Breking out of the innovation box

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HARVARD BUSINESS REVIEW

Breaking Out
by John D.Wolpert

the Innovation Box
A
THE ECONOMY BOOMED in the late 1990s, corporations went on an innovation binge. They poured money into programs for generating fresh ideas, pioneering new technologies, and promoting entrepreneurship and creativity among employees. They launched venture capital arms and new-business incubators. Theyrecruited freethinking executives who weren't afraid to rock the corporate boat. They brought in creativity consultants to spur out-of-the-box thinking. And where are those efforts today? Many of them have been scaled back, mothballed, or disbanded altogether. As the economy cooled at the start of this decade, companies quickly cut off the flow of funds into innovation efforts. What seemed like amandatory expense just months before suddenly seemed discretionary. Even the rhetoric of business took a tum: Executives began to speak less about "creating the future" and more about "protecting the core." What happened over the last few years is not an anomaly. It's business as usual. In most companies, investments in innovation follow a boom-bust cycle. For a time, the cash fiows. Then, as companiesrethink their priorities, the taps go dry. Annual surveys conducted by the Industrial Research Institute confirm the cyciicality of corporate innovation. In the early 1980s, surveyed executives said that innovation was their foremost priority. By the late 1980s, most executives reported little interest in innovation. Similarly, in the early 1990s, innovation didn't rate among the top fivecorporate priorities, but it was back at the top ofthe list by the late 1990s. Harvard
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As long as companies manage innovation as a secretive process, investment will be erratic and results disappointing. Ifs time for a new, more open approach.

THE INNOVATIVE ENTERPRISE AUGUST 2002

Breaking Out ofthe Innovation Box

Business School professor Henry Chesbrough has identified a similar pattemin the 1960s. Of course, no business initiative should be immune to changes in market conditions or company strategies. Corporate innovation programs should be subject to careful, hard-nosed evaluation, and those that don't promise adequate retums should be curtailed or refocused. But that is not what is going on here. Rather, the way corporations invest in innovation is fundamentally unreliable.When innovation budgets are slashed, strong projects are ahandoned along with the weak. The consequences can be devastating. Promising initiatives are cut off just when they are about to bear fruit. Highly touted training programs are discontinued with little explanation, stirring employee cynicism. Expensive labs are closed, and talented researchers and designers are reassigned or laid off.Partnership agreements costing millions in legal fees are thrown away. Worst of all, the perceived failure of the investments often creates organizational skepticism about and resistance to future innovation initiatives. Consequently, when dismptive changes in the competitive landscape come, companies are caught fiat-footed. Innovation is always a risky pursuit, with an uncertain and often distantpayoff. But must that fact doom it to erratic investment? Or can innovation become a staple corporate priority as, for example, quality has become? My belief is that stability can be brought to corporate innovation and that the result will be much greater strategic gains and much stronger retums on investment. But sustainable innovation requires an entirely new approach. Instead of being a largelyisolated process-carried out often with considerable secrecy-innovation needs to become more open. Initiatives must gain access to and leverage from the insights, capabilities, and support of other companies without compromising legitimate corporate secrets. As counterintuitive as this may sound, innovation must become part of the ongoing commerce that takes place among companies. Only then will it...