Centralize Innovation Budgets
Big innovation happens too rarely. This is the kind that creates real, enduring “must haves” that define new categories or subcategories and is the only path to real growth. One major reason is that the budgets are controlled by the large business units that are focused on their profitable businesses that use incremental innovation to improve the offering and/or reduce costs. Returns to such investments are predictable, and there are organizational and personal biases against risky alternatives even when the upside can more than compensate for the risk involved.
Organizations can attempt to counter those biases by creating an entrepreneurial culture, with centralized innovation budgets that take power away from the existing big business units. The entity controlling those budgets will have to encourage ideas and idea champions to surface, select those that seem most promising, and then support progress toward commercialization. The goal is to overcome the bias toward incremental innovation and allow some big innovations to live and prosper.
Let’s consider GE, P&G, and HP
The signature program behind a 2003 GE innovation initiative was the internally branded “Imagination Breakthrough” (IB). Each business each year was charged to propose three IB projects that would realize a $100 million potential in a three- to five- year time frame. To be selected as an IB project, the proposal needed to demonstrate not only a strong market projection and economic viability but also that it had the potential to transform markets. Funding was available from an internal source operating much like a venture capital firm. The central marketing group, who led the IB process, provided a planning framework that included dimensions such as calibrating the idea, exploring its potential in the market, creating the offering, organizing to deliver it, and executing in the marketplace. Four years after it was launched, the IB initiative was adding two to three billion dollars in sales each year. One project was the GE Rail Evolution Locomotive, a fuel- efficient diesel locomotive that meets the aggressive emission standards required by the Environmental Protection Agency.
P&G has the Corporate Innovation Fund (CIF), which specializes in high-risk, high-reward ideas. Led by the CIO and CFO, the fund is in place to provide seed money to projects with the potential to create major disruptive innovations. Completely separate from business units, it is free to focus on innovations that span business units. Crest Whitestrips, for example, combined film technology from corporate R&D with bleach technology from laundry to provide a teeth-whitening treatment for oral care. Neither of these groups would have sponsored the innovation effort on its own.
A major business group within HP created the Innovation Program Office (IPO) in order to support the development of innovative new products that were significant departures from existing ones. One output was the Blackbird computer for high-end gaming. A key question used to screen proposals asked whether this offering has the potential to fundamentally change the competitive landscape or create new consumer demand. The program’s target was to develop two new products each year. Achieving that goal means many more have to enter the pipeline, because though seven or eight proposals will pass to the prototype stage, four will progress to limited launch and only two will be commercialized.
An effective allocation process should have several characteristics.
- The people controlling the process need to have the authority, the credibility and the wisdom to make the hard decisions, including the tough de-funding and “no-go” decisions.
- When proposals are judged to be weak but promising, time should be allowed to look for a route to overcome limitations and barriers.
- There should be follow-on support and guidance at the major checkpoints. A project should not be allowed to wither because of neglect.
Centralizing innovation budgets will stress an organization that takes pride in the autonomy, entrepreneurship, vitality and accountability of its decentralized structure. There will be push backs and efforts to circumvent. But centralization is really the only way that “big innovations” will spawn real growth platforms and find a voice and home.