-the-rules ideas which disruptive innovation needs. In contingent, fast-moving and uncertain environments, rigid and often tacit business routines and mindsets become major stumbling blocks for transformational change. Such cultures tend to hold on fiercely to their organization-wide beliefs, in particular when previous successes have underlined the company’s long-existing values and philosophies, leading to innovation-obstructing complacency.26 Finally, there are various organizational barriers regarding disruptive innovation. Hierarchical structures and excessive bureaucracy, often seen in large corporations, lead to slow-moving processes, risk-averse climates, and a decline in creativity. In order to implement transformational change or to push disruptive ideas through, employees of such companies often have to struggle with long lists of rules, standardized procedures, and infighting. Many companies lack a mandatory infrastructure for researching, developing and marketing disruptive innovations. Thus, innovative employees are left with the options to either bootleg, create their own venture or to eventually forget about their ideas.27 A corporation set to overcome the before mentioned barriers has to come up with, and implement new ways of strategy and innovation management. One of the solutions, as proposed in this seminar paper, might be the establishment of a corporate think tank. Its see ibid.24 see Schein, Edgar H. (1999), The Corporate Culture Survival Guide: Sense and Nonsense About Cultural25 Change. San Francisco: Jossey-Bass Publishers. pp. 15-58 see Marnix (2006), Inhibitors of Disruptive Innovation Capability: A Conceptual Model. pp. 219-224 and26 Paap and Katz (2004), Predicting the „Unpredictable“ - Anticipating Disruptive Innovation. p. 14 see Marnix (2006), Inhibitors of Disruptive Innovation Capability: A Conceptual Model. pp. 226f27 !10
  11. 11. characteristics and therefore its potential to break barriers to disruptive innovation are examined in the following chapters. 3. Corporate Think Tanks Academic articles and books about think tanks within corporations are almost non existent. The concept itself has its roots in the second world war, its name originating from the bug- proof rooms („tanks“) in which experts held important discussions about military strategy. The term think tank later became common when referring to organizations offering military or political advice. It wasn’t until recent years that this specific term has become28 increasingly popular among businesses. Sven Poguntke in his book „Corporate Think Tanks“, defines them as „forums, task forces or divisions in which interdisciplinary teams of employees and/or external individuals (e.g. experts, partners, customers) deal with future-oriented issues. Corporate think tanks are intended to contribute to the decision-making of executives and to the realization of business goals by conducting analyses, identifying growth areas, formulating strategies or yielding innovations.“29 Poguntke differentiates between three types of corporate think tanks: analyzing think tanks, creative think tanks and a combination of both. While analyzing think tanks solely focus on assessing trends and developments in the company’s business environment to identify growth areas and new markets, creative think tanks develop specific solutions and innovations. Furthermore, corporate think tanks can either be established as a permanent,30 separate organizational division, as a temporary task force within a corporation, or as an external consulting service offered by specific agencies. The expression corporate think31 tank can therefore be seen as an attempt to create a generic term. Idea labs, creative labs, see Poguntke, Sven (2014), Corporate Think Tanks. p. 928 ibid. p.13. translated from German: „Corporate Think Tanks sind Foren, Projektgruppen oder29 Unternehmensbereiche, in denen sich interdisziplinäre Teams aus Mitarbeitern und/oder Externen (z. B. Experten, Kooperationspartner, Kunden) mit zukunftsorientierten Fragestellungen beschäftigen. Corporate Think Tanks sollen einen Beitrag zur Entscheidungsfindung von Führungskräften sowie zur Erreichung von Unternehmenszielen leisten, z. B. durch die Durchführung von Analysen, die Identifikation von Wachstumsfeldern, die Konzeption von Strategien oder das Hervorbringen von Innovationen.“ see ibid. pp.13f30 see ibid. pp.15f31 !11
  12. 12. innovation labs, skunkworks, and other terms classify as synonymous or subordinate items, according to Poguntke.32 One of the historically most prominent examples of corporate think tanks are Xerox PARC (Palo Alto Research Center) and Lockheed Martin’s Advanced Development Programs, better known as Skunk Works. Xerox PARC is the legendary Palo Alto based think tank of U.S. photocopier manufacturer Xerox Corporation. Established in 1970, the division was meant to gather top scientists and engineers to develop the products of the future. Former employees describe the atmosphere at Xerox PARC as being energetic, young and full of individual freedom. Thus, it sparked disruptive innovations like the laser printer, ethernet and the first personal computer with a graphic interface. However, executives at the company didn’t fully understand the visions the innovators had, eventually leading to the fall of Xerox and to the advent of new successful companies like Apple Computers.33 The history of Lockheed Martin’s Skunk Works division goes back even further. When during the second world war, Nazi-Germany’s then high-tech jets appeared over Europe, the U.S. needed an appropriate reaction which led to the creation of Lockheed Martin’s secretive R&D lab. In the following decades, engineers at Skunk Works created all kinds of breakthrough military spy planes and fighter jets. Today, Skunk Works still is a source of34 disruptive innovations in many areas. Just recently, Lockheed Martin unveiled a project aimed at revolutionizing the energy industry by developing a compact nuclear fusion reactor. The concept that lies behind Lockheed Martin’s Skunk Works is very similar to35 what Pogunkte calls corporate think tanks and has over the years become an often-used term for clandestine company projects. A skunkworks project usually refers to a small team separated from the ongoing business of an organization with complete autonomy, see ibid. p. 1432 see Stillich, Sven (2008), Die wahren PC-Erfinder - Weltherrschaft verschlafen. Spiegel Online. October33 29, 2008. http://www.spiegel.de/einestages/die-wahren-pc-erfinder-a-947989.html [25.02.15] see Garrison, Peter (2010), Head Skunk. Air&Space Magazine. Smithsonian. March 2010. http://34 www.airspacemag.com/history-of-flight/head-skunk-5960121/?all [25.02.15] see Norris, Guy (2014), Skunk Works Reveals Compact Fusion Reactor Details. Aviation Week & Space35 Technology. October 15, 2014. http://aviationweek.com/technology/skunk-works-reveals-compact-fusion- reactor-details [25.02.15] !12
  13. 13. responsibility, freedom for creativity, and control over resources. Both examples illustrate36 the potential of corporate think tanks and their unique characteristics. 4. Google X In reference to above-outlined definition of corporate think tanks, Google X can be classified as a combination of a skunkworks project and a permanent, separate, and rather creative than analyzing corporate think tank. The main idea behind Google X dates to around 2009, when Google’s founders Sergey Brin and Larry Page hit on the idea of creating a management position - a Director of the Other - with the purpose to examine and oversee innovation ideas far from Google’s core businesses. In 2010, This idea evolved into what is now known as Google X. In the beginning, Google engineer and former Stanford professor Sebastian Thrun, who led Google X’s driverless car project, ran the secretive corporate think tank together with Google’s founder Sergey Brin. Later, Thrun was eventually succeeded by Eric „Astro“ Teller, a scientist, engineer, and serial- entrepreneur. Google X has since become a hotbed for science-fiction sounding projects and breakthrough innovations. Its current, known-of projects span from developing above mentioned driverless cars to internet-providing balloons, augmented reality glasses, kite- like wind turbines, smart contact lenses, and cancer-detecting nanoparticles. What is common about all of Google X’s projects is that all of them defy logic and are uncomfortably ambitious and disruptive.37 4.1. Google’s Innovation Strategy „It seems as if no company, executive, or institution truly understands how to survive and prosper in the internet age. Except Google.“38 Before examining the innovation mechanisms at Google X, a quick overview of how Google works and how its management model supports the development of innovations is see Rich, Ben R. (1988), The Skunk Works Management Style - It’s no Secret. Vital Speeches Of The Day.36 November 15, 1988. Vol. 55, No. 3. pp. 87-93 see Gertner, Jon (2014), The Truth about Google X. Fast Company and Miller, Claire C. and Bilton, Nick37 (2011), Google’s Lab of Wildest Dreams. The New York Times. November 13, 2011. http:// www.nytimes.com/2011/11/14/technology/at-google-x-a-top-secret-lab-dreaming-up-the-future.html? pagewanted=all&_r=0 [25.02.15] and Stone, Brad (2013), Inside Google’s Secret Lab. Bloomberg Business. May 22, 2013. http://www.bloomberg.com/bw/articles/2013-05-22/inside-googles-secret-lab [25.02.15] Jarvis, Jeff (2009), What Would Google Do? New York: HarperCollins. Ed. 1. p. 338 !13
  14. 14. essential. From the very beginning, founders Brin and Page outlined Google’s vision, its values and its main goals, as they did not want to build „just“ another company based on conventional thinking. Their intention was to build a dynamic organization in which constant improvement, change, and transformation was expected and in which an environment and culture exist, where smart, committed, and creative individuals that are eager to innovate can expand their abilities to the fullest. Thus, continuous innovation is since its beginnings deeply ingrained into Google’s DNA. Much of the company’s unique management model and innovation strategy can be explained by its corporate culture, which represents the core and the roots of many decisions made at the Google campus. On the basis of a one-year study of Google’s39 innovation model, Annika Steiber, together with the Chalmers University of Technology, clustered the company’s culture into four main categories: focus, ambition, cooperation & collaboration, as well as ethic (see Figure 1.1.).40 Figure 1.1: Attributes of Google’s culture41 see Steiber, Annika (2014), The Google Model - Managing Continuous Innovation in a Rapidly Changing39 World. Cham: Springer. Management for Professionals. pp. 39, 42f see ibid. pp. 48ff40 ibid. p. 4941 !14
  15. 15. Without going too much into detail, Steiber describes that Google’s culture is driven by a clear focus on the specific mission of organizing the world’s information coupled with an emphasis on the individual, by giving each employee enough latitude to pursue his or her own projects. Another important characteristic of Google’s culture is the highly ambitious attitude. Google sets challenging goals and persuades every employee to think big. Therefore, radical and disruptive innovations are more common than incremental improvements and „me too products“. An emphasis is put on creating great solutions and benefits for people, while „the issue of how Google will earn money on the innovation is postponed until later stages.“ In this context, Steiber also mentions the creative42 environment that Google provides to its employees. Google’s offices are designed similar to university campuses, leading to an unconstrained work atmosphere to foster collaboration and creativity. At Google, self-organization and taking initiatives are valued highly. Google employees describe their coworkers as being incredibly smart but at the same time very humble. This, coupled with open spaces and offices as well as lots of transparency and frequent collaboration events, provides an environment in which even high level executives are available to answer questions or to do a chitchat. The last aspect Steiber mentions is Google’s unique ethics. Here, Google’s famous guidelines „Don’t be evil“ and „Do good for society“ play a major role. Early on, Google’s founders Brin and Page stated that Google’s goal was to make the world a better place. The company’s employees are expected to strive towards this goal and to adhere to, and embody Google’s ethical guidelines. Those same ethics also play a major role at Google X, as outlined43 below (see Chapter 4.2). Besides Google’s distinctive culture, the company’s characteristic structure is another important driver for its success. Google finds itself in a constant process of balancing chaos and order: to foster creativity and self-initiative, an organization needs a decentralized and a flat structure - to make profits and succeed in business, a company needs rules, a top-down management approach, and order. Google is able to blend these ibid. p.5242 ibid. pp. 48ff43 !15
  16. 16. two roles in a unique way. On the one hand, Google is strongly striving for self-organizing systems and tries to avoid as much hierarchy and bureaucracy as possible, on the other hand, the company sticks to clear objectives, goals and prioritization given by the top management, and is very much driven by its founders curiosity and ideas. This is also44 where Google X comes in. As described above, it was an idea Google’s founders Brin and Page had developed early on: to have a small part of Google focusing on innovation ideas far from the company’s core business. Eric Schmidt, former CEO and present executive chairman of Google, described this concept by calling it the 70-20-10 formula. In 2005, he stated that, from a management perspective, „‚we spend 70 percent of our time on core search and ads. We spend 20 percent on adjacent businesses, ones related to the core businesses in some interesting way. […] And then 10 percent of our time should be on things that are truly new.‘“45 This formula assures that Google is keeping its core businesses successfully running, but also provides enough time for thinking about radical and disruptive innovations. Google X seems to be a specific unit for developing such „things that are truly new“. The factors that enable Google X to research and develop the truly new are examined in the following chapter, by looking at three categories, similarly to the Chapters above: Google X’s organizational integration, its culture and its processes. 4.2. Innovation at Google X As mentioned above, Google X is a separate, secretive and creative corporate think tank of Google Inc. Its mission is to develop longterm, futuristic and disruptive products and services that are outside of the company’s core business. The idea is to have a R&D department that takes on projects that nobody else is doing. Small companies usually don’t have the resources for such projects, the government often states that it is too risky, long- term, and big companies are mainly afraid of loosing their shareholders or current customers. Ultimately, Google X strives to develop other huge businesses that could augment Google’s core search division.46 ibid. pp. 68ff44 Batelle, John (2005), The 70 Percent Solution. Business 2.0 Magazine. Vol. 5, No. 11. December 1, 2005.45 http://money.cnn.com/magazines/business2/business2_archive/2005/12/01/8364616/index.htm [25.02.15] see Gertner (2014), The Truth about Google X. Fast Company.46 !16
  17. 17. To do just that, Google’s top management made sure that the department is established as a separate unit with independent resources. Google X is - alike its organizational integration - mainly located at the edge of Google’s main campus and is about 250 employees strong. The research and development at Google X is usually done independent from any involvement by teams and departments from the main Google units. In Google X’s early47 days, even most of the company’s main employees didn’t know the lab exist. It is only48 when projects reach a certain maturity that these are send to the core company for further development and implementation. This happened recently for example with Google Brain (now called Neural Network Project), a machine learning project which was first undertaken by a Google X team and is now part of Google’s core departments. This49 example illustrates the uniqueness of Google X and its role as a corporate think tank, which obviously conducts completely different projects to what other Google R&D departments do. Its extraordinary concept even goes against what most large corporations do, regarding far-off-research and risky long-term projects. These days, large corporations rather establish incubators and corporate ventures to fund startups, or buy rights to ideas and patents from university research or government labs than researching and developing it by themselves. While Google is doing that too, Google X strives to be a think tank of curious, smart, diverse, and creative employees which comes up with its own out-of-the- box ideas. Fast Company’s Jon Gertner, one of the first journalists who was granted access to the clandestine lab, sums up three criteria that these ideas share: „all must address a problem that affects millions—or better yet, billions—of people. All must utilize a radical solution that has at least a component that resembles science fiction. And all must tap technologies that are now (or very nearly) obtainable.“50 Google X’s head, Astro Teller and Rich DeVaul, head of the Rapid Evaluation Team at Google X, emphasize that none of the projects they are taking on should be incremental. Teller calls the lab’s projects moonshots and the concept behind it moonshot or 10x see ibid.47 see Miller and Bilton (2011), Google’s Lab of Wildest Dreams. The New York Times.48 see Dougherty, Conor (2015), Hoping Google’s Lab is a Rainmaker. The New York Times. February 15,49 2015. http://www.nytimes.com/2015/02/16/business/google-aims-for-sky-but-investors-start-to-clamor-for- profits.html [25.02.15] Gertner (2014), The Truth about Google X. Fast Company.50 !17
  18. 18. thinking. The idea behind moonshots is to develop a perspective shift: by taking on far riskier and bigger problems, a team has to think in completely different ways than by just improving things incrementally or even radically. Teller and DeVaul believe that it is often times even easier to come up with solutions when you have a ten times bigger problem to solve. An example of moonshot thinking would be Google X’s Project Loon. The51 audacious idea behind Project Loon is to connect the last few billion people to the internet. To make such an idea a reality, one has to think in much crazier and distinct ways than one who, for instance, simply wanted to improve network bandwidth and coverage in a specific region. The encouragement to think crazy led to the concept of a global network of high- altitude balloons orbiting the earth and providing internet service to people in remote and rural regions. Google X is currently still conducting experiments with its balloons. However, various telco companies have expressed interest to partner with Google to further implement the project.52 The moonshot mentality and the encouragement to be creative and think crazy has other benefits, too. For one, it lures smart and creative people from all over the world who want to come and work for Google X, and secondly, it gives an intangible incentive to go to work and to do your best, as there is a difference between coming to work to create the next smartphone, and coming to work to make the first robot car, to fight cancer, or to connect the poor to the internet. Moreover, it takes the pressure to form a business plan or53 to think about how to make profits, consequently leading to more creativity and risk- taking. Thus, Google X’s mission and its projects’ nature themselves already drive the formation of its highly innovative culture, and at the same time emphasize the focus on disruptive innovations. The lab seeks out people with diverse backgrounds, and unique CV’s who are keen on building something. As mentioned above, crazy, bold and science fiction-sounding ideas are welcomed. Employees report that working on things like teleportation, levitation or space elevators have even been talked about. The employees at Google X are constantly pushed to take on risky ideas, to create breakthroughs and to stay see ibid.51 see Levy, Steven (2014), Google’s Balloon Internet Experiment, One Year Later. Wired. June 16, 2014.52 http://www.wired.com/2014/06/google-balloons-year-later/ [25.02.15] cf. Google for Work (2013), Moonshot Thinking from Astro Teller. Google for Work YouTube Channel.53 https://www.youtube.com/watch?v=cA_8IO3vbFs&spfreload=10 [25.02.15] !18
  19. 19. positive if failure occurs. This is accomplished by establishing a culture in which failure is rewarded - e.g. Google X’s head, Astro Teller, is said to give employees hugs if they admit mistakes or if their project failed. As a result, a „cult of failure“ is established and employees tend to take on higher risks, think more creative, and are less daunted when things go wrong. In addition, people don’t hang on too long to a doomed idea, but rather fail fast and start working on the next thing.54 Another distinctive feature of Google X is how it is conducting its innovation process. Unfortunately, as Google X is a somewhat secretive lab, there aren’t that many sources that describe the specific processes going on at the think tank. However, several journalists, especially aforementioned Fast Company’s Jon Gertner, have been able to get a look at some of the ways Google X is approaching and developing new ideas. While ideas for55 new projects come from various people inside Google X as well as from the outside - either from the core company, its founders or acquaintances in academia - all ideas usually undergo a rapid evaluation process at first. The lab has its own team of about half a dozen diverse inventors and engineers to do just that: vetting hundreds of ideas by trying anything possible to making them fall apart. This occurs by using rapid prototyping in a quick and dirty approach. If several ideas might lead to solving a problem or parts of it, Google X’s so called Rapid Evaluation Team quickly tries to implement those ideas by building cheap and scrappy prototypes and testing them out. This ensures that a large amount of ideas can actually be tested, and that the technologies used, are ones that are already available. Later, the best ideas are further explored and questions concerning the scale of the problem, the impact of the proposed solution, and the technological risks are discussed. If an idea still holds, a more advanced prototype is built, an official project is commenced and a team is assembled. It is only then, that the project is made public and that project managers begin looking at specific business plans.56 see Gertner (2014), The Truth about Google X. Fast Company and Stone, Brad (2013), Inside Google’s54 Secret Lab. Bloomberg Business. p. 4 and Grossman, David (2014), Secret Google lab ‚rewards staff for failure’. BBC News. January 24, 2014. http://www.bbc.com/news/technology-25880738 [25.02.15] see Gertner (2014), The Truth about Google X. Fast Company55 ibid.56 !19
  20. 20. 4.3. Model for Large Corporations? „Imagine if General Motors invested in drought-resistant crops, or Disney decided to build small nuclear power plants, or Microsoft got into the algae business. That is the kind of boundary crashing that has become commonplace at Google.“57 After examining the innovation model of Google’s secret lab for disruptive innovations, the question arises, wether this model could be applied to other large corporations? This question is even more interesting as Google isn’t the usual company. Google is considered one of the top innovative companies in the world; its current market capitalization is at a58 whopping $364 billion; in 2014, it has accumulated $66 billion, with a year on year59 growth of 19 %; and it is expected to have more than $100 billion in cash and cash-like60 securities by the end of 2016. Thus, how applicable and how desirable is the Google X61 model to other large corporations that might not be in such an advantageous situation? First of all, Google X isn’t just a playground for experimenting with audacious ideas. And it isn’t as far away from accumulating profits for its parent company as many would think. Unfortunately, due to its clandestine character, there isn’t any information on how much money Google pours into Google X. However, its aforementioned sprung out machine learning project, Google Brain, alone is said to produce a value that is comparable to Google X’s total costs. In addition, Google is already in talks with telco companies62 regarding its Project Loon. Thus, telco companies could soon be able to lease Google’s balloons when needed, generating revenue for Google and leading to substantially more Gunther, Marc (2015), Self-driving cars and elevators to space: what will come of Google’s bold57 ‚moonshots’. The Guardian. February 19, 2015. http://www.theguardian.com/sustainable-business/2015/feb/ 19/google-x-glass-nest-makani-driverless-cars-bold-bets-tech [25.02.15] see Jaruzelski, Barry et al. (2013), The 2013 Global Innovation 1000 Study - Navigating the Digital Future.58 Booz & Company. http://www.strategyand.pwc.com/media/file/Strategyand_2013-Global-Innovation-1000- Study-Navigating-the-Digital-Future_Media-Report.pdf [25.02.15] and Lidsky (2014), The Breathtaking Breadth of Google - Most Innovative Companies 2014. see Anonymous (2015), Google Inc. (GOOG) - NasdaqGS. Yahoo! Finance. http://finance.yahoo.com/q?59 s=GOOG [25.02.15] see Google (2015), Google Inc. Announces Fourth Quarter and Fiscal Year 2014 Results. Google Investor60 Relations. January 29, 2014. https://investor.google.com/earnings/2014/Q4_google_earnings.html [25.02.15] see Barr, Alistair (2014), Google’s Expected $100 Billion Cash Pile Prompts Call for Dividend. Wall Street61 Journal, November 1, 2014. http://blogs.wsj.com/digits/2014/11/01/googles-expected-100-billion-cash-pile- prompts-call-for-dividend/ [25.02.15] see Dougherty, Conor (2015), Hoping Google’s Lab is a Rainmaker. The New York Times.62 !20
  21. 21. internet users who might use Google services. Moreover, as Google X has only been63 founded five years ago, most of the lab’s projects are still in the development stage and have therefore not yet yielded any revenues. One could nonetheless presume that once mature and successfully implemented, projects like self-driving cars, smart contact lenses and drone delivery could eventually yield massive profits. Hence, while Google’s large pile of cash and its continuous growth certainly play an important role in the way Google, its top executives, and its shareholders handle risks, it would be false to assume that only a company in such an advantageous situation as Google were able to establish such a lab. As illustrated above (in Chapter 4 and 4.1), the establishment of Google X is more likely due to Sergey Brin and Larry Page’s desire to attack huge problems and to create disruptive technologies as well as to Google’s longterm business strategy, than just to the playfulness of a wealthy company. There are however setbacks and negative stories, too. Recently, Google X’s first commercially available product, Google Glass, was scrapped. Two and a half years after the augmented reality glasses were unveiled and after many criticism and concerns from the public and privacy groups, the production of the $1,500 glasses was stopped. Even though the future potential of such glasses is projected to be very high, critics argue that the consumer good came out just too early. Furthermore, most of Google X’s currently64 known-of projects aren’t as originally developed as Google X markets them or as they are talked of in the media. The idea behind Project Loon for example wasn’t one that originated at Google X or even Google. Already in 2008, a company called Space Data Corp. was experimenting with internet-providing balloons. Back then, Google even considered partnering with or buying the company. Recently, another project which deals65 with a potential disruptive innovation called Engineered Architecture has come under scrutiny. Architect Eli Attia who began developing the concept in 1996 continued working on it at Google X, shortly after the lab was founded. However, after one year, Google X see Levy, Steven (2014), Google’s Balloon Internet Experiment, One Year Later. Wired.63 see Metz, Rachel (2014), Google Glass is Dead; Long Live Smart Glasses. MIT Technology Review.64 November 26, 2014. http://www.technologyreview.com/featuredstory/532691/google-glass-is-dead-long- live-smart-glasses/ [25.02.15] see Sharma, Amol (2008), Floating a New Idea For Going Wireless, Parachute Included. The Wall Street65 Journal, February 20, 2008. http://www.wsj.com/news/articles/SB120347353988378955 [25.02.15] !21
  22. 22. scrapped the project and created an independent business out of it, while Attia was apparently no longer needed. Later, Attia accused Google X of stealing his idea, and in 2014, a lawsuit against Google was filed. These two examples show that not everything66 about Google X is exciting and blemishless. Nonetheless, regarding the increasing imperative to create new markets Christensen and others talk about as well as the barriers to innovation, both discussed in Chapter 2, the establishing of a Google X-like corporate think tank seems highly attractive for large corporation. As mentioned above, Christensen as well as Kim and Mauborgne argue that large corporations, to a certain extent, have to let go of competition-based management strategies and their increased focus on customer needs and sustaining innovations. They believe that it is absolutely essential for companies to invest sufficient resources creating and opening up new untapped market spaces by developing disruptive innovations. A corporate think tank, such as Google X, can be set up as a unit which is exactly designed to do just that (see Chapter 3 and 4.2). The model of Google X, if realized in a commensurable way, has the potential to solve two problems: it can evade barriers to innovation and it can provide a space specifically for risky, longterm innovation projects, that are far from the company’s core business. Old, ingrained routines, company values, mindsets, and beliefs can thereby be circumvent. Moreover, hierarchies and bureaucracy which might play a substantial role in the core departments of a company, do not play any role in an outsourced division, established especially with the aim to foster creativeness , collaboration and crazy thinking. By having a separate division, the core departments can furthermore increase their focus on the daily business and don’t have to bother themselves with questions about new market opportunities and the company’s future. Lastly, as Google X shows us, developing breakthrough innovations at a special department as opposed to merely buying and taking over startups can boost the company’s attractiveness to the outside world as well as to its existing employees. What remains however, are the managerial barriers. If executives don’t understand the need to look ahead, the need to venture into untapped markets. And if they don’t recognize see Brandom, Russell (2015), The moonshot that missed. Did Google X steal this famous architect’s life’s66 work? The Verge, February 17, 2015. http://www.theverge.com/2015/2/17/8048779/google-x-eli-attia- lawsuit-flux-architecture [25.02.15] !22
  23. 23. the creative potential their employees have, then all of the above mentioned barriers won’t be overcome. Hence, while the model of Google X might be a perfect fit for large corporations in order to vanquish cultural and organizational barriers as well as to deal with the innovator’s dilemma, it predominantly depends upon the top management in these companies if efforts to build a unit for disruptive innovations are actually realized. This might even be a bigger problem for companies that haven’t been founded on the values and visions the founders of Google early on emphasized - among others the aforementioned constant transformation, self-organization, and the 70-20-10 formula. 5. Conclusion This paper examined the issue of developing disruptive innovations in large corporations, and whether this would be possible by establishing a Google X-like corporate think tank. At first, a brief analysis of the term disruptive innovation and its underlying concepts illustrated the dilemma many organizations are facing: fostering disruptive innovation versus focusing on core business processes and values. A look at barriers to disruptive innovation further outlined this dilemma by describing various kinds of managerial, cultural, and organizational barriers that inhibit companies from creating disruptive innovations. Afterwards, the concept of corporate think tanks was briefly clarified. Looking at the concept’s origin, synonymous ideas, and two examples, this paper came to the conclusion that, despite having a long and aspiring history, corporate think tanks are nonetheless rather uncommon, and sparsely implemented and analyzed. Chapter 4 then dealt with Google’s secretive think tank Google X. A quick illustration of Google’s general innovation strategy gave an idea how the search giant is managing its innovation efforts through an unique corporate culture, management approach and structure. Thereafter, an extensive analysis of Google X depicted and clustered various aspects of the lab’s known- of structures and practices, revealing its innovation-propelling characteristics. Finally, the question wether a corporate think tank in the model of Google X would be applicable and desirable to other large corporations was examined. The chapter concluded that, while the establishment of such a think tank could be very much attractive to a large organization, it is ultimately in the hands of the leading management and their acknowledgement of the !23
  24. 24. imperative to develop disruptive innovations that determines the building and the success of a corporate think tank. While making a strong case for corporate think tanks such as Google X, this seminar paper however only partly answers its initially posed question. The latter is the case, because Google X’s secret nature results in only a small amount of information about its mechanisms. Furthermore, the lab’s young existence in comparison to its longterm projects makes a thorough analysis of its success rather difficult. Regarding corporate think tanks and synonymous concepts (e.g. skunkworks), the literature, in general, lacks adequate and deeper analyses. Here, a further look at other examples of corporate think tanks as well as analyses of their profit-making potentials would be interesting. It seems however that the rapid pace of technological progress and the surge in quickly- established startups is increasingly fueling the debate about business and market disruption as well as discussions about new management concepts for disruptive innovation. What is67 going to be interesting, is the various ways businesses will choose to transform and the new dominant management paradigms that will emerge. Consequently, the question companies have to ask themselves these days is which transformation and which innovation concept is the one that is most suitable to their market environment specifically, and to the future business world in general.
 see Wessel, Maxwell and Christensen, Clayton M. (2012), Surviving Disruption. Harvard Business67 Review. Vol. 90, No. 12. December 2012. pp. 56-64 and Hamel, Gary (2009), Moon Shots for Management. Harvard Business Review. Vol. 87, No. 2. February 2009. pp. 91ff !24
  25. 25. Bibliography Anonymous 2006 Becoming part of the new innovation paradigm. Strategic Direction. Vol. 22, No. 4. Anonymous 2015 Google Inc. (GOOG) - NasdaqGS. Yahoo! Finance. http://finance.yahoo.com/q?s=GOOG [25.02.15] Assink, Marnix 2006 Inhibitors of Disruptive Innovation Capability: A Conceptual Model. European Journal of Innovation Management, Vol. 9, No. 2 Barr, Alistair 2014 Google’s Expected $100 Billion Cash Pile Prompts Call for Dividend. Wall Street Journal, November 1, 2014. http://blogs.wsj.com/digits/2014/11/01/googles-expected-100-billion-cash-pile- prompts-call-for-dividend/ [25.02.15] Batelle, John 2005 The 70 Percent Solution. Business 2.0 Magazine. Vol. 5, No. 11. December 1, 2005. http://money.cnn.com/magazines/business2/business2_archive/2005/12/01/8364616/index.htm [25.02.15] Brandom, Russell 2015 The moonshot that missed. Did Google X steal this famous architect’s life’s work? The Verge, February 17, 2015. http://www.theverge.com/2015/2/17/8048779/google-x-eli-attia-lawsuit- flux-architecture [25.02.15] Christensen, Clayton M. 2003 The Innovator’s Dilemma. New York: HarperBusiness Essentials. Ed. 1 de Geus, Arie 1997 The Living Company. Harvard Business Review. March-April 1997. Denning, Steve 2013 It’s Official! The End of Competitive Advantage. Forbes. http://www.forbes.com/sites/ stevedenning/2013/06/02/its-official-the-end-of-competitive-advantage/ [25.02.15] Dougherty, Conor 2015 Hoping Google’s Lab is a Rainmaker. The New York Times. February 15, 2015. http:// www.nytimes.com/2015/02/16/business/google-aims-for-sky-but-investors-start-to-clamor-for- profits.html [25.02.15] Garrison, Peter !25
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  28. 28. 1985 Competitive Advantage - Creating and Sustaining Superior Performance. New York: The Free Press. Schein, Edgar H. 1999 The Corporate Culture Survival Guide: Sense and Nonsense About Cultural Change. San Francisco: Jossey-Bass Publishers. Sharma, Amol 2008 Floating a New Idea For Going Wireless, Parachute Included. The Wall Street Journal, February 20, 2008. http://www.wsj.com/news/articles/SB120347353988378955 [25.02.15] Steiber, Annika 2014 The Google Model - Managing Continuous Innovation in a Rapidly Changing World. Cham: Springer. Management for Professionals. Stillich, Sven 2008 Die wahren PC-Erfinder - Weltherrschaft verschlafen. Spiegel Online. October 29, 2008. http://www.spiegel.de/einestages/die-wahren-pc-erfinder-a-947989.html [25.02.15] Stone, Brad 2013 Inside Google’s Secret Lab. Bloomberg Business. May 22, 2013. http:// www.bloomberg.com/bw/articles/2013-05-22/inside-googles-secret-lab [25.02.15] Thomond, Pete; Herzberg, Thorsten; Lettice, Fiona 2003 Disruptive Innovation: Removing the Innovator’s Dilemma. Harrogate: British Academy of Management Conference Tidd, Joe; Bessant, John; Pavitt, Keith 2005 Managing Innovation - Integrating Technological, Market and Organizational Change. West Sussex: John Wiley & Sons. Ed. 3. Rich, Ben R. 1988 The Skunk Works Management Style - It’s no Secret. Vital Speeches Of The Day. November 15, 1988. Vol. 55, No. 3 Wessel, Maxwell and Christensen, Clayton M. 2012 Surviving Disruption. Harvard Business Review. Vol. 90, No. 12. December 2012 !28
  29. 29. Eidesstattliche Erklärung Ich versichere: Ich habe die Seminararbeit selbstständig verfasst. Andere als die angegebenen Hilfsmittel und Quellen habe ich nicht benutzt. Des Weiteren hat die Arbeit keiner anderen Prüfungsbehörde vorgelegen. Berlin, den ________________ Unterschrift __________________ !29

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