An in-depth study of successful and unsuccessful innovation over the previous 40 years at Exxon Chemical (now Exxon-Mobil Chemical) provided evidence for executive concern: the company’s substantial R&D activities produced only two major breakthroughs during that entire period. Rather than big new ideas and products, the company generated mostly smaller, lower-value process innovations. If it was of any comfort to it, Exxon was not alone. The same problem was dogging the entire chemical industry, and research-intensive sectors beyond. What was driving the scarcity in major innovations? For many companies the experience in managing innovation has been paradoxical. Faced with low success rates and increasing pressure to deliver consistent, predictable revenue growth they have reacted by adding more projects to the R&D pipeline. The consequence is that many relatively small, low-risk projects receive support in order to maintain a full portfolio of growth options leading ultimately to research fragmentation. Resources and talent quickly become thinly spread and there is general lack of focus in the pipeline. This leads to weaker commercialisation with little in the way of big wins. In turn this feeds the erroneous conclusion that still more projects are needed. It would seem from this that the very approach of improving the innovation rate, namely the portfolio model with its structured stage-gates for the rigorous management of projects is at the heart of the dismal chain of events. Whilst the stage-gate system brings discipline to the often undisciplined world of research, the approach is failing to adequately address the problem of managing R&D, especially in generating radical innovation. There are several reasons for this failure:
1. Aggressive goals that are part and parcel of radical innovation invariably look ‘impossible’ at project outset. They rarely fit neatly into the typical stage-gate review process. It is usually not long before the organisational focus drifts from the quality of projects to the quantity.
2. The Exxon study highlighted that a high percentage of commercialised innovations were motivated by ‘getting the ox out of the ditch’ during hard times. Rarely were they part of a pro-active R&D programme, i.e. the motive driving innovation shifted, and it did so in most cases unintentionally. R&D was being driven by the aim of surviving the next budget review rather than on inventing ‘the next big thing’.
3. Another problem is that the sheer number of projects intended to ‘balance’ a portfolio can actually crowd out innovation. The Exxon Chemical study found that fewer projects may actually lead to more radical innovations. According to the study, had the total number of projects been reduced by 30350 per cent, complemented by a sharper focus on a handful of major innovation projects, the company would have realised shorter commercialisation cycle times as well as higher value product and process innovations.
Given this dilemma, how can senior managers motivate their R&D organisations to become more innovative? If conventional strategies to sustain and manage a diverse project portfolio lead to fewer, less exciting innovations 3 the very opposite of management intent 3 then what is a better approach?