breakthroughinnovationyour guide to innovatingfor a brighter futureDavid Bent and Zoe Le GrandMade 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 someonecharged with innovation, to organise your company so that you too can deliver breakthroughinnovations which drive both business success and help to create a more sustainable world.the need for breakthroughs on sustainabilityThe breakthrough innovation described in this guide is needed for two reasons: so companies canbe 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 isvital 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 realisethe cost savings gained from efficiency. For a while now leading companies have been looking tothe opportunities that the sustainability agenda presents. They recognise that to realise theseopportunities they need innovation. For many companies this has meant improving their existingproducts 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 SustainableBusiness Model Group) told us they wanted to go further and needed help to produce theinnovation that disrupted the status quo and would help them to fully realise the opportunitypresented by the sustainability agenda. This guide is the response to this request.Sustainable Business Model GroupThe Sustainable Business Model Group is a specialist network for our partners who are creating the next wave ofcorporate sustainability. The focus is on practical ways they can create step-change towards ‘sustainable businessmodels’. It connects global pioneers from across different sectors who learn from each other, have access to a growingbody of knowledge, and can shape Forum’s work. We want the Group to provide the practical basis for the requiredrevolution in how business is conducted.These companies are interested in breakthroughs because they want to drive long-term valuecreation. They can see sustainability issues are eroding the foundations of their current businessmodels – through energy and commodity price rises, worries on security of supply, demands ontransparency and more. Incremental innovations are not enough.Breakthrough innovations do more than help the company succeed. The growth of Cafédirect, forinstance, has improved the lives of coffee producers and made fairtrade a quality mark forconsumers.
The systems we all rely on – such as food, energy and finance – are stuck and need manyinterventions 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 abrighter 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 sustainablefuture will become more profitable. Markets will only endure where they deliver superiorsustainability outcomes.Companies attempting breakthrough innovation as described in this guide are laying thefoundations for their own success, and for a brighter future for us all.what you can do in your companyEveryone agrees that breakthrough innovation is difficult and rare. Add in the intent to create abrighter future, and, you have something even more difficult and rarer. The fact that leadingcompanies asked us to work on this topic is an indication that there are few hard-and-fast answersat the moment.We have worked with these leading companies, read the best we can find and had comments froma variety of experienced practitioners. Our recommendations are offered in the spirit ofbreakthrough innovation: confident they are worth trying, and knowing that feedback will improvethem over time.We have deliberately focused on what a company can do to get breakthrough innovations to thepoint that they are ready to scale. We have drawn three broad conclusions on what a company cando internally: 1. have a balanced portfolio of innovation; 2. embed breakthrough innovation in yourculture; and 3. set up management structures that spot and nurture breakthroughs. There aredifferent ways of doing each. The best way of using this guide is to pick out insights and apply themto your company.1. have a balanced portfolio of innovationYou should make sure at least some of your innovation activity has the potential to makebreakthroughs for sustainability.Incremental improvements to existing products and services are required, but not sufficient. Thiscannot be all of your innovation activity.You will need to regularly check the whole portfolio and individual concepts as they mature. This isexplained in more detail on page 9.
2. embed breakthrough innovation in your cultureA company’s culture sets the context in which people make decisions, large and small. We’vegathered many recommendations on how to embed breakthrough innovation under the four aspectswe use to understand culture: purpose, procedures, people and their networks.The most important aspect is to do with purpose, and answers the question “what issustainability?”. You must set direction, and provide permission for breakthroughs, by describinghow sustainability affects the future success of the company, and vice versa. It should articulatehow the company can succeed by delivering social value within environmental limits, and do so inway that will be relevant into the future.Armed with this understanding, you will be able to judge whether the ideas in development can bebreathroughs for a brighter future.For more on embedding see page 10.3. set up management structures that spot and supportCompanies need specific management structures that protect and foster breakthrough innovations.We have found ten such structures, and arranged them from most internal- to most externally-facing.Each of these provides a vehicle for protecting and nurturing ideas through the various stages ofinnovation. Most companies use more than one of these. You will need to choose the ones whichwill work with your culture.Each structure is discussed in depth, with strengths, weaknesses and examples, starting at page14.
the way forwardWe 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 helpcreate a brighter future.We hope you can use this guide to enable your company to thrive by shifting the wider world to amore 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 toget in touch please contact Zoe Le Grand at email@example.com. Additional copies ofthe guide can be downloaded from the Forum for the Future website(http://www.forumforthefuture.org/).System InnovationWe know that to address the big challenges we’re facing, such as climate change, resources and supply chain risk, weneed to go beyond incremental change and match individual endeavour with collaborative action. Organisations workingtowards sustainable development need to change internally and also work with others to change the system in which theyoperate.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 morelikely 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, andwill have more chance of success used alongside other interventions.Forum for the FutureAt Forum for the Future, we are passionate about creating a brighter, more sustainable future foreveryone.We are an independent non-profit who work globally with business and government to inspire newthinking, build creative partnerships and develop practical solutions. We share what we’ve learnedso that others can benefit – and act.Working with pioneering partners, we transform the essential systems of food, energy and finance tosecure a more fulfilling life for us and future generations.Registered charity no. 1040519.
contentsIntroduction ........................................................................................................................................ 2Why try breakthrough innovation for sustainability? ........................................................................... 7Understanding breakthrough innovation............................................................................................. 8What can you do? .............................................................................................................................. 9 1. Have a balanced portfolio of innovation ................................................................................... 9 2. Embed in your culture ............................................................................................................ 10 3. 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 ......................................................................................... 23Bibliography ..................................................................................................................................... 24acknowledgementsThe 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 • External interviewees and reviewers: Charles Ainger – Cambridge University, Dr Jean Boulton – Claremont Management Consultants, Albrecht Enders- IMD, Neil Harris- Cisco, Dax Lovegrove- WWF, Carmel McQuaid- Marks and Spencer, Eliot Metzger- WRI, Samantha Putt Del Pino- WRI, Hugo Schonbeck – GPX, Hilary Sutcliffe – Matter for All, Nick Valentine – Wildfire Communications. • Design: Joana Casaca Lemos (diagrams) and Jennifer Maddock (layout) • Communications support: Anna Guyer and Susie Taylor of Greenhouse PR • Front page image: istock/thinkstock
why try breakthrough innovationfor sustainability?The foundations of your current business are being erodedThe 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 youroperating 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 - affectingcustomer needs, technologies available, resource availability, investor expectations, regulatoryrequirements 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 havegone 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 businessmodel: one that has foundations that will be true in a future driven by sustainability issues.Incremental innovation will not be enoughExisting companies are brilliant at exploiting their existing capabilities and resources. They excel atreplacing current products or services with slightly better ones, sell more to existing customers orreach new ones.These incremental innovations are necessary and useful, but they are not enough. They will notdeliver a new business model with enduring foundations. If incremental innovation was going tocreate a sustainable world, we’d be there already.The returns of breakthrough innovation are disproportionatelylargeThe returns from incremental innovation are predictable but small. The returns from breakthroughinnovation are unpredictable but occasionally vast. The opportunity cost is small compared to thepotential 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. Ifthings went well he could scale up; if not then he had only incurred an ‘affordable loss’. Limiting the financialand reputation risks of a breakthrough innovation opens up the opportunity for large returns.Markets will endure only where they deliver superiorsustainability outcomesWe believe that activities that take global society in the wrong direction will become moreexpensive, regulated, criticised, and difficult to maintain. Activities that contribute to a sustainablefuture 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 sustainabilityoutcomes. There will continue to be short-term opportunities that do not contribute to a sustainablefuture, and short-term profitable sustainable opportunities. But breakthrough innovation forsustainability is the best way to forge businesses with solid foundations.
understanding breakthroughinnovationBreakthrough innovation doesn’t come naturally to mostbusinesses.Large successful companies often have a disruptive past. They take a new idea and launch it, andthose that grow successfully turn previously ad hoc methods into consistent, systematic routines.Established organisations are brilliantly set up for incremental improvements: the company definesits purpose in terms of its current activities; staff are attracted to its current operations and aretrained 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. Peopleoften don’t have the skills, time or rewards to foster them. Structurally, there can be no space todevelop disruptive ideas. At the same time, senior executives often take the safe bet, opting forincremental improvements with small but predictable returns; these incremental improvements arepreferable to breakthrough ideas which can be unclear how to execute.Why breakthrough innovation is key to a brighter futureIt isn’t just companies that settle into a mature phase where there is only space for incrementalinnovations. These same dynamics are played out in markets and sectors.Before Cafédirect, the established way of operating in the coffee market meant that smallholderswere very exposed to global commodity prices. Cafédirect has disrupted the sector, adjusting someof its norms; and now, most coffee companies have at least one UK product which contributes to abrighter future – be that fair trade, organic, Rainforest Alliance or something else. Cafédirect’sinfluence is wider than coffee: there has been a growth in fair trade products more generally, asconsumers 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 developingcountries. Sometimes these barriers can only be addressed by collaboration, such as establishing acommon standard, or other ‘system innovations’.We need to see change across every sector. Breakthrough innovation from products or services hasa crucial role in shifting market outcomes so companies can succeed while also creating asustainable society.
what can you do?Companies need to organise themselves to increase the chances of supporting a breakthroughconcept at each step – from setting the challenge, inspiring and generating ideas through pilotingand evaluating – to the point that they are ready to scale.As you will see in the detail below, committing to breakthrough innovation means making toughchoices. Companies that have a consistent track record, such as Amazon, are willing to cannibalisetheir 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 breakthroughinnovation. 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 concepts1. have a balanced portfolio of innovationWe have adapted an existing framework for prioritising innovation to create the matrix below. Thehorizontal axis gives the impact on the market, from the least disruptive through to the most. Thevertical 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 someinnovation that is explicitly aiming for a sustainable future.But it takes time to create the breakthrough innovation options needed. In that period the companywill 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 theshort-term. It is necessary but not sufficient.
Some effort will inevitably be incremental innovation for sustainability, for instance with anenvironmentally-friendly version of an existing product (like Sony’s eco TV range) or launchingproducts 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’sPrius (shifting an existing market) or Nissan’s commitment to the electric car (creating a newmarket). Of course, many of the examples here are from new entrants. You can think of oursuggestions below (embedding in your culture, and management structures to protect) as ways thatexisting businesses can mimic being a new entrantUsing the portfolio framework above, we can describe GE’s Ecomagination as a judicious mix ofincremental and breakthrough innovation. GE applied its innovation core competency to existingproducts such as gas turbines for incremental change, but the sheer commitment and scale of theproject has strengthened existing markets for renewable energy generation equipment.2. embed breakthrough innovation in your cultureIt’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 aspectsthat describe any organisation:The most important aspect is purpose, and answers the question “but, what is sustainability?” Youmust set direction, and provide permission for breakthroughs, by articulating how sustainabilityissues affect the future success of the company, and vice versa. This understanding will inform thejudgements 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 FiveCapitals Model and more. We have found that companies can use the Sustainable EcononmyFramework (developed with Aviva and the UK Technology Strategy Board) to turn generic broadbrush strokes into commercially-relevant specifics.Whatever you use, it should articulate how the company can succeed by delivering social valuewithin 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 decision- making 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 supportCompanies 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 somecritical success factors that apply across all of the different structures.You can apply these structures to whole businesses or individual business units. The resources tomake each happen will vary from one organisation to another. Most companies use more than oneof 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 haveexplained these by looking at what you need to do for breakthroughs for each stage of innovation(see box).
Stages of innovationThere 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 conceptthrough to the end of the Build stage.We believe that specific actions at particular stages increase the chance of breakthrough innovation for abrighter 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, tohave the time to develop and look for new ideas. Staff have access to communications channelsand can collaborate with colleagues to implement their ideas.Strengths Weaknesses• The ideas produced are more likely to be • It is hard to implement in an existing company. practical and implementable because the people • There is a risk that people will not be able to developing the new ideas have a good protect their designated time. This could be understanding of the business and have access because formal incentive structures are not to the implementation stage. aligned with innovation or the informal culture• Reinforcing innovation is seen as everyone’s job. does not support it.• Builds sustainability understanding across the • There is a danger that the ideas produced will be business. incremental. • Just giving unstructured time can leave staff stressed about what to do.Good choice if: Avoid if:• You have creative staff that are able to think • You are an existing business, and innovation is about the bigger picture and naturally seek out not seen as an integral part of the culture. the next big thing. • Your staff are task orientated and have little• Your staff understand and are aware of long-term experience of being creative. sustainability issues. • The information channels in your organisation are• You have an organisational structure that slow and bureaucratic. encourages the free flow of information through • The business units that implement good ideas are the organisation both informal and formal separated physically from the rest of the staff. channels.• Innovation is prized within your organisational culture so staff can protect their innovation time.How to do it well:Unlike the other structures below, this approach has little formal protection, therefore, it is essentialthat 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.EXAMPLESGoogleGoogle allows its engineers to spend 20% of their time on the projects that they are reallypassionate about. It is an informal system where engineers can work on a new product or fixsomething that is broken. For example, a project to roll out ultra-fast broadband to a small numberof 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 thisapproach include the development of Google Suggest and Adsense for Content.
Internal CompetitionsWhat is it? A mechanism to encourage internal staff to submit ideas. The competition is usuallytime limited and has clear assessment criteria. The winning idea is rewarded with some form of prizewhich could be funding, the promise of implementation or a personal or team reward.Strengths Weaknesses• Builds on existing team dynamics and can be • There is no built-in, on-going structure to integrated into existing business structures. implement the ideas once they have been• It is a good signal of serious commitment to generated. sustainability from the organisation and helps to • People who have not been successful in the make it exciting. competition could feel disheartened if managed• As well as generating new ideas, the competition properly. can have additional benefits, like improving • The competition could be unsuccessful if people sustainability understanding. are not given the time and space to enter it.Good choice if: Avoid if:• Staff are already engaged but have limited • You have a collaboration culture. There is a risk opportunities to conceive or develop new ideas. that rewarding individuals or teams could be• Your staff culture is naturally competitive. Teams divisive. and individuals thrive on public recognition for • There is no chance to set aside time for people to good work. enter the competition, and people have no• Your staff have ideas outside of their immediate support to create that time. day job but sometimes their ideas are stifled.• Sustainability ideas often fall between departments and so cannot be funded from existing budgets.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.EXAMPLESBupaBupa used an internal competition to help to engage staff in all their global business units insustainability challenges. They appealed to their sustainability champions across the world tosubmit applications to receive match funding to implement their idea. Successful applicants weretaken through a face to face ideas development process. The ideas were developed and thensubmitted to a panel of judges who will pick the ideas that will be implemented.
Innovation FundWhat is it? A ring-fenced budget which is used specifically to fund or part-fund innovative productsor services, especially those which are difficult to fund with existing budgets.Strengths Weaknesses• Innovation projects can be perceived as high risk. • Having a separate fund separates out the Having a ring-fenced budget with different rules innovation activity from the mainstream activity. can make innovation projects possible. • Risk that administering the fund becomes as• Sustainability innovations are often required to bureaucratic as other processes. 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: Avoid if:• There are ideas or initiatives that need additional • There is no clear implementation channel for the funding or match funding to make the business ideas. case.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.EXAMPLESP&GP&G has established the P&G Corporate Innovation Fund (CIF) to finance the development ofdisruptive 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, andqualification work and then hands over successful ideas to the appropriate business unit.SiemensSiemens Austria’s innovation fund focuses on projects that could not be implemented quicklyenough or at all without additional support. The fund functions as internal venture capital forprojects 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 employeerepresentation system and the company management.
Hot HousingWhat is it? A group of people from an organisation are put together, possibly with a small numberof trusted outsiders, to take part in a time-limited, intensive problem-solving session.Strengths Weaknesses• This approach can be useful if an organisation • There is a risk that, unless there is a clear has become stuck with a specific problem which structure for how the solution will be taken it cannot solve within the constraints of its forward, it will get stuck within the existing normal operations. organisational structures that prevented the• Having a time limited process can make it easier problem being solved in the first place. to attract senior staff.Good choice if: Avoid if:• Staff need time and space outside their day jobs • Staff are not inclined, or given permission, to take to spend on innovation and problem solving. time out of their day jobs to spend on the• There are new or existing problems that need session. solving and can’t be solved through existing • Your organisation does not welcome or take on channels or there are existing products and board external advice. services that need developing.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.EXAMPLESCapgemini – Accelerated Solutions EnvironmentThe Accelerated Solutions Environment (ASE) brings business stakeholders together to work ontheir business strategy, technology architecture and key business improvement initiatives. It takesplace in a space that is flexibly used (environment) where the aim is to reach a group decision ornext step (solution) in a short period of time (accelerated). Key elements include using a flexible andinspiring environment with a short time period that can make it easier to attract senior managers.Sony and FutureScapesSony worked with Forum for the Future on a hothousing project to explore how technology canenable 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 publicthroughout Europe to explore the opportunities and challenges of life in 2025, and to consider thepotential contribution that technology can make in shaping a better, more sustainable future. Theculmination of the first stage of the project involved using different scenarios of the future tospark innovative ideas during time limited, intensive workshop sessions.
Central TeamWhat is it? A team dedicated to producing innovative ideas. This could either be an entirelyseparate team or new roles within existing teams with a common purpose.Strengths Weaknesses• Innovations often cut across categories or new • Innovation is seen as one team’s job and the markets and therefore a cross cutting team can rest of the organisation does not come up new be really effective. ideas.• Assigning responsibility to one team can • The ideas that come from the team are not increase their focus and therefore ensure that owned by the implementation team and feel maximum effort and maximum speed is applied imposed. to the innovation. Other teams can focus on • There is a risk that ideas created by the team implementation. will be watered down by the constraints of the• The team’s specific innovation skills could help organisation. This will result in only incremental to encourage long term and abstract thinking innovation and a demotivated team. resulting in more radical ideas.Good choice if: Avoid if: • There is a lack of innovation skills within the • Concepts generated will have a tough time being business. accepted or resourced in existing business units. AND • There are other efforts to embed innovation in culture.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.EXAMPLESP&GProcter & Gamble has central innovation teams at the corporate level called FutureWorks. Theirresponsibility is to create, incubate, and scale transformational new business models, newcategories, and service experiences that capitalize on consumer-driven, disruptive marketinnovation. 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, ChiefMarketing Officer, and Chief Technology Officer. This enables them to access the capabilities andresources of all of P&G, but also have the agility of their own dedicated pool of entrepreneurial andexperienced professionals from all functions and disciplines needed to operate their businesses.
Skunk WorksWhat is it? A group within an organisation given a high degree of autonomy and protected from theorganisational bureaucracy. It is often placed in a physically separate place and works on secretprojects.Strengths Weaknesses• The Skunk Works team are less likely to feel • The knowledge of how to pull off breakthrough restricted by existing organisational norms and innovation can get stuck inside the Skunk Works can think more freely and more long term. group.• The Skunk Works team will be extremely • A Skunk Works could be seen as a signal of focused on the task. Staff come up with ideas management dysfunction. It could imply that the and then take them forward through the Skunk regular structure can’t handle radical innovation Works. so must form a new, separate organisation based• The rest of the organisation is less likely to feel on exclusivity, in order to be innovative. threatened, especially if it’s taking place in • Having ideas developed in separate organisation secret. Keeping an element of secrecy allows for can increase silos and thus lead to resentment fewer distractions, fewer compromises and a within the rest of the organisation. great ability to fail.Good choice if: Avoid if:• Your organisational culture can accommodate a • Your organisation wants to create a pervasive separate, secretive group. 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.EXAMPLESLockheed MartinThe term Skunk Works was originally coined by Lockheed Martin to describe its advanceddevelopment project unit, a secret unit charged with developing the first jet fighter plane. Theengineers were housed in a separate unit and encouraged to break company rules in the name ofinnovation. They developed a stream of highly successful spy-planes including the u-2 andsupersonic bombers that set new standards for performance and were delivered ahead of scheduleand below budget.
Conscious CollaborationWhat is it? Two (or more) organisations approach each other specifically to produce an innovationin response to a joint problem, challenge or opportunity. They work in partnership to develop and, insome cases, deliver the innovation to market.Strengths Weaknesses• All parties can bring different expertise, • The partnership will need close management experience, tools, techniques and networks. which takes time and resources.• Working with those outside of your immediate • The expectations and abilities of the partners sector can bring in new viewpoints and creativity need to be explicit and aligned otherwise there is which can help to stimulate innovative thinking. a risk that the partnership will become uneven.• The collaboration can be a test bed for future • Coming together publically with another brand partnership work. could bring a reputational risk as the activities of• Looking outside the organisation to others in a both companies are seen in tandem. 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: Avoid if:• Your organisation is used to working in • You are used to working on highly competitive partnership and is willing to do this in an equal products and service development that requires manner, rather than a client/supplier relationship. confidentiality during the development stage.• Your organisation is willing to share IP. • You do not have the time or resources to manage• There are customer problems that you could the partnership closely or cannot find an solve more effectively by working with another appropriate third party to facilitate the organisation. 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.EXAMPLESM&S and OxfamA collaboration between M&S and Oxfam allows M&S customers to take their unwanted clothes toM&S stores instead of throwing them away. Unwanted items are resold, reused or recycled byOxfam. The partnership aims to reduce the amount of clothes going to landfill and Oxfam hopes itwill help to raise an extra £2m for Oxfam.
Open InnovationWhat is it? Open innovation is putting a call out to the general public or to a specific group tosuggest ideas or submit proposals to solve a specific problem. It often uses a digital platform.Strengths Weaknesses• It allows the organisation to access a large pool • The organisation has less control over the of experience in a quick, cost effective way. process and any IP that is generated may not be• It attracts ideas from people outside the fully owned by the company. organisation who are unencumbered with • Quality control can become an issue and there organisational norms and values. can be a lack of fit between the idea and the• Specialized innovators might prefer to work organisation. toward mutually beneficial royalty deals with • It can be a very time intensive process to manage suppliers and buyers. as there may require a lot of interaction between• The ideas come from a range of sectors and the people submitting the ideas and those within places and this can be particularly effective for the organisation. systemic sustainability issues. • New ideas and ways of working could remain within the partnership boundaries and not spread to the other parts of the organisation.Good choice if: Avoid if:• Your organisation has strong links to networks of • The organisation wishes to keep innovation tightly entrepreneurs and other sources of new ideas. within organisational boundaries.• Your organisation is comfortable and confident • There isn’t the time or resources to manage the using online platforms and multiple forms of process properly or thoroughly. communication. • The organisation is culturally resistant to ideas• Your organisation has a relaxed attitude towards that were not produced internally. their IP.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.EXAMPLESGoogleGoogle put out an open call to Google users: “What would help” and “What would help most”. Theproject, called 10 to the 100, attracted 150,000 ideas in response to the call. They narrowed thesedown to 16 key themes and the public voted for the top five ideas. The ideas included: makeeducational 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 potof $10m.UnileverUnilever has recently launched a website to gather and assess ideas from outside the company tobolster sales from new products and improve environmental practices. Unilever will ask for ideasfrom 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 25percent to 60 percent.
Corporate VenturingWhat is it? A large firm takes an equity stake in a small but innovative or specialist firm aiming togain a specific competitive advantage.Strengths Weaknesses• It allows the organisation to access • Keeping the innovative companies at arm’s length sustainability skills, experience and new ideas does not help to build up internal capacity and quickly that have been produced free of the the ideas generated as a result could face constraints placed by large organisations. difficulties in implementation.• It can help businesses to look more widely for • The innovative ideas are kept separate to the solutions without needing direct business unit core business. sponsorship.Good choice if: Avoid if:• Your organisation has staff with experience in • The organisation is seeking to integrate venture capital. It might also help to employ innovation into its core DNA people who have been entrepreneurs • There are no channels for cross learning between themselves. the core company and the new company.• The organisation has access to networks of entrepreneurs and start-up companies.• You need to access new skills and ideas quickly.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.EXAMPLESUnileverUnilever’s European Corporate Venturing arm is called Unilever Ventures. They invest capital in threeways: • 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 AcquisitionsWhat is it? Gaining access to innovation by acquiring companies with relevant skills, processes orproducts.Strengths Weaknesses• An organisation can significantly strengthen • Integration of the new businesses into the larger its innovation pipeline through acquisition. organisation can be difficult.• The larger organisation can take the innovation • Acquiring a company does not help to build developed in the smaller organisation to scale innovation capacity within the parent much more quickly. organisation.• The large organisation can learn from the smaller • Ideas are not generated as a result of business organisation’s approach to supply chain needs and so could face difficulties in management etc. and vice versa. 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 • There is no prospect of integrating well. would take too long or be too expensive to grow organically.• You will be able to integrate the acquired company.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.EXAMPLESBen & Jerry’s and UnileverBen & Jerry’s makes premium ice cream and was established in 1978. It was taken over by Unileveris 2000. This takeover was unusual as it was a hostile takeover which meant that the values of Benand Jerry’s were more at risk. Jerry Greenfield (Jerry of Ben & Jerry’s) is sceptical about the amountof influence that the small company can have on Unilever. However, Ben & Jerry’s has managed tomaintain its social and environmental values. For instance, it still operates the Ben & Jerry’s climatechange college which gives six students per year the chance to learn about climate change throughworkshops, internships and a trip to the arctic.
BibliographyBlogs and ArticlesAmabile, T and Kramer, S (2012) “How Leaders Kill Meaning at Work” McKinsey Quarterly, available online athttp://www.mckinseyquarterly.com/Governance/Leadership/How_leaders_kill_meaning_at_work_2910, accessed 19.6.12Alexy, O and Reitzig, M (2012) “Managing the Business Risks of Open Innovation”, McKinsey Quarterly, January 2012,available online athttp://www.mckinseyquarterly.com/Strategy/Innovation/Managing_the_business_risks_of_open_innovation_2911 ,accessed 19.6.12Birkenshaw, 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 19.6.12Clemmer, J (2012) “Innovation Champions, Skunkworks and Organisational Learning”, ManagerWise, available online athttp://www.managerwise.com/article.phtml?id=241, accessed 19.06.12Gauptmann, I (2012) “What is Radical Innovation Anyway?”, available online at http://6-heads.com/category/radical-innovation/, accessed 19.6.12Gaule, A and Moore, M (2004) “Review of Leading Corporate Venturing Units”, Henley Incubator, available online athttp://www.strategicventureassociation.com/pdf/Review_of_Leading_Corporate_Venturing_Units.pdf accessed 19.6.12Jaruzelski, B Loehr J, and Holman, R, (2011) The Global Innovation 1000: Why Culture is Key Booz and Co, “Strategy andBusiness”, Booz and Co, Winter 2011 available online at http://www.strategy-business.com/article/11404, accessed19.6.12Lawrence, J (2012) “Last minute rush for SME investment tax breaks”, Inspiresme, available online athttp://www.inspiresme.co.uk/news/finance/last-minute-rush-for-sme-investment-tax-breaks-09762/ accessed 19.6.12Lindegaard, S (2010) “Is Open Innovation Replacing Corporate Venturing?”, Innovation Excellence, available online athttp://www.innovationexcellence.com/blog/2010/09/15/is-open-innovation-replacing-corporate-venturing/ accessed19.6.12Paap, J and Katz, R (2004) “Anticipating Disruptive Innovation”, Research Technology Management, available online athttp://www.jaypaap.com/articles/Paap-Katz-Disruptive%20Innovation-sep-04-p13-mod.pdf accessed 19.6.12Trimble, C (2010) “The Surest Way to An Innovation Initiative”, HBR Blog Network, available online athttp://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 19.6.12Reports and BooksAllianz, IDEO, Skoll Foundation, SustainAbility (2008) “The Social Intrapreneur”, available online athttp://www.sustainability.com/library/the-social-intrapreneur?path=library/the-social-intrapreneurs accessed 19.6.12Christensen, C, Dyer J, Gregersen H, (2011) “The Innovator’s DNA”, Harvard Business School PressMoss Kanter, R (2009) “SuperCorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good”,Crown BusinessWWF and Verdantix (2011) “Green Game-Changers”, available online athttp://www.wwf.org.uk/what_we_do/working_with_business/green_game_changers/ accessed 19.6.12WebsitesCapGemini: www.uk.capgemini.comP&G: www.pg.comP&G Futureworks: www.futureworks.pg.comProduct Arts: www.product-arts.comSiemens: www.cee.siemens.comSix Heads: www.6-heads.comSearch CIO: www.searchcio.techtarget.comThe Chemical Engineer: www.thechemicalengineer.comThe Five Capitals (explanation): http://www.forumforthefuture.org/project/five-capitals/overviewThe Sustainable Economy Framework: http://www.forumforthefuture.org/project/framework-sustainable-economy/overviewTriple Bottom Line (definition): http://en.wikipedia.org/wiki/Triple_bottom_line