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.

Conclusion

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