Igniting innovation: how hot companies fuel growth from within

Prepare for pitfalls of intrapreneurship

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The number of new products or services that actually make it to market is a mere fraction of the ideas and even prototypes that are discarded or fail market tests.

One of the biggest risks an innovator takes is that the market may not be ready for the invention at a particular time — thereby allowing someone else to reap the rewards several years down the road.

Companies, therefore, need to set the “price of failure” up front: How much are they willing to risk before pulling the plug? How many failures are too many? What can they do to keep their best inventors from defecting to competitors or worse, becoming the competition?

There is no definitive answer to those questions, but a paper published at an Indian management conference hints at one:

“Intrapreneurs need to be given the space in which to fail, since failure is an unavoidable aspect of the intrapreneurial process. This is not to say that organizations should simply condone failure, but rather that organizations need to begin to measure and attribute failure to either intrapreneur fault, or circumstances beyond the intrapreneur’s control — and punish and reward accordingly.”

Timing is everything in intrapreneurship

Failure doesn’t necessarily have to be the fault of the product or service; it can also have to do with timing. One of the biggest risks an innovator takes is that the market may not be ready for the invention at a particular time – thereby allowing someone else to reap the rewards several years down the road.

A prototype of the ATM, for example, was invented as far back as 1939 and field-tested at what is now Citicorp, but the bank discontinued its use after six months because of low demand. It wasn’t until the mid to late 1980s that ATMs made their way into mainstream banking.

When 3M designed the first color copier in the early 1970s, few companies even had color printers, so market demand for the copier was almost nonexistent and 3M pulled the product.

But a few years later, Xerox Corporation came out with its own color copier and enjoyed the payoff as technology evolved and demand picked up.

Rewarding intrapreneurs for their contributions

Another risky issue is that of reward — a huge sticking point for intrapreneurs. Fed up with small bonuses and a few pats on the back, they often quit to form their own far more lucrative businesses.

Companies cannot always prevent this brain drain, but it’s worth revisiting the suggestions of the original intrapreneurship gurus, Gifford and Elizabeth Pinchot, who wrote extensively on the topic of compensation.

They advocated an equitable division of profits between the intrapreneur(s) and the corporation. The Pinchots proposed that a company establish “a trusted committee to ‘buy’ completed research from its intrapreneurs for some pre-established fraction of its value to the company as determined by an established accounting system.”

Furthermore, they said, the intrapreneur “could earn in addition to his cash bonus, complete control of a definite amount of R&D funds, funds which he would have a completely free hand in investing on behalf of the corporation in his future R&D projects.”

By building up this “intra-capital,” the innovator would have a stake in and therefore loyalty to the company.

EY survey: Leading entrepreneurs speak out on innovation

“Dream big.” “Go with your gut feeling.” “Make innovation part of the company culture.”

These are not platitudes from management consultants but on-the-ground advice from real-world entrepreneurs. They are just a few of the wealth of insights we gained from our 2010 survey of how 263 of the world’s leading entrepreneurs (all winners of EY’s Entrepeneur Of The Year awards) approach innovation.

The ability to innovate is
critical to the growth of
my organization

While our respondents differed on specifics, they agreed on some key issues and challenges:

  • Eighty-two percent of the entrepreneurs strongly agreed that innovation was critical to the growth of their business. The same percentage said it was the one genuine advantage they had over their rivals.
  • Yet almost half (47%) of the entrepreneurs said that setting formal priorities for innovation played no role in their strategic planning process, or that they did this badly.
  • Combining innovation and scale is a pressing challenge. Almost half (49%) of the entrepreneurs said that innovation had become more difficult as their organization had grown in size and complexity.
  • Across geographic regions, entrepreneurs broadly agreed about the kind of government support they wanted. They called for tax breaks, R&D incentives and direct subsidies to help finance innovation.
  • Around half of the entrepreneurs in each region felt they innovated well in parts of their business, but rarely scaled this across their organizations.

Regional differences impact innovation

We execute well on the few
good ideas, but need a more
robust pipeline of big ideas

Our 2010 survey revealed that 38% of entrepreneurs in the EMEIA region adopt a structured approach to innovation, compared to 33% for the Asia-Pacific region and only 24% for the Americas.

Most entrepreneurs do not offer their staff monetary rewards to encourage innovation or give them a set amount of “ideas time”; however, those from the Asia-Pacific region are more likely to use these methods.

More entrepreneurs in the Americas (62%) say innovation takes place throughout their organization, whereas respondents from the Asia-Pacific (44%) and EMIEA (36%) regions tend to feel that innovation is the responsibility of a centralized leadership team or the company owner.

Which of these statements best characterizes your approach to innovation?