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Starting up innovation: How your company can empower intrapreneurs

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Elaine Chen Innovation Consultant, Senior Lecturer, MIT Sloan School of Management

When you think of Michelin, you probably think of tires. In particular, the tires you're about to replace on your car. The 126-year-old French company evokes images of reliable, durable rubber tires for all kinds of vehicles. "Pushing the envelope" or "cutting-edge innovation" probably aren't the first phrases that come to mind. Yet pushing the envelope is precisely what the company's Michelin Incubators is designed to help a corporate entrepreneur, or intrapreneur, do.

Led by Ralph Dimenna, currently EVP and COO of Michelin Americas Truck Tires, Global Incubators was created to accelerate innovation outside Michelin's core rubber tire business. The program works like a startup incubator, but it recruits teams from within Michelin. Corporate entrepreneurs pitch their ideas to executives to win a round of funding. Once they close on the funding, they put together a team and form a startup that works on the idea full time. The team tests its hypotheses in the market until they either find the product/market fit or pivot to something else.

The Tweel Initiative is the poster child of this approach. The Tweel tire is a maintenance-free, airless radial tire designed for heavy equipment manufactured by partners such as John Deere. Designed for a different target market segment, the Tweel Initiative relies on completely new technology, utilizes a different business model, and opens new possibilities beyond Michelin's existing business.

Staying disruptive in a successful company

Michelin is among a growing number of large enterprises looking to overcome the Innovator's Dilemma. A concept introduced in Clayton M. Christensen's book of the same name, the Innovator's Dilemma proposes that once a company reaches scale and is successful, it has difficulty dealing with disruptive innovation. A company's organizational structures and processes are tuned to ensure operational excellence in existing, well-defined businesses. These very structures and processes can become an impediment when companies try to pursue fast paced innovation initiatives.

Intrapreneurship is difficult. First, there's always the risk of rocking the boat. Companies usually have a large install base of existing customers they need to cater to on an ongoing basis. Pursuing disruptive innovation could threaten and potentially cannibalize successful products already in the market. Then companies have to manage risk for their brands. Innovative new products and services need time and iterations in the market to reach the level of maturity and polish of existing products, and testing them in the market without setting the right expectations could negatively affect the parent brands. Disruptive innovation also may mean companies are servicing new market segments, as in the case of Michelin's Tweel. Companies need to learn the characteristics, needs, wants, and expectations of new customers instead of relying on existing data.

Producing new initiatives also has a higher level of risk and lower rate of return than sustaining engineering programs. It could also take years before new initiatives have a meaningful impact on revenue. This makes it hard for them to be approved in a typical budgeting process if they are subject to the same ROI and financial metrics as existing programs. Successful business units are often organized as functional organizations. Although this structure yields great efficiencies for evolutional product development at scale, it poses challenges in cross-functional collaboration. This is especially true when people have to go "up-and-over" on the org chart to share time-sensitive communications.

Innovation needs innovators, who in turn need the space to collaborate cross-functionally, test and iterate, and "fail fast" without putting their careers on the line. These types of organizational challenges can make it hard for intrapreneurs to succeed.

The incubator approach

How are established companies overcoming these challenges? Michelin and other companies, such as Parker Hannifin, have taken the incubator approach to disruptive innovation. New physical offices or labs are created to insulate fragile new ventures from the mainstream business. These offices have lighter-weight processes and different success metrics. This allows the internal startups to run as fast as venture-backed startups. Michelin draws its talent from within, while Parker Hannifin has recruited some external talent. The key to this approach is to set up an environment that encourages experimentation, so that intrapreneurs are able to focus on their new ideas, work like startups, and take bigger risks.

Fostering the innovators inside

Not every company elects to go all the way to creating formalized incubators to foster innovation and entrepreneurship. Adobe, for example, set a goal to teach employees how to innovate with the "Adobe Kickbox" program. As Mark Randall, chief strategist and VP of creativity at Adobe shared in a keynote address at the Lean Startup Conference in December 2014, the program's goal is to remove all barriers to innovation by giving an innovator a red paper box that contains everything they need to succeed.

What's in the box? First, there's $1,000 of seed money that intrapreneurs are free to use in any way—no receipts required. Second, there are instructions that guide employees through Adobe's six-step innovation process. Third, there are other innovation tools, including frameworks and exercises, to help them innovate. Lastly, there's a Starbucks gift card and a candy bar to fortify them with caffeine and sugar. The only guideline is that the ideas need to be aligned with the organization's strategies and values.

"We want to build innovators, not just innovations," says Randall. Adobe has given out over 1,000 red boxes to Adobe employees around the world, and they have open-sourced this tool to the world. This is an example of how a company can attack the Innovator's Dilemma at the cultural level. By focusing on the people, not the outcome, Adobe is coaching and empowering employees to act in innovative and entrepreneurial ways.

Creativity on company time

A third approach is the much-ballyhooed "20-percent time" concept, pioneered by Google. The theory of this approach is that all employees are free to use 20 percent of their company time to work on projects of their choosing. Gmail and AdSense are two famous success stories that grew out of 20-percent time projects.

There's much controversy about whether or not this 20-percent time policy actually exists. Realistically, it's difficult for employees to find time to work on their own projects and remain productive at their day jobs. According to Lazlo Bock, Google's HR boss, it's the concept that counts, not the actual percentage of employees who take Google up on the option. Both Bock and Randall said that creative people innovate not because they're paid or forced to but because they want to. The 20-percent time policy is designed to help engender a culture of innovation and to inspire employees to think out of the box day-to-day.

Getting a brand new business off the ground is both challenging and rewarding. Whether it happens in a startup setting or within a corporation, innovators face different challenges they have to overcome in each setting. It's up to companies to come up with creative ways to empower corporate entrepreneurs to shine.

Which approach will your company take?

*Image source: Flickr

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