Igniting innovation: how hot companies fuel growth from within

Set up a formal structure for intrapreneurship

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Simply put: formal processes work. Sixty-eight percent of the entrepreneurs we surveyed described their approach to innovation as unstructured and free-flowing.

“The skills needed to take an established business and run it for maximum cash flow are very different from those for conceiving, experimenting and being an entrepreneur.” Paul Sagan, CEO of Akamai

Forty percent, however, also said that their companies came up with lots of good ideas but couldn’t get enough of them to the commercialization stage.

Research shows that structured and formal processes for innovation are more likely to result in viable new ideas. In a McKinsey Global Survey of more than 2,000 executives conducted in July 2010, respondents from companies that set formal priorities for innovation were more likely to say that their firms were better at innovation than their peers.

More important, the absence of a formal process correlated with poor performance in bringing new products and services to market.

One of the most effective ways to encourage internal innovation is to give individuals or teams enough time away from their day jobs to work on creative projects.

Cultivating internal innovation and entrepreneurship

  • 3M: providing the right resources so to enable innovation
  • At 3M — considered one of the most innovative companies in the world — employees are allowed to spend up to 15% of their time working on ideas that they think might benefit the company.

    If an idea is proven viable, the company officially funds it. One such funding program is called the Genesis Grant, which offers researchers up to $85,000 to carry their projects past the idea stage.

    A formal panel of technical experts and scientists reviews the ideas submitted and sends promising projects to another committee of senior technical experts and management.

    This group specifically looks for creative ideas that might lead to a competitive advantage, projects where some preliminary experimental work has already been completed, and projects for which resources required from both within and outside 3M have been identified.

    About 15 grants are awarded each year. According to 3M, products that have resulted from this program include Scotch® Pop-Up Tape and the 3M multilayer optical film technology, Vikuiti™, for laptop and cellular phone displays.

  • Google: dedicating time to creativity and innovation
  • Similarly, Google has set up a formal process for encouraging internal entrepreneurship. Several years ago, Google implemented its concept of Innovation Time Off to encourage creativity among its employees and support continuous innovation.

    About 20% of an employee’s time was to be spent on company-related work that was of personal interest. Almost half of Google’s new-product launches — including Gmail, Google News and AdSense — are said to have originated from the Innovation Time Off program.

  • Owens Corning: giving employees the green light to work outside of current projects
  • Global specialty glass and ceramics manufacturer Corning Incorporated has remained vigorously entrepreneurial despite its size.

    One reason is that Corning gives its scientists and engineers a great deal of freedom, allowing them to use 10% to 15% of their time to work outside their current projects.

    “From the outside, we might look like a really large, process-oriented company,” says Waguih Ishak, Division Vice President of Corning Incorporated and Science and Technology Director of the Corning West Technology Center in Silicon Valley.

    “But when you go inside, you’ll see that our process rigor is grounded in an innovative and risk-taking spirit. Let’s say I’m an engineer working on a new display, for example. While I’m waiting for my new prototype to be built, I can use 10% to 15% of my free time to pursue a biotech idea that uses some of the knowledge generated by the display project. I’m free to contact another business unit and find out what they need. In that way, I may produce another invention in a totally different area from the one I’m formally working in.”

  • Allowing employees to manage their own ideas
  • Another effective strategy to cultivate innovation is to be tight with the approval process but loose with the idea generation.

    A far-reaching survey of the innovation processes at 30 large US-based consumer packaged goods (CPG) companies, conducted by The Nielsen Company, reveals that firms whose senior managers are less involved in the creative process generate 80% more new-product revenue than firms with heavy senior management involvement.

    But it turns out that the big bosses can play a keen role — the same study found that senior managers are essential to manage the process of new product development, not the ideas themselves.

    In fact, in an interesting twist, CPG companies with rigid “stage gates” — points at which a new product idea must pass certain formal criteria to move forward — average an amazing 130% more new product revenue than companies with loose processes.

    Nielsen’s research found that the most innovative CPG firms were those with two to three rigorous stage gates, a formal scorecard for innovations and a standardized post-mortem for all new product development efforts.

    “From the outside, it can often feel like innovation simply ‘happens,’ arriving like a bolt of lightning out of the sky,” says Tom Agan, Senior Vice President of Professional Services at Nielsen. “The truth is that companies with successful innovation track records go to great lengths to create an ideal creative environment and the right behaviors, supporting policies and procedures.”

Separate but equal

Separate but equal Akamai Technologies was launched in 1998 to end what many called the “World Wide Wait” caused by internet congestion. The company commercialized a technology initially developed at the Massachusetts Institute of Technology (MIT) that uses mathematical algorithms to get around bottlenecks and accelerate the flow of web traffic.

“If you’re watching a movie, downloading a song or doing almost anything online, you’ll have a better experience because of Akamai,” says CEO Paul Sagan.

Today, the company handles hundreds of billions of daily web interactions for clients ranging from Apple to the US Department of Defense. It continues to be laser-focused on innovation.

“We’re close to being a billion-dollar business, with thousands of employees worldwide, but we’re not operating in a mature market,” Sagan says. “We’re still in the early days of the internet, and if we don’t keep innovating we’ll end up being a footnote when the whole story is told.”

Time horizons and firewalls

So what can companies do to remain entrepreneurial as they grow larger? The main thing, according to Paul Sagan, CEO of Akami, is to compartmentalize different areas of the business according to their investment time horizons.

“The true entrepreneurial space has a longer-term horizon,” he says. “You really have to keep those resources separate and let projects rise or fall on their long-term capabilities, without being affected by the short-term needs of the larger organization. If you put both horizons together in the same room, the near term will always be the thing that’s ‘on fire’ and so it will always win out. The long-term, crazy, new stuff has to live in a different place.”

This means it gets budgeted and reviewed differently, and that its people report to someone higher in the organization than those running a small business unit normally might.

Finding the right people

Entrepreneurial or emerging businesses also should be managed by a different type of person — someone who’s more of an entrepreneur and a dreamer, and less of an administrator skilled at optimizing processes and getting short-term results.

“The skills needed to take an established business and run it for maximum cash flow are very different from those for conceiving, experimenting and being an entrepreneur,” Sagan says.

“Find the entrepreneurial people in your organization, pull them off any projects with short- or medium-term time horizons, and tell them you’re going to measure them differently. If they continue working doing the same job, working for the same boss in the same department, it’s unlikely that they’ll be successful ‘intrapreneurs.’”

Sagan also points out that entrepreneurship is often accomplished by relatively small groups of people — sometimes only one or two. In large companies, “the committee process fights entrepreneurship,” Sagan says.

“That’s why entrepreneurial teams should be kept separate from the rest of the organization: because everybody else is going to hate them and try to thwart them. So put them somewhere no one can find them, until they’re big enough to stand on their own.”