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Crowdsourced or Elite Unit Innovation?


A classic dilemma for companies is determining the best way to foster innovation. There are many good books with different approaches. Clayton Christensen’s Innovator’s Dilemma has influenced a generation’s thinking about innovation. He focuses management and entrepreneurs’ attention on the Big I: disruptive innovation.

One outcome of the popularity of Christensen’s book is the awareness people have that entrenched business practices can inhibit companies’ ability to recognize and address discontinuous innovations from new market entrants. Motorola, for example, is often held up as an example of this. The company continued to develop only analog cell phones even as the digital phones were getting traction. In clinging to analog, which it dominated, it fell far behind in the mobile phone market.

A key practice espoused by Christensen is for companies to tackle discontinuous innovations by creating separate divisions. These divisions have an R&D profile, meaning they are funded without requiring a financial return. They do not have to prove themselves to sales or other parts of the organization. This gives them the room they need to figure out how to approach the impending market shift.

The issue with the popularization of this framework is that it sets up a binary approach to innovation. You’re either addressing disruptive or discontinuous innovations, or you’re executing on yesterday’s business. It’s this dichotomy that obscures the value of innovations that move organizations forward, competing to increase market share and profits.

To that end, let’s examine two ways companies create work structures for innovation.

Integrated or Separate Innovation

The graphic below highlight two very different ways to approach innovation. And that’s a good thing.

Innovation Work Structures

Separate Division: As advised by Clayton Christensen, this approach is best for companies that need to address disruptive innovations. And all companies need to address disruptive innovations.These days, it’s not a matter of if, but when. For fundamental market shifts, too much is invested in the current operations for companies to address changes. Freeing a group of people from these constraints is critical, if the corporate culture is not open to big-bet innovations.

A couple examples of interest here. First, let’s go back to Motorola. Yes, the company muffed it badly on the transition from analog to digital. But there was something that it did right years before. Motorola researcher Jim Mikulski could see in the 1960s that existing cellular technology was insufficient for the emerging uses of the mobile technology. He had a new technology to replace it, and asked the head of Motorola’s communications division, John Mitchell to fund its development. Mitchell said “no”,

Arguing that 400MHz technology offered sufficient capacity and met consumer needs. The Communications Division current product line was the market leader, and a new product, which would likely cannibalize the current system, was deemed to be both unnecessary and potentially harmful to this business line.

So Mikulski found refuge in Motorola’s Corporate Research Laboratory. He worked on the new technology there, receiving funding for its development. When his view of the coming changes proved to be true, Motorola was ready with its new technology.

In other words, he addressed innovation that affected the communications division in a completely separate division.

Microsoft, on the other hand, has programmatically set up a separate division for innovation. The Microsoft Research group works on ideas that may never have commercial appeal. But some of their work has resulted in product features and direction for its new Natal gaming system, its Bing search engine, and an upcoming release of Outlook email.

They have a separate division, but the innovations arguably are of the sustaining variety, not disruptive.

Integrated into Daily Work: In this work structure, everyone is involved in innovation. The company sets expectations, and encourages employees’ to share ideas. Done right, this is in-the-flow stuff. Employees are encountering issues to be addressed daily, and they’re hearing new customer feedback all the time. They are well-positioned to come up with innovative solutions and products, if senior management makes that a priority.

Whirlpool is a good example of this. In 1999, then-CEO David R. Whitwam made the determination that Whirlpool needed to stop competing on price, and make innovation its central strategy. Fast forward to today, and the results have been stellar. Whirlpool has escaped competing as a commodity vendor, with $4 billion in revenue (21% of total sales) generated from its innovation efforts. Are they satisfied? No. CEO Jeff Fettig stated that while participation in innovation from 5,000 employees is good, he’s looking to increase it to 15,000.

That’s integrating innovation into employees’ daily work for sustaining innovation. In this case, sustaining innovation has been the source of growth and profits.

Another company where innovation is part of everyday work is 3M. The company is legendary for its innovation. And clearly, the encouragement of all employees to be part of innovation has taken hold. For instance, there was this story recently in Fast Company:

3M told a great innovation story at the ARF annual conference about a new product that started with a complaint call into customer care. The representative did his own research online, came up with a solution, filmed a video that he put on YouTube and re-contacted the customer to see if that is what he was looking for.

The sheer volume of ideas that employees have to improve companies’ existing businesses puts a premium on crowdsourcing ideas. And inevitably, some of that culture and the ideas emerging from sustaining innovation will relate to discontinuous or disruptive innovations.

Why Not Do Both?

Google is a good example of a company that does both. It’s 20% time for employees to devote to innovation is the stuff of business legend. And according to the company, half of its new products result from this employee time.

But then look at Google Wave. This project was done beyond 20% time. It was actually a completely separate project developed by a 5-person “startup” team in Australia, far from the company’s Mountain View, CA headquarters. Google Wave is transformative, and will likely usher new design principles into a host of software applications.

Google is a good example of an innovation-led company. They mix the elite unit approach to innovation with the everyday encouragement for employees to innovate.

There’s not this dichotomy of “all disruptive/discontinuous innovation, or you’re just falling behind”. Rather, it’s a smart blend of the strategies.

I’m @bhc3 on Twitter, and I’m a Senior Consultant with HYPE Innovation.

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About Hutch Carpenter
Senior Consultant for HYPE Innovation (hypeinnovation.com)

14 Responses to Crowdsourced or Elite Unit Innovation?

  1. Hi Hutch,

    The interesting thing about Google is that I always wonder if they are really that much better organized than other large companies when it comes to innovation.

    I believe that one of the major inhibitors of innovation is the danger that it will create new types of business models. Something most large companies are incapable of handling. Google innovates, but most of their innovations add to the same business model.

    Another aspect to wonder about is their ability to innovate on their very core service, search. They have seemed to slow down there, even missing area’s where others have jumped in first (real-time web is a good example).
    I think Google will run into the same problems that all large companies run into. You can’t organize profit and innovation efficiently together if they end up using different business models. That is why a lot of solutions and up in new divisions (which have problems of their own).

    It’s better to be small an focused if you want to innovate ahead of the rest of the world ;-)

    Good post!

  2. Thanks Alexander. Good points on their core revenue/profit engine, search. What’s interesting is that they are the incumbent, faced with the discontinuous innovation of real-time search that Twitter offers, and which is taking hold elsewhere (e.g. RSSCloud). I’m sure they’ve got team(s) of folks looking at that. Search is too important for them to let it get blindsided by ignoring emerging market shifts.

    Their rate of innovation elsewhere is amazing.

  3. Stuart Miniman says:

    Hutch,
    I’m in agreement that doing “both” is a great idea. The challenge is that most workers are so busy with the day-to-day work that finding the time or energy to be innovative is difficult. There also needs to be support from management, most companies will not go with the Google model of setting time aside. My company tries to foster an inclusive innovation environment that includes using contests to promote innovation.
    While innovations to existing products/solutions may be able to happen within a line of business, where I agree with Christensen is that any disruptive innovation needs some separation from other lines of business where the idea can be nurtured without the burden of existing product/solution revenue pressures and processes. If kept internal, they can either be smothered to quickly or given too much money and time – the idea should be put into an environment like a start-up.

    • I’m a fan of companies employing ideation challenges on specific areas. I know they work for me. We all have so many ideas floating around, it’s the paradox of too many ideas. Rather than spend the time to cull to something manageable, it’s much easier to work on the tasks you know you need to get done. No surprise EMC utilizes these, smart company that it is.

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  6. Sri Lestari says:

    Hi Hutch,
    That is nice description … i like it

  7. Randy Zwitch says:

    Stuart –

    That’s what I’ve found in the retail financial services area…it’s ok to have new ideas, as long as you’re supporting all the old ones that are still making money. That makes it very difficult to innovate, as larger financial companies don’t pay to have people sitting around not generating cash flow with the hope that they’ll stumble upon a new, game changing idea.

    Hutch – This is a great article, thanks!

  8. Pingback: Crowdsourced or Elite Unit Innovation? (Link) « Duke Fuqua Cross Continent MBA – Class of 2010

  9. Jordan Frank says:

    I was very impressed by Michael Treacy, Author of Double Digit Growth, when I saw him speak in the spring. More or less, he said that companies that consistently grow setup management vision but encourage people to innovate toward that vision in their own domains, regions and parts of the organization.

    In our own organization, developers innovate every day as there are no constraints on what they do. This lets us be responsive to immediate customers needs and allows for execution on an idea when it happens, rather than wrapping a long planning cycle around it. However, at the same time, major development objectives can take a lot of co-ordination an planning. So these are handled concurrently with every-day innovation efforts.

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  11. very nice !!!

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  13. Liv says:

    hello, can any one give me an example of Disruptive Innovation from 3M.

    Thanks

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