Why Every Business Should Consider Innovation Teams

In 1981, IBM was one of the world’s largest companies, but faced a growing threat from the rise of personal computing.  Having lost out on the minicomputer revolution of the 1970’s, they were determined not to repeat their earlier mistake.

So instead of trying to develop a product through their usual process, which normally took four years, Don Estridge was dispatched to Boca Raton, Florida to create an innovation team that would work outside the IBM system.  A year later, the IBM PC was born.

It was one of history’s great success stories.  A large and prosperous company owns up to the realization that “business as usual” won’t cut it, adapts and prevailed.  Yet the concept of innovation teams has taken some criticism lately.  First from Apple CEO Tim Cook in a Businessweek interview, and more recently from Greg Gretsch in VentureBeat.

Can’t We All Just Innovate?

Both Mr. Cook and Mr. Gretsch make similar arguments against innovation teams.  They insist that innovation should be everybody’s job and that setting up a specific unit for innovation implies that it shouldn’t happen elsewhere in the organization.  They have a point.

By decoupling innovation from operations, you run the risk of separating innovation activity from where money is made.  Put a guy with a bright idea against a guy running a billion dollar division and the operational executive will win every time.  Innovation is not a mere process, but a mindset and requires an innovative culture to thrive.

However, while operational employees can effectively innovate within their own line of business or domain of expertise, they often falter when it comes time to go in a different direction or when a new way of doing things is likely to disrupt their livelihood.  Both these factors came into play when the IBM leadership sent Don Estridge to Boca Raton.

So Mr. Cook and Mr. Gretsch are wrong to discourage innovation teams.  Like any effective tool, they must be deployed in the right time, place and business context.

Places Where Sharp Minds Are Given Free Reign

In Benoit Mandelbrot’s recent autobiography, he wrote with great nostalgia about his time at IBM labs, where sharp minds like his were given free reign to explore their interests, with great benefit to the company.  Innovations included relational databases, the SABRE travel reservation system and, most recently, the Watson computing platform.

IBM, of course, is not alone.  The transistor and the UNIX Operating system, just to name two, were invented at Bell Labs.  Much of the modern computer architecture was developed at Xerox’s PARC (although, admittedly, they failed to capitalize on it) and the list goes on.

Many would say that these things aren’t innovations, but inventions because to be an innovation, there must be a specific purpose in mind.  However that’s a fuzzy distinction at best and it doesn’t hold up to scrutiny.  After all, one man’s purpose is another man’s folly and what may seem useless in one particular time and place, may turn out to be an essential innovation in another.

Clearly research labs are a form of innovation team and basic research is essential to the innovation ecosystem.  However, let’s give Mr. Cook and Mr. Gretsch the benefit of the doubt and assume they are not out to abolish all basic research.  Yet even with that exception, innovation teams have important roles to play.

How Breakthroughs Happen

In the early 1950’s, some of the world’s greatest scientists were racing to discover the structure of DNA.  Many thought Linus Pauling, the greatest chemist of the day, would win the coveted prize.  However, two relatively unknown scientists, Watson and Crick, were the ones to get there first.

The reason was that they recognized that the structure of DNA was not a chemistry problem.  For that matter it wasn’t a biology problem or an X-ray diffraction problem either, but that the solution required a synthesis of all of those domains.  They made history by realizing that they needed to combine what each field had to offer.

This is a common problem.  People working on a particular set of issues use frameworks that are optimized for addressing the questions of that domain.  Eventually, however, they get stuck and require a different perspective and set of skills.  A new organization can be helpful in that regard.

That’s why many firms are turning to open innovation solutions such as Innocentive and Proctor and Gamble’s Connect + Develop to help them integrate knowledge outside the organization in order to develop new products and improve existing ones.

Can You Disrupt Yourself?

A good, innovative product team will continue to improve their offering according to the needs of their customers.  Over time, performance will improve, costs will go down and strong connections will be built between the organization and its best customers.

However, as Clayton Christensen has pointed out, this presents its own problems.  As a business focuses on its current client base, a new market often develops which prefers lower performance on current parameters, but improved performance on a different set of attributes, such as price or convenience (desktop copiers are a good example).

Existing organizations tend to perform very poorly with these types of disruptive innovations.  They are, after all, committed to the success of their current operations, want to please their current customers and are focused on improving performance in a conventional market.

So while startup cultures tend to be very innovative, things change when they reach scale.  For instance, while Google remains a high performing organization that continually improves its existing products; it created Google X to pursue its moonshots.

Finding Solutions For Problems (And Not The Other Way Around)

In truth, insisting that innovation is everyone’s job is a bit silly, much like saying that finance or marketing or customer service is everyone’s job.  Everybody should be innovation minded, but most people’s primary focus is somewhere else, such as keeping existing customers happy.  That’s how you stay in business

Mr. Cook and Mr. Gretsch are both smart, successful people.  So why would they promote such an obviously mistaken notion?  The reason is that Mr. Cook is primarily focused on sustaining innovation in his enormously successful products.  Mr. Gretsch has dedicated his career to startups, where the big new idea is the company itself.

When Mr. Gretsch’s companies mature, they will be sold (and so, in a certain sense, they serve as quasi-innovation teams themselves).  Mr. Cook, as I’ve noted before, has his own innovation problems.  So I would be wary of adopting their approach without first thinking seriously about what you want to achieve.

In the final analysis, the key to managing innovation is recognizing that the interests of your organization are best served by focusing on the type of problem you need to solve. Great innovations, after all, are achieved by asking the right questions, not by limiting the scope of your solutions before you even start.

– Greg