By Rick Eagar, Max Senechal, Michaël Kolk, Tim Barder, Mitch Beaumont and Kurt Baes
Breakthrough innovation, by which we mean developing and launching radically new products, services or businesses that deliver significant value, is the holy grail of innovation management.
Today it is an essential part of any large company’s innovation effort, complementing incremental and shorter-term approaches which usually focus on the core business.
Systematic, repeated breakthrough innovation often poses a challenge to large companies because it is inherently risky and frequently requires competences and approaches which are not part of the mainstream of the organization. In many large companies, internal bureaucracy and red tape tend to stifle the required creativity, and internal R&D teams may struggle to think sufficiently “outside the box”. Creating a stand-alone, semi-independent breakthrough team focused on step-out/adjacent opportunities or grand challenges is a common first step that companies take to address these barriers. Increasingly, companies are also looking to start-ups to access emerging technologies, bring in fresh thinking, and introduce more innovative ways of working. This has led to a major increase in the application of start-up-incubator, accelerator and corporate-venturing schemes. “Intrapreneurship” approaches and competitions to encourage entrepreneurial activities within the company are also becoming more commonplace.
However, despite some successes, many companies are finding that these initiatives still fall short of expectations in terms of significant new-business creation. For example, in our own breakthrough innovation survey[i], more than 85 percent of companies were unsatisfied with their breakthrough innovation performances. In our work with clients on innovation strategy, we encounter some common reasons for this, many of which are connected with the fact that companies tend to place too much emphasis on the front end of the innovation cycle, and too little emphasis on the end-to-end business creation process. Common failings include limited scope of internal breakthrough innovation units, internal rejection of new products, brand constraints on breakthrough innovation, and scale-up risks.
How the breakthrough incubator model can help
What can companies do to overcome these practical barriers? One solution that some leading companies are now starting to explore is to revisit their whole approaches to “open innovation” and become much more radical in how they leverage the external ecosystem. Rather than simply working with external partners to take part in what is fundamentally still an in-house innovation process, they are creating incubators with single external partners, which manage networks of external collaborators. These collectively cover the end-to-end product innovation process from ideation through to launch and commercialization, including strategic, commercial and operational planning, as well as technical development.
This breakthrough incubator (BI) model enables accelerated creation of a new business proposition with new products and services externally before transitioning it back into the parent organization, thereby overcoming many of the prototype scale-up barriers. In essence, this is the “build, operate, transfer” philosophy applied specifically to innovation and product development. A typical example of how the BI model works is shown in Figure 1.
In this model, the BI lead delivery partner conducts every part of new-business creation, with the owning company heavily involved only in the initial scoping stage and final transitioning and integration. In between, there is only a small company focal-point guidance team involved in close, regular interactions with the partner.
How a breakthrough incubator program works
A typical BI program commences with ambition from the company’s top team to create a new business based on innovative products or services in an area which is non-core to the existing business. Rather than conducting the program in-house, the company engages a suitably qualified BI lead delivery partner (“BI partner”) firm to take on the entire innovation process. The BI partner acts as an “orchestrator”, harnessing resources from within the BI organization itself, as well as an extensive ecosystem of specialist partners. The BI partner takes full, single-point accountability for successful delivery as the prime for the program.
Once the basic scope and aims are defined and agreed, the BI partner commences the program with an initial strategic review aimed at establishing and confirming the feasibility of the proposition, as well as the “art of the possible” in terms of an achievable ambition. Initial steps also usually include market/customer/consumer insight (“pull”) and technology analysis (“push”). The product/service development process then proceeds using an agile approach, including ideation, concept/platform development, product development and customer/consumer testing.
Once there is a shortlist of new target products, supply chain sourcing and manufacturing/operational analyses are conducted (i.e., how can it be made at scale?) and an initial business case is developed.This leads to a business-growth strategy which sets out the path to grow a sustainable business in a three- to 10-year time frame. Simultaneously, work is commenced on, for example, brand/offer strategy and channel analysis. A key feature of the model is that the BI partner takes the project through to commercialization, including test launching of actual products and services – not stopping at the prototype or bench-scale phase.
The work is conducted by the BI partner, using its own resources and engaging specialists, where required, from the ecosystems of both the company itself and the BI partner firm. During this time, the owning company stays close to the ongoing process on a day-to-day basis, with a small (e.g., two- to three-person) guidance team liaising frequently with the BI partner. Weekly meetings and co-attendance at key meetings ensure that the company remains fully informed of the process’s status and key issues throughout. Overall progress, key decision-making and strategy are covered by a senior joint steering committee, which comprises executives from both the company and the BI partner.
A key aspect of the model is the use of agile approaches in the development process, with a strong focus on early customer/consumer testing, and iteration with short cycles, including immediate assessment of commercial and strategic implications in parallel with product development and testing. This agile approach ensures that the development is strongly market-/customer-/consumer-focused and the practical and scale-up aspects are properly assessed at an early stage – rather than after prototyping. The model goes well beyond “classical” open innovation because it externalizes an entire innovation, product development and new-business creation effort.
The benefits of breakthrough incubation
The BI model provides an excellent means of overcoming the real challenges of breakthrough innovation. For example, it offers an opportunity to accelerate speed to market for breakthrough innovations, and because the entire development-and-testing process takes place externally, normally in a “brand-agnostic” manner, typical problems such as inherent bias or rejection of new concepts/prototypes due to lack of perceived fit with the current business is greatly reduced. The model also postpones the need for a company to take on permanent in-house resources until – or unless – the proposition is proven and the requirements are clear. The company, meanwhile, can focus on its core business without distraction. The relatively high-risk profile of a new business in a non-core area is one of the main barriers to breakthrough innovation. The BI model mitigates the risk by keeping the project external – and brand anonymous – until it is largely proven, not just at prototype scale but also at full scale.
In the model, the BI partner covers all the various functional aspects of the new business – technical, commercial, operational and strategic. As it is more flexible than a large corporation, the BI partner can take a fully integrated, cross-functional approach much more easily, which enables more agility and speed, as well as better coverage of all the aspects that are critical for a successful new-business launch. The BI partner will typically bring a range of external expertise that is partly additional to, and partly overlapping with, the company’s internal expertise. The integration of this expertise between the BI partner and the company brings synergies which can advance the company’s know-how and capabilities in areas such as marketing, consumer insight, product/platform development methods and technical competencies.
Key success factors for implementing the breakthrough incubator model
In order to achieve these benefits, it is important to ensure that the BI approach is appropriately implemented. We have identified five key success factors for this, as shown in Figure 2.
First of all, the BI model will not work unless it is actively sponsored by the top management of the company. An end-to-end innovation program cuts across many different functions, not just R&D. There are inevitably many vested interests and perceived threats across these functions: not only internal technical resources who may view the BI model as a possible threat, but also other people in functions and disciplines such as marketing, supply chain, manufacturing, and strategic planning, who may be initially suspicious or skeptical.
The BI partner, as shown in the example in Figure 3, acts as an overall “orchestrator” for the program, using both its own resources and those of the ecosystem. The company needs to ensure that there is a single-focal-point guidance team during execution, typically within the new-product development or open innovation function, which is able to orchestrate the involvement of other company functions. The BI partner firm needs to have relevant in-depth expertise in-house. This means having experienced staff with first-hand experience in new product/service development in the appropriate industry.
Usually there will still be a significant degree of uncertainty at this stage; hence, it is advisable to split execution into discrete phases with separate budgets. Establishing a suitable steering and governance process is also important. This should include a joint steering committee with senior executives from both the company and the BI partner, and a program-level team comprising the BI partner firm’s program leader and the company’s day-to-day focal point.
When is the breakthrough incubator model applicable?
The BI model generally has broad applicability across both the B2B and B2C sectors. However, certain situations are more likely to benefit from the approach than others. The BI approach is especially suitable for creating new products, services or businesses which are not core to the current business, and where the necessary in-house competencies do not exist. These could arise from, for example, convergence trends or new digital opportunities in non-digital industries. It is also more suitable for industries and innovation areas in which product development cycles are less than two or three years from conception to market, such as consumer goods, food and drink, specialty chemicals/materials, telecommunications, digital, service industries, healthcare technology, and light engineering/manufacturing/energy.
Large companies often struggle with speed to market, agility and breakthrough innovation, but they also typically have more access than smaller competitors to required funding, experts, pilot facilities and, for instance, lead customers. In this case the BI model can circumvent inherent weaknesses while still leveraging a company’s major strengths and scale.
The breakthrough incubator model is a highly effective new approach for breakthrough innovation. The success of the model underlines some key insights into how companies should go about breakthrough innovation, including identifying barriers and taking action, anticipating scale-up and commercialization challenges, being agile and cross-functional, and fully leveraging the external innovation ecosystem. The model is a highly effective solution for companies that are serious about commercializing breakthrough innovations and building sustainable new businesses of scale. We believe it will be an increasingly common approach for leading innovators over the coming years.
[i]Arthur D. Little Survey, “Systematizing Breakthrough Innovation”, 2015/16
Airbus CEO urges trade war ceasefire, easing of COVID travel bans
By Tim Hepher
PARIS (Reuters) – The head of European planemaker Airbus called on Saturday for a “ceasefire” in a transatlantic trade war over aircraft subsidies, saying tit-for-tat tariffs on planes and other goods had aggravated damage from the COVID-19 crisis.
Washington progressively imposed import duties of 15% on Airbus jets from 2019 after a prolonged dispute at the World Trade Organization, and the EU responded with matching tariffs on Boeing jets a year later. Wine, whisky and other goods are also affected.
“This dispute, which is now an old dispute, has put us in a lose-lose situation,” Airbus Chief Executive Guillaume Faury said in a radio interview.
“We have ended up in a situation where wisdom would normally dictate that we have a ceasefire and resolve this conflict,” he told France Inter.
Boeing was not immediately available for comment.
Brazil, which has waged separate battles with Canada over subsidies for smaller regional jets, on Thursday dropped its own complaint against Ottawa and called for a global peace deal between producing nations on support for aerospace.
Faury said the dispute with Boeing was particularly damaging during the COVID-19 pandemic, which has badly hit air travel and led to travel restrictions or border closures. He expressed particular concern about widening bans within Europe.
“We are extremely frustrated by the barriers that restrict personal movement and it is almost impossible today to travel in Europe by plane, even domestically,” he said.
“The priority no. 1 for countries in general is to reopen frontiers and allow people to travel on the basis of tests and then eventually vaccinations.”
The comments come as businesses increase pressure on governments to reopen economies as coronavirus vaccine roll-outs gather pace across Europe.
France has defended recently introduced border restrictions, saying they will help the government avoid a new lockdown and stay in force until at least the end of February.
Germany installed border controls with the Czech Republic and Austria last Sunday, drawing protest from Austria and concerns about supply-chain disruptions.
Berlin calls the move a temporary measure of last resort.
Poland said on Saturday it had not ruled out imposing restrictions at the country’s borders with Slovakia and the Czech Republic due to rising COVID-19 cases.
(Reporting by Tim Hepher; Editing by Kirsten Donovan)
Why a predictable cold snap crippled the Texas power grid
By Tim McLaughlin and Stephanie Kelly
(Reuters) – As Texans cranked up their heaters early Monday to combat plunging temperatures, a record surge of electricity demand set off a disastrous chain reaction in the state’s power grid.
Wind turbines in the state’s northern Panhandle locked up. Natural gas plants shut down when frozen pipes and components shut off fuel flow. A South Texas nuclear reactor went dark after a five-foot section of uninsulated pipe seized up. Power outages quickly spread statewide – leaving millions shivering in their homes for days, with deadly consequences.
It could have been far worse: Before dawn on Monday, the state’s grid operator was “seconds and minutes” away from an uncontrolled blackout for its 26 million customers, its CEO has said. Such a collapse occurs when operators lose the ability to manage the crisis through rolling blackouts; in such cases, it can take weeks or months to fully restore power to customers.
Monday was one of the state’s coldest days in more than a century – but the unprecedented power crisis was hardly unpredictable after Texas had experienced a similar, though less severe, disruption during a 2011 cold snap. Still, Texas power producers failed to adequately winter-proof their systems. And the state’s grid operator underestimated its need for reserve power capacity before the crisis, then moved too slowly to tell utilities to institute rolling blackouts to protect against a grid meltdown, energy analysts, traders and economists said.
Early signs of trouble came long before the forced outages. Two days earlier, for example, the grid suddenly lost 539 megawatts (MW) of power, or enough electricity for nearly 108,000 homes, according to operational messages disclosed by the state’s primary grid operator, the Electric Reliability Council of Texas (ERCOT).
The crisis stemmed from a unique confluence of weaknesses in the state’s power system.
Texas is the only state in the continental United States with an independent and isolated grid. That allows the state to avoid federal regulation – but also severely limits its ability to draw emergency power from other grids. ERCOT also operates the only major U.S. grid that does not have a capacity market – a system that provides payments to operators to be on standby to supply power during severe weather events.
After more than 3 million ERCOT customers lost power in a February 2011 freeze, federal regulators recommended that ERCOT prepare for winter with the same urgency as it does the peak summer season. They also said that, while ERCOT’s reserve power capacity looked good on paper, it did not take into account that many generation units could get knocked offline by freezing weather.
“There were prior severe cold weather events in the Southwest in 1983, 1989, 2003, 2006, 2008, and 2010,” Federal Energy Regulatory Commission and North American Electric Reliability Corp staff summarized after investigating the state’s 2011 rolling blackouts. “Extensive generator failures overwhelmed ERCOT’s reserves, which eventually dropped below the level of safe operation.”
ERCOT spokeswoman Leslie Sopko did not comment in detail about the causes of the power crisis but said the grid’s leadership plans to re-evaluate the assumptions that go into its forecasts.
The freeze was easy to see coming, said Jay Apt, co-director of the Carnegie Mellon Electricity Industry Center.
“When I read that this was a black-swan event, I just have to wonder whether the folks who are saying that have been in this business long enough that they forgot everything, or just came into it,” Apt said. “People need to recognize that this sort of weather is pretty common.”
This week’s cold snap left 4.5 million ERCOT customers without power. More than 14.5 million Texans endured a related water-supply crisis as pipes froze and burst. About 65,000 customers remained without power as of Saturday afternoon, even as temperatures started to rise, according to website PowerOutage.US.
State health officials have linked more than two dozen deaths to the power crisis. Some died from hypothermia or possible carbon monoxide poisoning caused by portable generators running in basements and garages without enough ventilation. Officials say they suspect the death count will rise as more bodies are discovered.
THIN POWER RESERVE
In the central Texas city of Austin, the state capital, the minimum February temperature usually falls between 42 and 48 degrees Fahrenheit (5 to 9 degrees Celsius). This past week, temperatures fell as low as 6 degrees Fahrenheit (-14 degrees Celsius).
In November, ERCOT assured that the grid was prepared to handle such a dire scenario.
“We studied a range of potential risks under both normal and extreme conditions, and believe there is sufficient generation to adequately serve our customers,” said ERCOT’s manager of resource adequacy, Pete Warnken, in a report that month.
Warnken could not be reached for comment on Saturday.
Under normal winter conditions, ERCOT forecast it would have about 16,200 MW of power reserves. But under extreme conditions, it predicted a reserve cushion of only about 1,350 MW. That assumed only 23,500 MW of generation outages. During the peak of this week’s crisis, more than 30,000 MW was forced off the grid.
Other U.S. grid operators maintain a capacity market to supply extra power in extreme conditions – paying operators on an ongoing basis, whether they produce power or not. Capacity market auctions determine, three years in advance, the price that power generators receive in exchange for being on emergency standby.
Instead, ERCOT relies on a wholesale electricity market, where free market pricing provides incentives for generators to provide daily power and to make investments to ensure reliability in peak periods, according to economists. The system relied on the theory that power plants should make high profits when energy demand and prices soar – providing them ample money to make investments in, for example, winterization. The Texas legislature restructured the state’s electric market in 1999.
Since 2010, ERCOT’s reserve margin – the buffer between generation capacity versus forecasted demand – has dropped to about 10% from about 20%. This has put pressure on generators during demand spikes, making the grid less flexible, according to North American Electric Reliability Corporation (NERC), a nonprofit regulator.
That thin margin for error set off alarms early Monday morning among energy traders and analysts as they watched a sudden drop in the electrical frequency of the Texas grid. One analyst compared it to watching the pulse of a hospital patient drop to life-threatening levels.
Too much of a drop is catastrophic because it would trigger automatic relay switches to disconnect power sources from the grid, setting off uncontrolled blackouts statewide. Dan Jones, an energy analyst at Monterey LLC, watched from his home office in Delaware as the grid’s frequency dropped quickly toward the point that would trigger the automatic shutdowns.
“If you’re not in control, and you are letting the equipment do it, that’s just chaos,” Jones said.
By Sunday afternoon about 3:15 p.m. (CST), ERCOT’s control room signaled it had run out of options to boost electric generation to match the soaring demand. Operators issued a warning that there was “no market solution” for the projected shortage, according to control room messages published by ERCOT on its website.
Adam Sinn, president of Houston-based energy trading firm Aspire Commodities, said ERCOT waited far too long to start telling utilities to cut customers’ power to guard against a grid meltdown. The problems, he said, were readily apparent several days before Monday.
“ERCOT was letting the system get weaker and weaker and weaker,” Sinn said in an interview. “I was thinking: Holy shit, what is this grid operator doing? He has to cut load.”
Sinn said he started texting his friends on Sunday night, warning them to expect widespread outages.
‘SECONDS AND MINUTES’
Early Monday morning, one of the largest sources of electricity in the state – the unit 1 reactor at the South Texas Nuclear Generating Station – stopped producing power after the small section of pipe froze in temperatures that averaged 17 degrees Fahrenheit (9 degrees Celsius). The grid lost access to 1,350 MW of nuclear power – enough to power about 270,000 homes – after automatic sensors detected the frozen pipe and protectively shut down the reactor, said Victor Dricks, a spokesman for the U.S. Nuclear Regulatory Commission.
About 2:30 a.m. (CST), the South Plains Electric Cooperative in Lubbock said it received a phone call from ERCOT to cut power to its customers. Inside the ERCOT control room, staff members scrambled to call utilities and cooperatives statewide to tell them to do the same, according to operational messages disclosed by the grid operator.
Three days later, ERCOT Chief Executive Bill Magness acknowledged that the grid operator had only narrowly avoided the calamity of uncontrolled blackouts.
“If we hadn’t taken action,” he said on Thursday, “it was seconds and minutes (away), given the amount of generation that was coming off the system at the same time that the demand was still going up.”
(Reporting by Tim McLaughlin and Stephanie Kelly; additional reporting by Nichola Groom; editing by Simon Webb and Brian Thevenot)
UK could declare Brexit ‘water wars’ – The Telegraph
(Reuters) – Britain could restrict imports of European mineral water and several food products under retaliatory measures being considered by ministers over Brussels’ refusal to end its blockade on British shellfish, the Telegraph reported.
Senior government sources pointed to potential restrictions on the importing of mineral water and seed potatoes, the report said.
(Reporting by Maria Ponnezhath in Bengaluru; Editing by Daniel Wallis)
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