A Transformational Growth System for the New Enterprise: Strategy + R&D + Innovation

Larry Schmitt

Innovation Partner

“The most important invention that will come out of the corporate research lab in the future will be the corporation itself.”
– John Seeley Brown, co-chairman Deloitte Center for the Edge

Highlights

• • Today’s large enterprise needs to understand the fundamental principles of how they should do the job of transformational excellence – the task of going beyond existing core businesses to create new valuable businesses and stave off disruption
  • They achieve transformational excellence through the creation of a Growth Transformation (GT) system based on principles centered on people, organization & operation, transition, domains, portfolio & governance, digital, metrics & stories, and executive buy-in.
  • The tight integration of Strategy, R&D and Innovation – and other related growth functions – is critical for an effective Growth Transformation system. It is what will drive an enterprise’s creative engine that is the source of long-term, future growth

Most of today’s large corporate enterprises treat strategy, R&D, and innovation as separate and distinct functions – worthy of specialized teams, segmented funding, reporting structures and operational charters. This is starting to change. These three functions, as well as many other ancillary activities, collectively comprise an enterprise’s creative energy and drive its growth transformation efforts. These have a common objective of realizing an enterprise’s future through the creation of new business value. Many large enterprises are reimagining their growth transformation system in a more holistic and integrated way. The early signs of this change are becoming visible.

Today, all companies have a variety of functions aimed at growth. These functions have many names – strategy, R&D,  and innovation are the big three but there is also M&A, corporate venture capital (strategic and financial), digital transformation, new product development, business development, design, advanced marketing, startup collaboration, and other functions as well. But they’re not always aligned. They often have their own teams, their own budgets, and their own objectives.

Transformational Excellence

A new competency is emerging within large, successful, enterprises to deal with what is unpredictable and uncertain. Companies that have their operational excellence engine running smoothly are now developing a new generation of growth functions that focus on what happens beyond the prediction horizon – the time in the future beyond which analytic and predictive approaches are no longer effective. That horizon used to be 10 years out. Now it is 5 or less. This increasingly uncertain, unpredictable and nearer term future makes a lack of alignment between different growth activities within a company an issue. There is a lot to be gained by coordinating these different activities and the investments of money, time, and attention so that they reinforce each other in the right way.

A growth transformation system is one in which corporate strategy, R&D and innovation all work together and in harmony to drive transformation excellence. This complements the operational excellence efforts today’s enterprises are so good at.

Figure 1 – Operational Excellence and Transformational Excellence

Many researchers have commented on this fundamental distinction. It is one that innovation researcher Gina O’Connor refers to as “mainstream” and “newstream”. The difference in the approach and methodology required by the two sides is profound and often underappreciated. Core businesses operate in a current and near future world that is familiar and can be relatively well predicted, even when the business is complex, highly competitive, risky, and fast moving.

New businesses are, by their very nature, more uncertain (i.e., they cannot be predicted) and tend to be longer term. Yet they are the businesses that that will disrupt and drive transformational future growth. Transformational excellence is what allows an enterprise to be the disruptor rather than the disrupted.

Today’s large, future-oriented, enterprise understands that the job of transformation excellence – going beyond existing core businesses to create valuable new businesses and stave off disruption – is best realized by creating a Growth Transformation System built around Strategy + R&D + Innovation.

To be effective there must be corporate level resources that are not within the core businesses. These corporate level resources address futures that lie beyond the prediction horizon – something that operating businesses do not have the time, resources, or mindset to deal with.

These uncertain futures are exactly the ones where disruption will happen – either to an enterprise or by those enterprises that have developed transformational excellence capability. It’s their choice.

A Growth Transformation (GT) System

Growth transformation encompasses all the activities a company undertakes to achieve transformational excellence – success that lies beyond the prediction horizon. This encompasses the creation of new and valuable future businesses such as new products, services, business models, etc.

An effective Growth Transformation system requires new processes, methods and tools that go beyond those used for an enterprise’s operational excellence system. Many companies are experimenting and testing how to build growth transformation systems that can achieve the ambitious results required by their stakeholders.

The foundation of an effective growth transformation system are the three pillars of Strategy, Research & Development, and Innovation. Having these tightly aligned and integrated is critical if a company is to regularly succeed in creating new businesses that stretch the boundaries of their current core businesses.

If these efforts are functionally and structurally segmented and disconnected from each other and from the core businesses  (or even worse in conflict with them!) then the alignment, interfaces and handoffs required will create friction that is hard to overcome – and bad things will happen.

In contrast, the most successful enterprises make these three pillars work as an integrated and mutually reinforcing components of a growth transformation system. With these in alignment, the subsidiary functions of digital transformation, new product development, business development, advanced engineering and marketing, M&A, corporate venture capital, startup collaboration, etc., work together to enhance an enterprise’s ability to create transformational new offerings and business models. The following diagram depicts such a system.

Figure 2 – Creative Energies are Focused by a Growth Transformation System

The centerpiece of the growth transformation system is strategy. Strategy directs the future of the enterprise. It defines, and is defined by, what the enterprise creates. There is a near-term and a long-term aspect to strategy that is often confounded. Many enterprises have just one strategy process that is most often embodied in their yearly strategic planning process. Strategy is instead best addressed by a ‘Dual-path’ strategic process (see Dual-path Strategy). The growth transformation system specifically relies on the strategy needed for longer-term, more uncertain and unpredictable futures – the Today-for Tomorrow path of the dual-path strategy.

Strategy + R&D

In partnership with R&D, Strategy leads to directed invention. Strategy accomplishes this by defining future domains within which researchers have the freedom to experiment and invent. Domains connect strategy to R&D by defining the focus areas, guardrails and desired future states that researchers use as guides for their research. Within these strategic domains, researchers have freedom of exploration, experimentation, and invention.

Strategy + Innovation

In partnership with Innovation, Strategy creates directed value. It informs and directs the innovation function by defining the domains that are important to an enterprise’s future. These domains are the same ones that R&D uses for technological exploration and investigation of new design possibilities. In the case of innovation, they focus and set guardrails for new demand exploration as well as understanding the current and potential business models of the enterprise and its competitors.

R&D + Innovation

In partnership with Innovation, R&D pursues effective inventions to satisfy future wants. R&D and Innovation depend on each other for results. Use-inspired research creates new possibilities to use in novel and valuable new artifacts. Innovation identifies future wants that inspire invention and design creativity. The result is the creation of desired new artifacts and of complementary business models. R&D makes this possible with the technology it invents.

Design of a Growth Transformation System

The design of an effective growth transformation system needs to focus on a few key elements if it is to enable a company to achieve transformational excellence. The following design focus areas are derived from in-depth interviews with numerous individuals who lead R&D and innovation activities at large enterprises. While these individuals often used different terms and idiosyncratic descriptions, what they described was remarkably consistent.

People – the need for different types of people to fulfill various roles (not all of which are traditional roles), and the motivations and incentives that drive people to excel.

Organization & Operation – How R&D and innovation processes are structured and work at the BU and the corporate level.

Transition – How disruptive and transformational new developments are transferred into businesses, either existing or new.

Domains – How strategy gets translated into practice. The establishment of guardrails that give R&D and innovation both guidance and freedom to explore and invent.

Portfolio & Governance – The right way to manage multiple R&D and innovation initiatives. Including who decides what and how decisions are made under uncertainty and budgetary constraints.

Digital Transformation – How digital is permeating every aspect of a company’s operations and their creative transformation through R&D and innovation

Metrics & Stories – How to measure R&D and innovation impact and how to tell the right story about the impact. Difficulties in measuring and some suggested solutions.

Executive Buy-in – The importance of having C-suite support and ways to get alignment and support of the businesses for corporate run R&D and innovation initiatives.