Growing global mega challenges and rising competition mean that generating a steady stream of breakthrough innovations is central to organizational success. However, traditional corporate structures and capabilities are geared toward supporting incremental innovation programs, which require unique processes and skills. Yet what we need today is a new way of industrializing breakthrough innovations to create a portfolio of successes that support corporate growth objectives — the Breakthrough Innovation Factory (BIF).
The opportunities and challenges for organizations across all sectors have never been greater. Transformative technology creates radical possibilities for new products, services, and ways of working while rising competition is increasing threats to revenues, even in previously safe markets. At the same time, challenges in areas such as sustainability and decarbonization can only be solved through innovation and new thinking. Incremental innovation alone is not enough in today’s world — breakthrough innovation must be central to how organizations innovate and operate.
However, deploying a system for managing a portfolio of breakthrough innovation projects while still pursuing incremental innovation requires companies to overcome challenges around organization, culture, and strategy:
Due to these challenges, many companies have essentially outsourced their breakthrough innovation programs. For example, they have created corporate venture funds (CVFs) or incubators that invest in and support start-ups to assess and provide access to new opportunities or technologies. While widespread, this model has limits. There is restricted strategic impact from the investment due to the complexity of the relationship with the start-ups themselves, and it is difficult to maintain alignment between stakeholders (i.e., start-up founders, corporates, and other investors).
These limitations mean that while this approach is clearly attractive when scouting a new market, testing a technology, gathering market intelligence, or sometimes facilitating an acquisition, it is rarely sufficient to develop a real impactful breakthrough innovation strategy.
To meet the challenge of systematically and proactively delivering breakthrough projects, companies can consider three main development model possibilities to maximize the chances of success (see Figure 1).
New breakthrough innovations can be bought, an approach especially relevant when it comes to areas where the company is not competitive but where innovation can deliver high strategic impact. The key success factor is the organization’s ability to successfully integrate the acquisition without destroying its value. Digital players such as Amazon or Google excel at this model; it is also a tried and tested approach in pharmaceuticals, with large players acquiring start-ups whose drugs have successfully completed Phase 1 trials.
Working together across an ecosystem pools risks and delivers shared benefits in terms of intellectual property (IP) and technology. The key success factor is how the ecosystem’s governance rules are structured and applied to ensure an equitable return for all parties. An example of this approach is the collaboration between Pfizer and BioNTech on their COVID-19 vaccine, which brought together disruptive technology from the start-up with regulatory and operational capabilities from the corporation. Strategic partnerships can also include financial partners to fund new assets, reducing risk for other players.
In this model, as described in the Arthur D. Little (ADL) Viewpoint “The Breakthrough Incubator: A Proven Approach,” the company is much more proactive and autonomous when it comes to internally managing and mitigating the major risks of a breakthrough project. It creates a dedicated team with a start-up–like operating model and an efficient interface with the parent organization. The resulting projects can then either remain within the company or be incorporated into a NewCo hosting the resources, at least during development and potentially after commercialization.
All three models leverage some organizational assets. Selecting the right level of assets to leverage, how to manage them, and the right model itself can be challenging, particularly as choices depend on multiple factors that are not clear at the ideation stage and are specific to the project itself. A proven way to overcome these uncertainties is by using an “Iteration Zero” approach, as described in the ADL Prism article “Combining Strength and Agility,” harnessing these elements:
This approach has been proven across multiple projects and markets. It provides senior management with clear outputs to base their go/no-go decision, particularly by delivering a more in-depth view of risks, how to mitigate them, and the necessary conditions to build a viable business model.
Organizations must industrialize the rate and volume of breakthrough innovation projects they deliver to multiply the opportunities of increasing growth and margins. As such, they must move from working on a single breakthrough during a year to handling two to five projects simultaneously. This requires a shift from single Breakthrough Incubators or partnerships to the creation of the BIF, which aims to support the development and growth phases of a technology/idea/patent and/or a start-up to establish a new stand-alone business at scale. The corporate side supports the process by providing its resources (finance and managerial/industrial knowledge) and runs a rigorous Iteration Zero process to ensure the correct approach for each initiative before being developed further.
The BIF acts as an essential bridge to overcome the often-ignored gaps in proving and scaling new ideas to create significant value:
Sometimes there is confusion between CVFs (or corporate venture capital) and BIFs. The main differences are that venture funds typically involve direct investments in external start-ups or ventures that provide the innovative idea, while BIFs focus on internally initiating and building new businesses. BIF entities operate independently, leveraging the parent company’s resources, assets, and knowledge to create innovative products and services, whereas venture funds primarily involve financial investments in external entities. Figure 2 summarizes the main benefits of the BIF approach.
Looking at innovation leaders across different sectors shows the range of models in scaling breakthrough innovation. While most initiatives are related to venture funds investing in core/adjacent businesses, a range of other options, including BIFs, is now emerging. Some have a specific focus related to the core business, while others do not have any constraints on the target market, as shown in Figure 3. For example:
cloud technology axon
Headquartered in France with an established footprint across the Unite...
