Innovation Crescendo

Knowledge transfer from retiring baby boomers to younger R&D workers in the Pharmaceutical industry should be simple. However, there is one small problem: there are few next generation R&D workers! As a management consultant in a management consulting company that specializes in R&D of pharmaceutical companies, I visit many pharmaceutical companies. This gives me unique insights and opportunities to observe and identify trends in pharmaceutical R&D. One trend I have noticed is that as R&D baby boomers retire, pharmaceutical companies are experiencing a knowledge gap. This means that fewer and fewer people in Pharmaceutical R&D have historic institutional R&D knowledge and that this knowledge is not being transferred to younger R&D workers. Fewer people have the experience and knowledge to understand how R&D really works. I believe this will negatively impact innovation in the pharmaceutical industry.

How have we ended up here? Let’s first look at global aging trends. Is there something fundamental happening?

Global Aging Statistics … The aging of the world’s population is inevitably increasing as the percentage of people aged 65+ grows and the proportion of 15 – 64 year olds declines. This trend is happening in essentially all countries [1]. Currently in Japan, 22.7% of the population is aged 65+ and by 2050, nearly all countries will have populations as old, percentage wise, as Japan’s is today. Global aging is not just about the retiring of baby boomers but is an ongoing trend where the proportion of older people becomes a larger part of the total population because of both a decrease in fertility and increase in longevity. This trend will continue to increase into the future.

Aging-1024x532-618x321

This means that companies in the future will have to find ways to better utilize aging workers to increase their productivity. Also, finding and keeping new talent will be more difficult as the younger age pool that these workers will be sourced from will become an increasingly smaller percentage of the total population.

Another mega trend [1] is that economic growth as measured by GDP for developed countries will be slow, around 1-2%, although emerging economies will have higher growth rates. Finally, the aging population of 65+ year olds will become a more important part of the consumer market. In a word, the global economies will have to address the 65+ year old age group with new innovative strategies that address employment, knowledge transfer, social security, health care and age appropriate new products.

HR Trends in Pharmaceutical Companies … Pharmaceutical companies were hit hard over the last 15 years; new drug launches declined and their earnings growth dropped (see figure below).

pharmaprod

Their R&D pipelines dried up and in spite of a dramatic increase in R&D expenditures, new drug approvals did not increase and essentially remained constant even though R&D expenditures more than quadrupled since 1990. The industry experienced a dramatic loss of R&D productivity as costs to develop drugs skyrocketed [2].

pharma prod1

As old drugs lost patent protection, drug companies struggled to replace them with new drugs and these companies cut costs by reducing R&D spending and laying off workers. This can be seen in the above figure as R&D costs were held steady over the 2007 -2014 time frame.

During this time, pharmaceutical companies laid off workers by offering older workers early retirement incentives so that their jobs could either be eliminated or replaced by younger, “cheaper” workers. Acquisitions and mergers became more common which resulted in laying off more workers to leverage the efficiencies of scale. In fact 300,000 jobs were eliminated from the US pharmaceutical industry from 2000 – 2010 [3] and that number has likely continued to increase during the intervening years, 2010 – 2016. The net effect in all of these companies was that experienced and knowledgeable R&D workers were eliminated and only a small percentage have been replaced by younger, less experienced workers. In other words valuable R&D knowledge is being lost.

Effect on Pharmaceutical R&D … None of these cost-cutting practices has improved pharmaceutical R&D productivity and in fact, R&D productivity appears to be getting worse [2,3], so what is happening? Well, as discussed in an earlier post [4], constant reorganizations of R&D have a negative effect on R&D morale and productivity…. projects are put on hold, re-prioritized, management structures changed, people leave, new systems and processes are implemented, all with the net effect that R&D productivity declines and takes several years to rebound. Well known companies with long histories of successful pharmaceutical research have lost their edge due to repeated layoffs and constant reorganizations which wear down the morale of R&D workers.

Many companies have begun to outsource gaps in their R&D organizations but this has met with mixed success [5]. Some companies have decided that to sustain their pipeline they can either invest in R&D or acquire a pipeline and reduce their R&D group [6]. Many companies chose the latter and I believe these companies will regret these decisions. Sending your best and brightest minds with all your historical R&D knowledge off to work with a competitor does not seem like a smart move.

Some pharmaceutical companies have even tried to outsource their core competency, discovering new drugs. For example Valeant Pharma’s model was not to develop new drugs itself but acquire new drugs by buying other companies and develop only late-stage, low-risk drug candidates. This model worked for a while but collapsed dramatically in early 2016 with the company now deep in debt [7]. Valeant is now restructuring. Other pharmaceutical companies appear to be transforming into late development drug companies. They leave early drug development to startups and acquire the rights to promising drug candidates from these startups for final Phase III clinicals and FDA submission…..the parts of the drug development process that require the most money. An increasing knowledge gap will also eventually negatively impact these late stage development processes as well.

So the big picture is that layoffs have eliminated many R&D workers and the strategy of outsourcing has transferred this work from pharmaceutical companies to contract research organizations with all their associated problems [5,8] or to startups that are acquired for their pipelines. These trends all highlight a massive loss of R&D knowledge from traditional pharmaceutical companies.

Now, on top of this situation, if you superimposed the global aging trends and the huge group of baby-boomers in R&D who are now reaching retirement age [9], I think you can begin to see why pharmaceutical R&D might be headed for a period of difficulty. As R&D knowledge disappears, declining R&D productivity will be exacerbated.

New HR Strategies for Pharmaceutical R&D … As pharmaceutical companies have been laying off R&D workers and generally not replacing them, this has led to an asymmetric age distribution in R&D workers which leads us to the current situation where large blocks of workers are retiring all at once.

HR must be at the forefront of implementing new HR strategies, otherwise talent and skills in R&D will continue to drop in pharmaceutical companies and R&D productivity will decline further. There will be fewer young R&D workers to hire if millennials are not drawn to majoring in STEM subjects and are not attracted to pharmaceutical R&D as a career. Also, benefits and incentives are lower in the pharmaceutical industry compared to those offered by technology companies that are attracting millennials.

HR managers might be tempted to consider out-sourcing more R&D work but that has rarely been a good option [7]. Temporary workers and independent contractors do not have the same skin in the game as a permanent employee. Generally they are an inefficient use of resources for many jobs and they will quickly leave if another company offers them a permanent job. Outsourcing in all its forms compounds losses of valuable R&D knowledge.

Another strategy might be to make better use of aging baby boomers or aging R&D workers in general (maybe as part-time workers) so that knowledge transfer can happen and new R&D workers can be better trained. Instead of offering older R&D workers early retirement packages, it might make more sense to keep them on as part-time workers in mentoring positions in order to facilitate knowledge transfer.

Summary … Pharmaceutical companies are at a crossroads. Their R&D productivity is declining rapidly and their long-term prognosis is poor as valuable R&D knowledge continues to disappear. HR managers in these companies need to change their strategies now to help stem the outflow of R&D knowledge. New career paths are needed for older workers. Simply laying off older R&D workers with early retirement packages will not help to stem the outflow of R&D knowledge, in fact it makes it worse. Keeping them on in part-time mentoring positions will facilitate knowledge transfer.

HR practices with respect to R&D workers are obsolete. The whole trend to increased R&D outsourcing needs to be reviewed within the context of knowledge outflow. For example, the most successful technology companies such as Apple, Tesla, SpaceX and Amazon are vertically integrated. They are doing this for a reason(s)….to design better, well-integrated products with complete control over their quality. Pharmaceutical companies need to start thinking like this otherwise they will struggle as products become less innovative and quality suffers.

Finally the fight for young talent will be intense in the future. In a recent survey conducted by PwC [10], 51% of life science executives say that hiring has become more difficult than before with only 28% saying they are very confident of having access to top talent. Pharmaceutical HR will need to up their game to attract the brightest and smartest.

References …

After writing and thinking about innovation and historical innovators in this blog for the last three years I’ve come up with the first iteration of a new way to classify innovators’ motivations, inspirations and work preferences. Down the road the goal would be to develop a tool to help companies, managers, venture capitalists and others identify, hire, manage, motivate, reward and retain the “right” innovators for the “right” projects.

Over the last three years it has become increasingly apparent that while most innovators share several common attributes, they come with different motivations, inspirations and preferences for thinking and working [1, 2, 3]. As far as I’m aware there is no robust model for classifying innovators or a tool for identifying innovators’ personalities. Some innovators are creative and conceptual, whereas others are practical and prone to tinkering. Some find inspiration from theory whereas others get new ideas from keen observation of nature. Others have a knack of being able to turn new ideas into money whereas others are poor businessmen. Hindsight is twenty-twenty though. The challenge for hiring managers etc. is to understand an applicant’s potential for innovation, including identifying people who will become breakthrough innovators, and then to provide an environment for them to succeed.

I propose that innovators can be categorized by their innovation style measured across three dimensions:

innovation working style
motivation
inspiration/curiosity

Consider each of these dimensions as a sliding scale or continuum between two extremes where each innovator is “placed” or “scored” in each dimension to describe their overall innovation style.

Defining an Innovator’s Working Style… The Kirton Adaption-Innovation theory [4] identifies an individual’s thinking style. Individuals fall into a continuum on Kirton’s scale from Adaptors who focus on improving and “doing better” (typically what managers focus on) to Innovators who focus on “doing things differently”. Adaptors are characterized by words such as “precision”, “reliable”, “efficient”, “prudent” and “disciplined”, concerned with resolving problems by improvement whereas Innovators are characterized by words such as “undisciplined”, “unpredictable”, “tangential thinkers”, “liking to discover problems”, “abrasive” and “creating dissonance”.

I used Kirton’s theory as inspiration to describe a continuum of Innovation Working Styles from the Adaptive Innovator to the Disruptive Innovator.

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Adaptive (A) Disruptive (D)

Adaptive Innovators would address an innovation project by tinkering with existing products, producing lots of prototypes and making incremental improvements to products (or services) until they develop a better working prototype. An example of an Adaptive Innovator would be Thomas Edison when he developed the light bulb. Adaptive Innovators are focused on ideas that address the question of how to improve existing things to make them better. On the other hand, Disruptive Innovators like Leonardo da Vinci are focused on developing completely new products/services and not improving existing ones. They may have more difficulty in translating their new ideas into reality because completely new methods or technologies are required to make working prototypes. They are focused on identifying new ideas that address the question of doing things differently rather than by modifying existing products. Often these new ideas require applications of new technologies or the application of existing technologies in new areas.

Both Adaptive Innovators and Disruptive Innovators are required in R&D groups in large organizations for balanced innovation to occur [5]. A concentration of one group over the other will lead to a predominance of one type of idea.

Defining an Innovator’s Motivation… An innovator’s working style helps in understanding some innovator attributes but other dimensions are needed to understand, identify and categorize innovators more fully. For example, how would you identify Albert Einstein, Steve Jobs, Elon Musk, Nikola Tesla or Antoni Gaudi as innovators? Clearly they are all very different in terms of innovation characteristics. While I would classify Einstein, Tesla and Gaudi as Disruptive Innovators, Einstein was a theoretician, Tesla was an experimentalist and Gaudi was an architect who was a keen observer of nature. Einstein and Gaudi were not interested in entrepreneurial endeavors. Compare these innovators to Steve Jobs and Elon Musk who are successful entrepreneurs in that they have built large successful corporations. Contrast these innovators with Tesla who understood the importance of commercial enterprises and was involved in entrepreneurial endeavors but at his heart was more altruistic than entrepreneurial and ultimately died penniless [3].

This led me to think about innovator dimensions other than the innovation working style that could be used to further characterize innovators. One dimension that came up almost immediately was their motivation. Although many innovators like Steve Jobs, Elon Musk, Jeff Bezos and Bill Gates are entrepreneurial and competitive by nature, many great innovators are not. Steve Wozniak (designer of Apple I &II), Albert Einstein (theory of special relativity, gravitation, mass/energy conversion), Antoni Gaudi (famous architect), Nikola Tesla (AC power system, electric motor), and Philo Farnsworth (electronic television) are examples of more intrinsically driven innovators who were more altruistic in their motives. They invented and developed innovations not to make money or to run a business but purely for the joy of innovation (or knowledge), the quest for knowledge, or for the betterment of mankind by advancing knowledge. I call these innovators altruistic innovators to more accurately describe their source of motivation as opposed to entrepreneurial innovators like Jobs, Musk, Bezos or Gates. This is not to say that entrepreneurial innovators have no altruistic motives, but on the “motivation” scale they exhibit more extrinsic motivations than intrinsic motivations and are better defined as entrepreneurial innovators.

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Altruistic (L) Entrepreneurial (E)

Defining an Innovator’s Inspiration/Curiosity… Another dimension that I think identifies innovators is their inspirational source or curiosity. While all innovators are intensely curious, their curiosity might be directed towards observation of nature, consumer habits or other new product trends. I call these types of innovators observational innovators. Other innovators might draw ideas from and be more curious about new theories, new data or new scientific and engineering findings. I call these innovators abstract innovators. For example, Albert Einstein, Bill Gates and Gary Kildall (developed first microprocessor operating system, language and compiler) …. could be considered as abstract innovators whereas Antoni Gaudi, Ernest Rutherford (radioactivity, model of the atom, discover of the proton), John Cade (Australian physician who discovered the use of lithium for bipolar disorder, the first effective medication to treat a mental disorder) and Nikola Tesla could be considered as observational innovators.

So, for example, if an innovator draws inspiration by observation from nature (or the general world around them) I would classify them as an observational innovator. A good example of observational innovation is the use of biomimicry [6] which is defined as “a new science that studies Nature’s models and then uses these designs and processes to solve human problems”. Biomimicry has resulted in many new products; one famous example is a swimsuit modeled on the texture of shark skin. These swimsuits reduce drag and eventually were banned from the Olympics [7]. Innovators that use biomimicry would be observational innovators. Antoni Gaudi, who I have written about previously [1], was an observational innovator and drew many of his architectural ideas from nature. Steve Jobs conceived of important aspects of the Mac computer in part from his interest in calligraphy. Jobs said: “If I had never dropped in on that single calligraphy course in (Reed) college, the Mac would have never had multiple typefaces or proportionally spaced fonts.”

On the other hand if an innovator draws inspiration from curiosity in new theories, calculations, data or mathematical modeling, the innovator’s source of inspiration or curiosity is abstract and is different from an observational innovator’s inspiration/curiosity. This type of innovator is what I call an abstract innovator.

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Observational (O) Abstract (B)

A good example of abstract innovation was Lockheed’s development of stealth technology for US military aircraft from the 1970s to the present. Denys Overholser, a mathematician working for Lockheed, identified a theory proposed by the Soviet/Russian physicist Pyotr Ufimtsev from 1962, titled Method of Edge Waves in the Physical Theory of Diffraction and realized that this theory could be used to reduce the radar cross-section of aircraft. In 1971, this book was translated into English by the U.S. Air Force, Foreign Technology Division and the theory played a critical role in the design of American stealth-aircraft F-117 and B-2 [8]. Equations outlined in the theory quantified how a plane’s shape would affect its detectability by radar, its radar cross-section (RCS) and was applied by Lockheed in computer simulations to design the F-117 Nighthawk and later the B-2. I would call Denys Overholser a classic example of an abstract innovator.

Another famous example of an abstract innovator would be Albert Einstein. His famous equation E = mc2, that came from his special relativity theory, relates energy to mass and provided the theoretical underpinning and understanding of fission and fusion processes (i.e. nuclear energy and nuclear weapons).

Conclusion… Using these three dimensions it is possible to describe eight different types of innovators by identifying their innovation working styles, motivations and inspiration/curiosity to better describe and differentiate their innovation personalities. From the disruptive, altruistic, abstract innovator to the adaptive, entrepreneurial, observational innovator, it is possible to classify eight different types of innovators from combinations of the three dimensions.

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The eight possible combinations for Innovator Types are listed in the table below. I have also listed the Innovator styles of several famous innovators to illustrate their different innovator types.

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So what? Hopefully this kind of analysis/tool will help companies, HR managers, and venture capitalists (to name a few) make better hiring, investing or partnering decisions and help innovators find environments that nurture and respect their particular innovator personality. No innovation classification is more desirable than any other but finding the right place/project or right partner is critical for innovation success. For example, venture capitalists might want to avoid funding altruistic innovators unless they hook them up with someone strongly entrepreneurial. Think of the successful partnership of Steve Jobs with Steve Wozniak to create the Apple I and Apple II. A University might be a better fit for the altruistic or abstract innovator if a corporate environment does not support “blue sky” research. If you are looking for commercially-viable disruptive innovation, then you might want to identify a disruptive innovator with entrepreneurial tendencies and avoid adaptive altruistic innovators. If you are looking for someone to develop line extensions to existing products then an adaptive, entrepreneurial, observational innovator might be the best fit.

Innovators come in many “flavors” and having a tool to recruit the R&D, technology or engineering personnel best suited for your needs will be a step forward for the company as well as the innovator who inevitably becomes unhappy in the wrong job, or when partnered with a person who does not understand his/her innovator personality.

Further Points to Consider… Unfortunately my innovator classification system does not have a dimension which identifies an innovator’s success in executing innovation. In other words we might know an innovator’s “flavor” but we have no way yet of knowing how effective they as an innovator. Maybe a tool could be developed that could identify the innovator “flavor” and get an estimate of how good or successful they might be.

I would appreciate any thoughts and comments to help develop these ideas further.

The Power of Process at the Fuzzy Front End of Innovation – Revisited

Posted by innovationcrescendo on December 11, 2015

Posted in: Case Study, Crescendo News, Innovation, Portfolio, R&D. Tagged: aircraft engine, back end of innovation, big idea, collaboration, commercialize, creative, cross business unit innovation, culture, development, disruptive innovation, example of innovation, fuzzy front end of innovation, Geared Turbofan, Governance Process, ideation, incremental innovation, incubator program, innovation, innovation culture, innovation model, innovation process, innovation strategy, innovator program, new product, new product development, open innovation, pet project, portfolio, Pratt & Whitney, process, project, prototype, Purepower, R&D, R&D funding, R&D success, skunk project, technology, timing. Leave a comment

Many readers seemed to “bristle” at the idea of process and innovation in the same sentence when I first posted on this topic [1]. In the original post, I proposed that innovation at the fuzzy front end was more effective if managed as a process. This post revisits these ideas, addresses your comments in more detail, and identifies innovation that responds well to process.

Many companies run into trouble when they try to trim the number of “ideas” and “product concepts” down to a manageable number of projects to be fully funded, customer/consumer tested and ultimately developed for sale. First there is the problem of what types of ideas should be chosen for development. Are they on strategy? Are they disruptive or incremental? How many of each type should be chosen (i.e. how big should the budget be?) Do they make commercial and technical sense? Will customers want them? What mix of big ideas and smaller ideas are needed for the company to be successful? What is our development capacity in-house vs. external sourcing?

We all know that innovation is notoriously difficult. Bigger and better ideas are elusive. In an era when the literature is full of “fail fast” and “build/ship/iterate” mantras, it’s easy to forget that this philosophy doesn’t always work. What has been successful for many “best-in-class” companies is long term, carefully planned projects that deliver significant innovation. While these projects can be very risky, many well-known innovative companies have examples of long term projects that succeeded against the odds and enabled them to break out relative to their competition. Later in this post I look at Pratt and Whitney’s new PurePower Geared Turbofan aircraft engine as an example of this type of disruptive innovation.

Defining an Innovation Strategy … The critical process issue to address at the front end of innovation is to define an innovation strategy. An innovation strategy lays out the framework to answer some of the questions above. In what market categories is the company going to compete and in what categories is it not going to compete? Is the company going to be an Innovator, a Fast-follower, or a company that competes on cost, quality of service or a new business model (like Uber for example)? An innovation strategy will answer and set boundaries on the number of disruptive and incremental projects a company will initiate or source from outside the company. Incremental projects make more sense for a company that has self-identified as a “follower” company than for a company that competes on price. Another important question is the size of the idea. Many good ideas and product concepts have been discarded or implemented by grossly inaccurate estimates of future market size, both large and small, or because of the high risks and costs of new product development.

Ideation … As many readers pointed out, inventive spark and creativity do not lend themselves easily to systemization. The ideation stage always needs to be open and flexible. I prefer to start from the position that there is no such thing as a bad idea and there can be process developed around the ideation phase. For example, a brain storming meeting might have rules of conduct that include conversation at the table can only build on previous ideas.

How Process helps you move from Ideation to Product Concept & beyond … My experience is that converting innovation ideas to product concepts, to prototypes, and finally to successful products requires a disciplined approach – sort of like loading an old style gun – if you miss any of the important steps it misfires or goes off in the wrong direction. For me, this is where process is critical. The two book-end stages of product development i.e. creativity/ideation and development/commercialization, require completely different management approaches, but too often they are handled exactly the same way, to the detriment of innovation.

The fuzzy front end of innovation must be managed differently from the back end of innovation. It requires a different mindset than later-stage product development and manufacturing. For example, if the goal is innovation (or problem solving), networks are needed to connect different expertise, experience and perspective. If the goal is efficiency (or implementation), networks are needed to connect similar expertise, experience and perspective. In network analysis language, networks for idea generation require loose, heterogeneous ties while networks for execution demand strong, trusted homogeneous ties. While the fuzzy front end of innovation does not easily lend itself to systemization, careful governance and a well-established and disciplined governance process is required so that ideas are selected and nurtured for development in a way that innovation workers feel that they can guide and have real input into the development direction of the new product. Many R&D workers have stories of failed “pet” projects that upper management or others with influence forced through the system at the expense of legitimate projects. The governance process needs to be well executed in a disciplined manner so that those crazy off-strategy “pet” projects don’t end up in the pipeline, wasting resources. This is what I mean by the power of process at the fuzzy front end of innovation.

Some readers also confused the idea of process in innovation with six sigma or TQM approaches. This is not what I mean. Those approaches are more directed to cost-reduction innovation and incremental innovation. My focus is on the application of process in innovation strategy, improved innovation processes, and in the innovation governance process.

Lack of internal support for innovation is often also a struggle for innovators in large organizations. Most managers in a large organization are busy with day-to-day budgets, staffing, personnel issues, compliance etc. and have little time to sit quietly and think “big picture”. Innovators often typecast these colleagues as conservative and resistant to change. Their challenge is “How can we convince the rest of the organization to get funding for this innovation project?” This is where having an innovation governance process can help in evaluating ideas objectively. A well-disciplined, objective, governance system must not only be flexible and nimble but also have the gravitas (authority) to fund, protect and resource selected projects.

Innovation in Highly Technical Industries … In an effort to expand innovation beyond single-sourced in-house innovation, many companies have embraced open innovation, an approach that entails sourcing new product ideas externally. The belief behind open innovation is that while companies have finite market research and R&D dollars to spend, there is a wide world out there full of customers, inventors, academics, entrepreneurs, etc., all of whom would appreciate the opportunity to help commercialize their great ideas. Why not mine this potential?

Open innovation, while a good idea, often isn’t appropriate for innovation in a highly technical business sector where cross business unit (x-BU) innovation shines. While open innovation is a valuable tool in a company’s innovation toolkit, x-BU innovation is a complementary approach that is often under-leveraged or overlooked but can be successfully implemented by larger companies. Cross-business unit innovation is innovation that results from interactions between business units, or divisions, within a larger company. Cross-business unit innovation has some benefits over internal single-source innovation and open innovation. For example, x-BU innovation makes it easier to keep initiatives secret, provides first access to internal information and innovation occurring elsewhere in the company, and helps in coordinating multiple technologies and resources required to bring complex innovation to market.

Case Example: Pratt and Whitney’s new PurePower Geared Turbofan Aircraft Engine … A good example of successful long term disruptive innovation that utilized the x-BU approach is Pratt and Whitney’s new PurePower Geared Turbofan aircraft engine. The engineering team innovated, borrowed and adapted multiple technology and engineering ideas to make it work. Outsiders might assume x-BU innovation is commonplace; after all, the employees work for the same parent company. However, the truth is that it’s fairly rare. This is because organizational silos limit collaboration, goals are typically set at the business unit level, and procedures for sharing revenues and allocating expenses across multiple units often don’t exist. Also, innovation projects are often managed at the business unit level and the organizational structure and processes don’t exist for x-BU innovation. x-BU innovation is difficult to manage because of the greater number of players involved. x-BU innovation is a good example of where the power of process is especially needed. If managed correctly and if a disciplined governance process is applied, it can lead to really good results as in the Pratt & Whitney example.

I was intrigued to read about the genesis of Pratt and Whitney’s new PurePower Geared Turbofan aircraft engine [3]. The development time for this new incredible engine was 30 years…and without process in the fuzzy front end of innovation this important development could easily have stalled or been scrapped. This marvel of engineering is 16% more fuel efficient, 75% less noisy than comparable engines and has fewer parts so maintenance is faster and cheaper.

The engine was first conceived in 1988 and protected as a skunkworks/incubator project as project managers hid the project from internal “bean counters” that could have easily killed the project. The budget was protected by a “conspiracy of believers” inside the company to keep the “shareholder value” bean counters at bay. The engineers weren’t just indulging themselves in a science project; they understood that the product life cycle in their industry was decades and that each innovation needed to be significant to provide a real edge for the next generation of aircraft engines. (For other stories about skunkworks/incubators c.f. my Nespresso post [2].)

As with many disruptive innovations, there was a particularly passionate innovation worker behind the scenes. When the PurePower GTF began to take shape in 1988, a 28-year-old engineer named Michael McCune in East Hartford, Conn, started developing a gearbox to slow the fan – the big rotating blades at the front of the engine that provide most of a jetliner’s propulsion. For planes flying at typical speeds, a slow fan that moves large volumes of air at a moderate velocity is more efficient than a fast-spinning fan that accelerates a smaller volume of air. The slow fan is also quieter. The problem was that the fan was attached to the same shaft as two other parts of the jet engine – the low-pressure turbine and low-pressure compressor. Those parts would be more efficient if they ran faster, not slower. Sharing a shaft was a compromise that hurt each part’s performance and left nobody happy.

The solution McCune and his co-workers identified and pursued was one that had already been used successfully on turboprop planes: a gearbox between the shaft and the fan that lets the fan run slower while the compressor and turbine run faster. The gearing approach hadn’t been tried at the scale of a commercial jetliner because the conventional wisdom was that it would be too heavy and wear out too quickly.

Pratt engineers borrowed technology and ideas from other divisions of their parent company, United Technologies: information on gears came from Sikorsky, which makes turbine-powered helicopters; bearing know-how from Pratt & Whitney Canada, which makes the geared PT6 engine for smaller turboprop aircraft; and simulations of how lubricants move through the gear came from the United Technologies Research Center. Additionally they sourced special parts from Timken, the 116-year-old bearing maker, and permission from NASA to use its wind tunnels in California and Ohio.

It took 30 years and $10 billion, but Pratt and Whitney now has an aircraft engine that is a quantum leap better than the competition, and much like the Boeing 787 Dreamliner is to aircraft design, this type of engine will ensure it stays ahead of its competition for many years to come. This could only have happened with highly developed processes at the fuzzy front end of innovation.

Differentiating Incubator Programs from Innovation Programs … In the Pratt & Whitney case, the project at the beginning could be best described as an incubator program. Interesting technology was tested to see if it could be utilized for the final desired commercial product. Once “proof of concept” was reached then the project transformed into an innovation program. The learning here is that companies should not be afraid to initiate incubator programs especially when a clear product concept can be identified…..these often lead to disruptive new products.

Summary … Some readers of the first post on the fuzzy front end of innovation have commented that an innovation process or an innovation governance process will make innovation bureaucratic and slow creativity down with unnecessary paperwork and approvals. However, long term projects and x-BU innovation in particular, need the discipline of process. The mantra of “fail fast” and “build/ship/iterate” is not a good or efficient model for significant innovation that requires large resources and long time-frames. These projects need careful stewardship through the innovation process to succeed.

Innovation requires two different management approaches….Ideation and creativity at the front end of the project need to be nurtured with an open and curious culture whereas the development and commercialization phases at the back end of the project need careful planning and project management execution skills. Culture and management styles have to be different at the front end verses the back end of innovation. Effective governance processes are required at the fuzzy front end of innovation vs. execution processes which are required at the back end of innovation. The power of process in innovation is huge…it’s a matter of knowing what type of process fits and when to use it.

References …
1) https://innovationcrescendo.com/2013/09/24/the-power-of-process-at-the-fuzzy-front-end-of-innovation/
2) https://innovationcrescendo.com/2014/01/15/innovation-in-large-corporations-managing-skunk-projects-to-success/
3) http://www.bloomberg.com/news/articles/2015-10-15/pratt-s-purepower-gtf-jet-engine-innovation-took-almost-30-years

Let’s stop kidding ourselves about what innovation really is. We’re commonly overusing and misapplying the word in the workplace today. Let’s not call a new flavor of yoghurt or a new mouth rinse bottle, innovation. More accurately, they are simple line extensions. Historically many of the great technological, scientific and artistic leaps forward were by a rare super group of true inspirational innovators that “jump started” and moved civilization forward in a quantum leap. What are the characteristics of that rare super group of true inspirational innovators and is it possible to identify innovation characteristics of great innovators?

This post is part of a series examining great inspirational innovators and identifying true innovator characteristics and behaviors. The goal is to develop a model that will help companies/managers/venture capitalists identify, hire, manage, motivate, reward and retain real innovators who might develop a new disruptive product. See for example my previous posts on Antoni Gaudi [1] and Harry Brearley [2] which identify common personality attributes and innovation characteristics, as well as posts on motivation and reward models [3,4,5,6] for “inventor/innovator employees”, and posts that will help you differentiate innovators as either adaptive or creative [7,8].

Along these lines, I became interested in another great, but somewhat forgotten, innovator…. Nikola Tesla….Tesla invented the alternating current (AC) electrical power system which led to the second industrial revolution and became the dominant power system of the 20th century. More currently, entrepreneurs like Steve Jobs or Elon Musk are considered archetypal modern inspirational innovators of the third industrial revolution, often called the digital revolution. There are many similarities between the historical inspirational innovators of the second industrial revolution and modern innovators of the digital revolution.

History of Nikola Tesla …Nikola Tesla was born on July 10, 1856, in Smiljan, Croatia. Tesla’s interest in electrical invention was influenced by his mother, Djuka Mandic, who invented small household appliances in her spare time while her son was growing up. Tesla’s father, Milutin Tesla, was a priest and a writer, and he wanted his son to join the priesthood.

In 1884, Tesla arrived in the United States penniless, only with a letter of introduction to Thomas Edison, whose electrical inventions were hot items at the time. Edison hired Tesla to make improvements to Edison’s inventions. However, several months later, the two parted ways due to a conflict over payment for Tesla’s work.

After leaving Edison in 1885, Tesla received funding for the Tesla Electric Light Company and worked to develop improved arc lighting. After successfully doing so, however, Tesla was forced out of the company and for financial reasons had to work as a manual laborer. In 1887, he secured funding for his AC electrical system and filed several patents for AC-based inventions.

Tesla’s AC system caught the attention of George Westinghouse, who was seeking a solution to supplying the nation with long-distance power. Convinced that Tesla’s inventions would help him achieve this, in 1888 he purchased his patents for $60,000 in cash and stock in the Westinghouse Corporation. Tesla and Westinghouse were in direct competition with Thomas Edison, who was intent on selling his direct-current (DC) system to the nation. A negative-press campaign was waged by Edison, in an unsuccessful attempt to undermine interest in AC power. Tesla patented several more inventions during this period, including the “Tesla coil,” which is still used in radio technology today.

Fortunately for Nikola Tesla, the Westinghouse Corporation was chosen to supply the lighting at the 1893 World’s Columbian Exposition in Chicago, and Tesla conducted demonstrations of his AC system there. Two years later, in 1895, Tesla designed one of the first AC hydroelectric power plants in the world at Niagara Falls. The output from this plant was used to power the city of Buffalo, New York. With this success, the AC system would quickly become the preeminent power system of the 20th century, and it has remained the worldwide standard ever since.

Tesla’s Inventions …In addition to his AC power system and coil, Tesla also discovered, designed and developed ideas for a number of other important inventions, including, dynamos (electrical generators similar to batteries) and the induction motor (photo below), many of which were officially patented by other inventors. He was also a pioneer in the development of neon and fluorescent lights, radar, X-rays, radio and remote control by radio. Similarly he was also very interested in the wireless transmission of power, may have received radio signals from space (i.e. radio astronomy), developed a steam powered mechanical oscillator and claimed to have developed a directed-energy weapon.

All in all, Tesla is known to have been granted at least 278 patents. As an example of his creativity, his last US patent U.S. Patent 1,655,114 was for a tiltrotor/tiltwing biplane that would take off vertically and then gradually achieve horizontal flight like a normal plane. It was powered by a turbine engine. Both these ideas were a first that have now been executed in the form of the V-22 Osprey aircraft of the US military.

How did Tesla Invent? …Tesla had a photographic memory and had visions which might provide a solution to a problem he was working on. Tesla was able to envision an invention in his mind in precise detail. He typically did not make drawings of his inventions but worked from memory. This makes it difficult to know if some of his outrageous claims, especially later in life, were real and based on something definitive in his mind or not.

Surprisingly his inventions were not based on a deep and sophisticated understanding of modern physics. He did not believe in subatomic particles or even the electron as a carrier of charge but believed in the notion of an “ether” that transmitted electrical energy. He did not believe in the inter-conversion of mass and energy as proposed by Einstein or in the notion of curved space-time.

His skill set was more based in experiment, coupled with an intuitive understanding of electromagnetism and where these technologies might be headed well before other people at the time. Tesla was well ahead of his time in predicting the wireless transmission of information and power, and predicted or partially developed many related technologies; for example, remote control, neon and fluorescent lights, wifi, radio and radar. In some cases he was able to build working prototypes including a radio-controlled boat in 1898, a patent for radio in 1900 before Marconi, and he postulated wifi and radar might work. Given that many important inventions he prototyped became commercially successful and important, it is easy to see that Tesla was one of the most important innovators of the early 20th century period.

Here is a photo of induction motors that are of Nikola Tesla’s original design used in a modern Tesla motor car developed by Elon Musk’s company…..

The comparison to Thomas Edison is interesting. Their personalities and motivation were very different. While Edison was a powerful figure who focused on marketing and financial success, Tesla was an idealist who was not commercially savvy and somewhat vulnerable to commercial exploitation. In terms of innovation temperament that I explored in earlier posts [7,8,9], Edison was definitely an adaptive innovator as opposed to a creative innovator. Adaptive innovators tinker with ideas, produce lots of prototypes and make incremental improvements to products. On the other hand, creative innovators like Leonardo da Vinci are gifted in thinking about new ideas but are typically not good in translating ideas into reality. Even though Tesla was an experimentalist he was more of a creative innovator than an adaptive innovator. He let many great ideas slip through his fingers for others to patent and commercialize and was more interested in the “big” picture, often letting others execute development and commercialization of his ideas. In fact Tesla is considered the archetypal “mad scientist”, but in hindsight it is incredible how he was at the center of the initiation of a large number of the most important innovations of the 20th century – proof that these two characteristics are not mutually exclusive.

Notable Tesla Quotes …The following quotes have been attributed [10,11] to Tesla and demonstrate the love and commitment Tesla had for invention to the point that money only had value to Tesla as a way to fund future experimentation. These quotes reveal a great deal about Tesla’s thoughts, motivation and inspiration and by extension, may be helpful to companies wishing to identify innovators in their midst as well as provide important clues for (performance) management of these unusual workers.

“I do not think there is any thrill that can go through the human heart like that felt by the inventor as he sees some creation of the brain unfolding to success… such emotions make a man forget food, sleep, friends, love, everything.” In Cleveland Moffitt, “A Talk with Tesla”, Atlanta Constitution (7 Jun 1896)
“I don’t care that they stole my idea… I care that they don’t have any of their own.” Unknown source
“Money does not represent such a value as men have placed upon it. All my money has been invested into experiments with which I have made new discoveries enabling mankind to have a little easier life.”A Visit to Nikola Tesla, by Dragislav L. Petkoviæ in Politika (April 1927)
“Invention is the most important product of man’s creative brain. The ultimate purpose is the complete mastery of mind over the material world, the harnessing of human nature to human needs.” My Inventions, in Electrical Experimenter magazine (1919)
“The desire that guides me in all I do is the desire to harness the forces of nature to the service of mankind.” Radio Power Will Revolutionize the World (Modern Mechanics & Inventions, July, 1934)
“My brain is only a receiver, in the Universe there is a core from which we obtain knowledge, strength and inspiration. I have not penetrated into the secrets of this core, but I know that it exists.” [11]

Comparison of Tesla’s and Gaudi’s Innovation Characteristics …Tesla reminds me of another incredible and inspiring innovator, Antoni Gaudi [1]. Both were productive in the late 19th and early 20th centuries. Both had similar innovation characteristics and personalities. Both had a strong feeling that they had to work for the service of mankind (quotes 4,5). Both were deeply religious and drew inspiration from religious sources and from nature (quote 6). Both never married and felt that marriage would hinder their professional projects. Both were not motivated by external motivational factors like money (quotes 1,2,3). Both were uninterested in fame or social status, although Tesla liked to dress well, and had meticulous eating and sleeping habits. Both were vegetarians.

Both had an uncommon ability to draw on and combine elements from their spiritual awareness, artistic/scientific sensibilities, observations of nature, and technological expertise and relentlessly led others to build structures so large in scope (or design experiments/technologies so large in scope) and complexity that most would say it couldn’t be done.

Five elements of their innovation personality stand out:

Both had intense observational skills. Both were keen observers of nature. Gaudi used forms he saw in nature and used them in his architecture. Tesla was fascinated by the lightening he saw in nature and commented “If you want to find the secrets of the universe, think in terms of energy, frequency and vibration.”
Both were inspired by the beauty and aesthetics of nature and a deep understanding of the physical laws of nature. Both were deeply religious and drew inspiration from nature. Tesla for example was a good friend of John Muir, conservationist and founder of the Sierra Club. Gaudi used many plant-based motifs in his architecture.
Both invented unique engineering methodologies and had deep content expertise across multiple disciplines, especially in engineering and mathematics. This enabled them to develop new engineering solutions to the problems they encountered.
Both had a relentless intrinsically driven obsession for work. Both were workaholics who worked late into the night and early morning and slept little. Both were unmarried and completely committed to their work to the extent that money did not matter to them.
Both had powerful benefactors who funded their projects. In the case of Gaudi, it was Eusebi Guell, a Catalan industrialist who financed many projects and Bishop Josep Torras i Bages. Tesla had many influential friends including Mark Twain, John Muir, Robert Underwood Johnson but Tesla was funded on some of his most important projects by George Westinghouse and J. P. Morgan, both captains of American industry.

Comparison of Tesla’s and Harry Brearley’s Innovation Characteristics… Tesla makes an interesting comparison with Harry Brearley[2]. Brearley was a practical person who like Tesla rose up from humble beginnings to become a great entrepreneur and successful. In this case:

Both had deep technical expertise. In the case of Brearley it was the art of steel making and in the case of Tesla it was in the area of electricity and electro-magnetic devices.
Both developed their innovations in a “skunk works”. Tesla in fact developed his own “skunk works” several times….Tesla Electric Light & Manufacturing, Tesla Electric Company (1/3 of profits would fund further development), Colorado Springs and Wardenclyffe. In Brearley’s case, two ajoining steelworks set up a joint research laboratory which Brearley headed and had co-ownership of patents.
Both had an obsession with helping mankind. Brearley was definitely better at profitably commercializing his inventions than Tesla and almost certainly a better businessman. Tesla however wanted to serve mankind and understood the importance of commercializing his technology even if it meant he would make no money.
Both believed in the development of working prototypes to generate excitement about their inventions and to demonstrate the practicability of their inventions. Brearley made prototypes of his stainless steel knives and Tesla made numerous prototypes of his electro-magnetic inventions e.g. motors, dynamos & oscillators.
Both worked in fields where the timing was right. Brearley was in the right place (Sheffield, England), at the right time in terms of steel making and cutlery. Tesla was in NYC during the Edison era when the second industrial revolution was just starting and the use of electricity and electrical devices was blossoming. Both innovators were at the epicenters of their fields when significant progress was being made. They were in the right place at the right time.
Both were “futurists” in the sense that they understood the importance of their inventions. Brearley clearly understood the future uses for a rust-resistant steel and Tesla famously said “The present is theirs; the future, for which I really worked, is mine.” Tesla clearly understood the future use of his technological inventions well before others but had trouble convincing others of his vision.

Comparison of Tesla to Modern Day Inspirational Innovators like Elon Musk and Steve Jobs …Tesla, Elon Musk and Steve Jobs have many attributes in common but differ in many ways as well. Business was conducted differently one hundred years ago.

They (Tesla, Musk & Jobs) were all huge risk takers. In many cases they bet the company (and their own personal wealth) on a new technology or a new product that they passionately believed in.
All are “futurists” and altruistic in that they seemed to be able to understand the importance of their inventions and how their inventions might be used in the future. All three innovators seem to have a very clear vision of the future. In the case of Tesla and Jobs, they were eerily accurate. Musk’s vision of electric cars, cheap space travel and hyperloop transportation also seems to be on track.
Clearly Tesla’s weakness relative to Jobs and Musk was his inability to get things to market and generate a commercial success for himself or his companies. Jobs and Musk were much more adept as businessmen and were also adept managers and CEOs. Nikola Tesla was not a manager or marketer and definitely wasn’t driven by making money.
They were all in the right place at the right time. Silicon Valley was the right place to be involved with the digital revolution where Jobs and Musk have made their marks. Tesla was in the right place and the right time for the beginning of the second industrial revolution; New York City was the center for development of electrical power and electro-magnetic devices. Incidentally, Nikola Tesla and Elon Musk emigrated from foreign countries to be “in the right place at the right time”.

Conclusion …Nikola Tesla had many characteristics in common with both historical and modern-day inspirational innovators. Perhaps the most important characteristics are his complete obsession with invention, altruism, incredible risk-taking, clear future vision, and being in the right place at the right time.

One characteristic that sets Nikola apart from his modern counterparts is his lack of business savvy relative to modern day successful entrepreneurial innovators. Innovators that make quantum differences in today’s society are almost all accomplished businessmen as well as innovators. True, Apple started with Steve Wozniak as the engineering guru who designed the Apple I & II, but without Jobs, Apple would likely have failed. Tesla was more of an altruistic inventor rather than an entrepreneurial innovator. I suspect that if Tesla was around today, he would not have been able to secure funding for his inventions since today those in venture capital and the world of finance rarely understand the inventor’s mind or motivation and most likely Tesla would not have been as prolific. He was too much of an odd-ball. Tesla was an amazing inventor but not an entrepreneur.

Someone like Tesla needs an entrepreneurial or corporate partner to fill those support roles. Although inspirational innovators like Tesla are uncommon there are still plenty of original, innovative minds “hidden in full sight” in our companies, often dismissed as unmanageable, crazy scientists who aren’t team players. That is a sad thought, especially for someone interested in innovation like me because these colleagues are probably vastly under-utilized and mismanaged in their company’s R&D departments. Developing an integrated innovator behavior model would help identify common personality attributes and innovation characteristics, provide motivation and reward metrics for “inventor/innovator employees” [3,4,5,6], and will classify the different types of innovators, for example as either adaptive or creative [7,8], making it easier to develop corporate roles and responsibilities.

Hopefully as line extensions run out and your company is driven to pursue more innovative solutions, a deeper understanding of innovator behaviors and motivations will help identify, hire, manage, motivate, reward and retain real innovators and your company will be driven to innovation crescendo.

Consider the situation where you have developed this great new product but it is presented in a “me too” or “plain Jane” package. Will the consumer know that the product is great if the package is uninspiring? Probably not….and what will it lead the consumer to infer about the product? Usually I discuss innovation in terms of developing the product. However, packaging influences a consumer’s purchasing decision so much that poor packaging choices can torpedo an innovative new product.

Packaging and Wine Tasting… Wine is a great example of packaging being everything. To illustrate this point, Frédéric Brochet at the University of Bordeaux in 2001 took a “run of the mill” Bordeaux and served it in two different bottles [1]. One bottle bore the label of a fancy grand cru, and the other label described the wine as an ordinary vin de table. Although wine tasting experts were served exactly the same wine, they described the wines very differently. The “grand cru” was summarized as being “agreeable”, “woody”’ “complex”, “balanced” and “rounded”, while the most popular adjectives for the vin de table included “weak”, “short”, “light”, “flat” and “faulty.” This example nicely shows how even experts can be influenced by making assumptions about packaging. A high quality, expensive looking package influences us to think that the product is also high quality and expensive; whereas a cheap generic package will influence you to think that the product is low end.

What is the best Honeypot?… Here are several examples of “good” and “bad” packaging of honey products. Let’s assume that the honey is of equal quality in each of these three examples.

Which one would you choose? You would probably choose one of the two more interesting packaging examples, not the generic looking one. But hang on, what if the generic looking one was 20% cheaper than the other two. Which one would you pick then? My guess is that many of you would still choose one of the more expensive looking, better packaged honeys even though it is the same honey.

Packaging can make or break a new product and an innovative new product deserves an equally innovative new package in which it can shine.

The Package as the Brand… Many companies think of packaging as a branding tool. For most brands, recognition is everything. Most companies want you to spot their products by the packaging and graphics immediately so you can easily identify it in a sea of competitors. Also, brand recognition isn’t just about making a good first impression; it’s about creating a way for the consumer to make a repeat purchase, once trust has been established by an initial sale.

Unboxing… Packaging can be an important part of the consumer experience of the product. The term “unboxing” [2] has taken root over the last ten years or so. Unboxing is the unpacking of new products, often high tech consumer products, by the owner as he/she captures it on video and uploads it onto the web. Sometimes these unboxing videos get millions of views! Many of you are probably aware that Apple has a department that investigates user experiences when they open a new Apple product [3]. For Apple, the box (or package) gets almost as much attention as the device inside. For Apple, showing attention to detail at even the smallest level communicates to customers that “the manufacturer cares about them.” Customers then feel a bond with the company, which translates to an intangible product characteristic that transcends price points.

Walter Issacson’s biography of Jobs quotes Apple’s Jonathan Ive [4]: “Steve and I spend a lot of time on the packaging,” said Ive. “I love the process of unpacking something. You design a ritual of unpacking to make the product feel special. Packaging can be theater, it can create a story.”

Even Shipping Packages… The importance of packaging applies not only to the primary package but to secondary packaging and even the shipping package. The primary package is the first-level product packaging such as the bottle, can, jar, tube, etc., that contains the item sold. It is the last piece of packaging that the consumer interacts with.

In a recent article in Forbes by Roger Dooley, he makes a nice point about the importance of the shipping package [4]. He received two shirt orders on the same day – one from a large US retailer’s e-commerce arm, and another from Charles Tyrwhitt, a British shirtmaker. The packages formed a stark contrast. The Tyrwhitt shirts were in a sturdy-looking box, secured with a band, and well-branded on multiple sides.

The shirt from the big US retailer came in a plastic bag. That’s typical for apparel orders these days – they can be shipped in light, flexible plastic bags that minimize both packaging and shipping costs. While the bag-style packaging is functional and cost effective, it fails the “first impression test.” Packaging should, for a fashion product, communicate a sense of value and, perhaps, prestige. A crumpled plastic bag communicates the opposite, cheapness and disposability. The sturdy, well-branded Charles Tyrwhitt package makes a great first impression, which raises expectations for the product inside. Those expectations, in turn, influence how the customer perceives the product itself.

Perception is Everything… First impressions about a product are incredibly important. They are quick to form and very difficult to change and can persist even when contradicted by factual information later. Since the first interaction of a customer with a new product is usually through its packaging, first impressions created by the packaging are critical to the user experience.
Innovative packing encompasses both iconic branding with intense (enjoyable) user experiences including both the primary/secondary package and also the shipping package.

Some of my Favorite Classical Packages… I guess one of the most iconic packages of all time would be the glass Coke bottle [5]. The Coca-Cola Co commissioned the design of this bottle in 1915 to distinguish it from its competitors.

Another favorite package is the Jif Lemon juice bottle [5]. This was designed in 1954 and the texture of the plastic bottle is modeled from real lemon skins. Both of these packages are an integral part of their brands, so much so that the package is a large part of the brand and is instantly identifiable by almost everyone. Both are examples of innovative packaging that have withstood the test of time.

Some Modern Packaging Designs… Today we live in an era where new packaging materials exist, computer-aided design tools can help with graphics, and packaging structure design and companies understand the important of interesting and striking packages. Here are some modern packaging designs that caught my eye as interesting or different [6]. Do they affect you positively or negatively?

Conclusion… Why is it important to innovate in packaging? Because people tend to get tired of the same old things. Many companies continue to innovate in the packaging space to emphasize/communicate continuous product improvement as well as to make their products more visible verses their competitors.
Innovative package design and quality is usually the one opportunity for a company to make a good impression and impart an enjoyable user experience for the consumer of a new innovative product – don’t waste it!

References…
1. http://www.newyorker.com/tech/frontal-cortex/does-all-wine-taste-the-same
2. http://en.wikipedia.org/wiki/Unboxing
3. http://appleinsider.com/articles/12/01/24/book_details_apples_packaging_room_interests_in_advanced_cameras_
4. http://www.forbes.com/sites/rogerdooley/2014/10/13/how-your-packaging-improves-customer-experience/
5. http://www.npr.org/blogs/thesalt/2015/03/16/392514497/looks-matter-a-century-of-iconic-food-packaging?utm_source=npr_newsletter&utm_medium=email&utm_content=20150318&utm_campaign=npr_email_a_friend&utm_term=storyshare
6. http://www.instantshift.com/2013/04/04/50-creative-packaging-designs/

“I own you!” Luckily the majority of corporations and managers no longer treat their employees like this, but there are still a few bad eggs out there. One area in which this attitude can surface is when an innovation worker takes a new job. An employee’s right to change jobs and a company’s right to protect its secrets collide in an area of law called “restraints on trade”. Properly drafted and used responsibly, non-compete agreements, confidentiality agreements and the doctrine of inevitable disclosure are appropriate legal restraints on employment to protect employers’ proprietary and confidential information. But improperly drafted restraints and their misuse not only affect an individual’s ability to work in their chosen profession, they also hinder innovation in the market place.

Increasing Worker Mobility and Restraints on Employment …As the average number of years employees spend in one job continues to shrink, the role of restraints in the employment relationship will also change, but initially it is likely that abuses will increase as some corporate managers cling to the old model of employment. Employees now spend only 4.6 years on average with an employer before moving on to their next job [1,2]. And ninety one percent of Millennials expect to stay in their jobs for less than 3 years [3]. Additionally, the average person will go through approximately seven career changes in a lifetime.

Legal topics are not often discussed in my blog although occasionally I come across a legal issue which affects innovation. For example, in a previous post I discussed whether patents are an incentive or hindrance for innovation [5]. In this post I’ll discuss confidentiality and non-compete agreements as well as other legal concepts that can negatively affect both your ability to move to a new job in the same industry and the big picture of innovation. Even if you don’t really care about how these agreements hinder innovation, an encounter with a corporate bully or a broad non-compete can have dramatic consequences for your personal career.

Quick Primer on how you can be restrained from pursuing your Career …Confidentiality Agreements and non-disclosure agreements (NDA) create a confidential relationship between the employee and employer to protect defined types of confidential or proprietary information or trade secrets. These agreements are commonly used. New employees, consultants and contractors typically all sign them before they start work with an employer, especially in knowledge based industries. They are drafted by the employer and are basically non-negotiable conditions of employment for the average R&D worker.

Non-Compete Agreements usually restrict the employee from entering or starting a similar profession or trade in competition against the employer for a certain amount of time and across a defined geographical area. These agreements are much more contentious than confidentiality agreements when they are overly broad, or do not appropriately compensate the employee from engaging in their profession, and their use is becoming more widespread [6]. As an example of an extreme case, even sandwich makers at Jimmy John’s Gourmet Sandwiches are being asked to sign them. One of the major issues is that an overbroad non-compete agreement may prevent an employee from working in their chosen profession after they leave their current employer [6,7]. This is a scenario that very few people understand when they might inadvertently sign an overbroad non-compete agreement and like the confidentiality agreement, they are drafted by the employer and are basically non-negotiable for the average R&D worker.

Overbroad non-compete agreements have been held to be unenforceable but the extent of enforceability varies State by State. Few R&D workers would want to be involved in defending a law suit to continue working in their industry and in their area of expertise, so be very careful signing these agreements, especially if you work for a large corporation with unlimited resources for legal enforcement. Even if you are likely to prevail in the end, your previous employer calculates that you will be deterred by the disruption to your career and personal life and that you will not have the stomach for litigation.

Some companies even try to incorporate these agreements into severance packages when R&D workers are laid off. Before signing these packages make sure that you understand the non-compete parts of the agreement. In some cases it might make better sense to not take the severance package so that you can still work in your industry.

Inevitable Disclosure is a principle of law that enables an employer to use trade secret law to stop a former employee from working in a job that would “inevitably” result in the use of trade secrets. Courts applying the inevitable disclosure doctrine to the benefit of the former employer issue an injunction prohibiting the employee from going to work for competitors. Employers have been known to use this tactic, even it is meritless, if an employee wants to leave and work with a competitor in a similar position but has not signed a non-compete agreement. Again the merits of the case are largely irrelevant as the legal process and money needed to defend an inevitable disclosure suit work to the corporate manager’s benefit – she/he has no personal stake in the litigation and has unlimited corporate funds to spend. On the other hand the average R&D worker will experience disruption to career and personal life. In the hands of the unethical, this makes it the perfect tool to bully the departing employee.

Corporate Misuse of Restraints on Future Employment …This occurs most commonly when corporate lawyers draft overly broad agreements or corporate managers use restraints to bully and intimidate departing employees. While the courts have grappled with balancing these conflicting interests by generally refusing to enforce overly broad agreements, the legal bullying that goes on behind closed doors is less well documented.

The Exit Shakedown …An exit shakedown usually involves some form of legal bullying or intimidation perpetrated on the exiting employee to interfere with his/her right to work for another employer, even though the original employer’s proprietary information is not at risk.

Who is likely to engage in this type of behavior? Perhaps it’s an old school manager who manages by intimidation or doesn’t understand how the employment market has changed since the “old days” or it may be an ineffective manager of innovation who mistakenly thinks that stifling employee movement will protect his/her own product pipeline from competition. And sometimes the shakedown is simply both an abuse of power and the legal system to avenge a personal agenda.

What does the shakedown look like? Well it’s a little like a David and Goliath encounter which could range from an illegal inquisition about the employee’s future plans and threats of legal action behind closed doors, to actual legal action or even the manipulation of other employment contracts like a change of control plan. When the exit shakedown succeeds, R&D employees are prevented from working in jobs where they can use their skills; resources and money are wastefully diverted to legal representation (assuming the employee even has the stomach for a protracted legal action); and innovation suffers.

Restrictions on Worker Mobility hinder Innovation …A robust, innovation-based economy depends on innovation workers being able to move from employer to employer as long as they don’t misuse trade secrets or proprietary information. When innovation workers take their personal knowledge, experience and expertise with them from company to company, new perspectives and ways of thinking emerge, and innovation blossoms. This cross-fertilization of innovation from mobile workers is necessary for an innovation-based economy.

So moving from job to job as the economy changes and as people make lifestyle changes/career choices is good news for R&D innovation. R&D managers secure in their abilities to manage innovation understand the natural cross-fertilization of ideas that occurs when employees move between jobs and will reward performance to retain employees rather than rely on overly broad non-compete agreements or unfounded inevitable disclosure actions to hold an employee hostage. This manager also understands that there is reciprocity in mobility and that his own business will benefit from worker mobility.

Silicon Valley …The importance of employee mobility for innovation is illustrated by the phenomenal success of Silicon Valley. California prevents firms from enforcing non-compete agreements and researchers found that this explains, in part, the high level of job changing in Silicon Valley’s computer industry. Silicon Valley’s greater employee mobility has been cited as the reason for its innovation successes relative to tech clusters in other states, such as the Route 128 cluster in Massachusetts. Whether this is correct or not, the mobility of knowledge workers in Silicon Valley is legendary. Many high-tech gurus jumped from company to company, often incorporating ideas initially sparked at one company into new ideas at another. For example both Steve Jobs and Bill Gates incorporated ideas originally discovered at Xerox’s PARC research facility into Macintosh computers and Windows operating systems.

Summary …The increasing widespread use of non-compete agreements and proposed expanded Federal Trade Secret law will have a chilling effect on Innovation by inhibiting the mobility of skilled technical workers. The problem is highlighted by arbitrary enforcement, as well as their susceptibility to abuse and the whim of an individual manager. When employers have the mindset that they own the personal thoughts, skills and knowledge you accumulate when you worked for them, even if that entails making sandwiches, and they try to protect that by using non-compete agreements or other legal instruments it is hardly a good thing for innovation; in fact it seems to be the antithesis of innovation.

The big picture is that your previous employer owns the trade secrets and proprietary information of your previous employment but not your personal thoughts and all the other “stuff” that’s in your head. Cross fertilization of ideas creates innovation and overly broad restraints or unscrupulous managers who use restraints for their own personal agendas inhibit innovation. Efforts to increase the scope of legal instruments to inhibit employee mobility and hence inhibit innovation should be strongly resisted as it will have an adverse effect on a modern innovation-based economy.

References…
1. http://theweek.com/article/index/249288/how-long-is-too-long-to-stay-at-your-job
2. http://www.bls.gov/news.release/tenure.nr0.htm
3. http://www.forbes.com/sites/jeannemeister/2012/08/14/job-hopping-is-the-new-normal-for-millennials-three-ways-to-prevent-a-human-resource-nightmare/
4. http://blogs.wsj.com/numbers/a-lifetime-of-career-changes-988/
5. https://innovationcrescendo.com/2013/08/24/patents-incentives-or-hindrances-for-innovation/
6. http://www.fastcompany.com/3031956/the-future-of-work/what-you-need-to-know-before-signing-a-noncompete-agreement
7. http://www.msn.com/en-us/money/careerandeducation/how-companies-kill-their-employees-job-searches/ar-BB9ACEe

I was reflecting on my R&D career while recently attending an executive coaching course [1] and it occurred to me that R&D training is nearly always centered on improving competencies in technical areas, and seldom focuses on the “human element”. During my career, I received considerable training on aspects of management theory, portfolio management, interviewing skills etc. but training to improve “soft skills” that dealt with the “human element” in the workplace was limited.

It’s all about the data…or is it? Many R&D leaders who come from a technical background tend to be data-driven and are weaker in areas where communicating and influencing people are crucial. This becomes a critical liability as the young scientist progresses to management. As a young scientist I believed the data always spoke for itself. How wrong I was. It took a while, but I learned the critical part of “influencing” was not the data but rather understanding my audience, understanding what information they were looking for, understanding the context, understanding the environment and understanding the audience’s goals.

As I moved further up the ladder and became a Manager, then Director, and finally VP, I found that my job increasingly entailed more people management and many issues where related to people-people interactions, not the science or data. My competency was increasingly tested by how well I could handle conflict situations around timelines, resources, prioritization of projects, cross-functional collaborations, and influencing others to adopt an idea. If R&D employees received more targeted coaching on these “human” issues, then their transition to R&D leadership positions would be better for everyone.

Influence and People Skills… The ability to “influence” and lead with “people skills” are important skills for an R&D Leader. R&D leaders have to champion, in collaboration with other company leaders, an innovation culture within the company which nurtures the best R&D talent, while also engaging senior executives in developing a balanced R&D innovation strategy aligned with the corporate strategy and getting buy-in on that strategy from other leaders in the company. R&D situations in which the power to influence and resolve issues through your people skills are limitless and varied: collaboration on projects; communicating project status updates; discussions around organizational structure; allocation of resources; setting project priorities; and determining when projects are initiated or killed to name a few.

If you’re a young emerging R&D leader reading this, remember that sometimes the data is the least persuasive part of your argument. Know your audience and differentiate between a presentation to a technical leader and a non-technical leader. Sometimes your audience doesn’t understand the significance of the data. Sometimes they are just not as interested in the data as you and just want a short summary. Sometimes they would prefer to talk rather than see charts and tables of numbers. Sometimes they don’t “speak” your (scientific) language. It’s an R&D leader’s job to learn to bridge these gaps and become a more effective communicator. Listening becomes just as important as talking.

Coaching for Emerging R&D Leaders… R&D leaders need to be able to move from the technical arena to managing the “human elements” (as opposed to the “chemical elements”):-). The soft skills of emerging R&D leaders will be needed increasingly as they advance in their career and failure to acquire them will affect the trajectory of their careers. This means coaching on the soft skills is a critical learning step for an emerging R&D leader.

I remember the comical surprise of my group when I took the unusual step of introducing a meeting where we discussed such “wacky” ideas as the role of body language in R&D communications. After they recovered from the shock, the feedback was very positive. But there is so much more room for improving R&D training in the softer skills and increasing awareness of the “human element” in our R&D activities. Many R&D Leaders are completely unaware of the effect they can have on other people when communicating but the good news is that many of them can be easily coached to become effective communicators and good people managers. Coaching for R&D leaders would be a great start.

Building High Performing Teams… The transition from R&D scientist to R&D leader is a difficult one to make for scientists who often tend to be highly analytical and have low “F” (feeling) scores in the Myers-Briggs personality test [2]. Believe it or not, it is possible to learn to “influence” by speaking up in a more extraverted style even though you may not have all the facts or data you would like to make a decision. Successful R&D leaders would also benefit from learning about the various different personality types in their teams and collaborative partners, as well as understanding coaching and mentoring processes that can be used to create high-performing teams. Since R&D is a highly collaborative process, work spent on establishing high performing teams within the R&D context will reap rewards in establishing a positive innovation culture.

Conclusion… Success in influencing others means that you have to start feeling comfortable with the “fuzziness” of human interactions and personalities and learn to trust your “gut”. I believe that the cost of utilizing coaching for improving the soft skills of emerging R&D leaders would be well worth the cost and ultimately result in a more efficient and collaborative innovation culture. It’s an area that I suspect has been neglected in many companies.

PS… I’ve also written several posts about other aspects of R&D leadership for those readers who may be interested [3,4,5,6,7,8].

References…
1. Philosophy IB Executive Coaching Certification Program, Rutgers, NJ, Fall 2014.
2. http://en.wikipedia.org/wiki/Myers-Briggs_Type_Indicator
3. https://innovationcrescendo.com/2013/10/27/setting-the-right-learning-and-performance-goals-for-innovation/
4. https://innovationcrescendo.com/2013/01/01/leading-an-innovation-crescendo-part-1-setting-direction-with-an-innovation-strategy-2/
5. https://innovationcrescendo.com/2013/01/01/leading-an-innovation-crescendo-part-2-innovation-culture-temperament/
6. https://innovationcrescendo.com/2013/01/01/leading-an-innovation-crescendo-part-3-throw-out-old-metrics-for-innovative-projects/
7. https://innovationcrescendo.com/2013/01/08/investing-for-innovation-crescendo-part-1-improving-organizational-infrastructure/
8. https://innovationcrescendo.com/2013/01/14/investing-for-innovation-crescendo-part-2-spend-on-talent/

A common cost trimming conversation in R&D that might sound familiar goes like this: “This year we need to reduce product costs by 4%. Think of some cost-reduction projects to achieve that.” When you’ve cut costs on existing products for several years, you’ve probably already squeezed most of the blood out of the stone, and it’s difficult to know how to do it again. Sales are flat and you’d like to develop some new products. But you say, “Sure I’ll get the team together to come up with some proposals, but it will be tough”. The good news is that there is often room to optimize recently launched products through cost-cutting innovation. But don’t lose sight of growth projects in the process.

Cost Reduction and Golf …Cost reduction projects improve your margins but they should not dominate your R&D new product development (NPD) portfolio. Think of cost reduction projects as a golf club in your R&D golf bag, maybe a putter for example, that should be taken out and used only when the time is right. They are best when you have had a successful new launch but maybe the manufacturing process or ingredients/components haven’t been fully optimized for cost. If the new product is successful and accepted in the market place, then executing a cost reduction project will improve margins and easily pay for any R&D investment required to make it work. In this way cost reduction projects could be considered as the final stroke when you play a golf hole. To complete the analogy, the drive might be considered as the launch of the original new product and the chip onto the green as a line extension and the putt, a final finishing touch. Then you play the next hole; i.e. develop the next product.

Cost Reduction and Incremental Innovation …Before we discuss how to manage your R&D portfolio, first consider that Innovation can be broken into two types of Innovation: 1) Disruptive Innovation and, 2) Sustaining or Incremental Innovation. The definition of incremental innovation is: a series of small improvements to an existing product or product line that usually helps maintain or improve its competitive position over time. Incremental innovation is perhaps the most common type of innovation project that companies have in their R&D portfolios [1]. It fosters a slow and steady approach that minimizes risk. Also once a company has launched a product or service, it will have built up a considerable amount of investment in people and product expertise so it is well placed to improve the product or/and reduce costs in its manufacture.

Let’s dive a little deeper into incremental innovation and identify what exactly defines incremental innovation. It can be: 1) adding wanted or removing (unwanted) features of a product or service, 2) making your product or service better, 3) reducing the cost of your product or service (this is where cost-reduction innovation comes in), or 4) improving the customer experience when buying or using the product/service.

Cost-Reduction Innovation …Companies in the incremental innovation game have products that are, or will be, under price pressure. This means that projects that focus on cost reduction are attractive because of potential gains in market share. If you can deliver a high quality product/service for a price lower than your competitors then you will gain market share. For example, cost reduction projects can focus on:
1) improving the efficiencies of manufacturing processes,
2) replacing raw materials/ingredients with alternatives which cost less,
3) consolidating strategies which bring economies of scale or streamline operations.

Cost reduction projects that achieve one or more of the above three goals without the consumer/customer being able to recognize a difference in quality of the product or service will be successful. However the trap is that (multiple) cost reduction projects can result in the customer recognizing a drop in quality and any improved margin is offset by a drop in sales.

The Unbalanced Portfolio doesn’t sustain Growth …I have talked previously about the need for companies to engage in active portfolio management and the need to constantly balance and optimize the portfolio for capacity [2,3,4]. If your company’s portfolio is heavily weighted towards cost reduction projects to the exclusion of other types of innovation, this is a warning sign that your company might be in innovation trouble. Cost reduction projects tend to have a law of diminishing return. It becomes harder and harder to squeeze blood out of a stone especially if sales are declining. At some stage old products will have to be replaced with new products. To return to the golfing analogy, you can’t keep putting forever….you must sink the putt and start a new hole if you plan to grow.

If these companies don’t address portfolio imbalances they will slip into the cost reduction black hole where their products become commodities which compete solely on price. If you are an R&D leader, make sure your company’s R&D portfolio is balanced. Just as a retirement portfolio should be balanced to distribute and even out risk, so should an R&D portfolio. Gradually add innovation projects that add features to your product and/or improve it. Maybe even add a high-risk blue-sky project that has the potential to be a big disruptive innovation. This will increase the probability of revenue from new products while minimizing investment risk. Referring to the golf analogy again …this will put you on the tee for the next hole.

Another trend I have seen in some companies is to separate cost reduction projects from innovation projects. Some companies use separate portfolios and governance systems for cost reduction projects verses innovation projects and some even have separate R&D groups that execute cost reduction projects verses innovation projects. The problem with this approach is that the cost reduction side can grow and overwhelm the innovation side. Cost reduction projects can involve new manufacturing technologies or new ingredients/components that can be transferred to innovation projects but separating cost reduction projects from innovation projects will often hinder cross-fertilization of ideas between the groups. In my opinion, the distinction between cost reduction and innovation projects is artificial and they should be managed as one portfolio in one governance system. In that way it is less likely that one type of project will dominate the NPD portfolio and R&D resources. Having one R&D group execute both innovation and cost reduction projects also gives the R&D leader the flexibility to implement changes in innovation strategy and increase or decrease cost reduction projects quickly, simply by allocating different projects to members in the group.

The Role of Culture …The culture of a company with an unbalanced portfolio often hinders significant innovation. These companies often have inflexible/hierarchical cultures that make it difficult to initiate higher risk innovation whereas more flexible cultures seem to be able to cultivate innovation that is more comprehensive and disruptive. Since the culture of a company often affects its innovation strategy, often a change in innovation strategy must be accompanied by a change in culture. The whole company has to be informed, invigorated and educated on the new innovation strategy. The new product development (NPD) process and NPD governance system may also need tweaking for a more innovative culture to stick [5,6,7].

Other Models …Alternatively, some companies use acquisition strategies almost exclusively to grow. These companies devote little R&D resources for internal organic growth. They acquire new products via merger and/or acquisition and use cost reduction projects and some incremental innovation to maintain profitability. While this strategy can work over the short term, it carries the risk of being torpedoed by a bad acquisition. Also the costs of integrating new organizations and products into the existing organization are usually underestimated. There are examples of some companies successfully implementing this strategy, but generally they are the exception to the rule.

Summary …Larger companies with established market share and products are well suited to utilizing incremental innovation methods to update or save costs on a large range of products or services in order to prevent them from falling behind the competition. However, some larger companies often fall into the habit of investing too much time and effort into cost reduction projects while neglecting other types of incremental innovation and disruptive innovation. As such, they eventually fall behind organizations with a more balanced mix of innovation techniques.
If your company has an R&D strategy focused predominantly on cost reduction, it might be time to rethink your strategy. New competitors will be emerging and experimenting with new innovation strategies. Inaction is not an option or you might find your customers spending more on another company’s more compelling new product.

References…
1. http://www.incrementalinnovation.com/
2. https://innovationcrescendo.com/2013/02/25/governance-of-the-rd-portfolio-2/
3. https://innovationcrescendo.com/2013/02/12/optimizing-projects-for-the-perfect-rd-portfolio/
4. https://innovationcrescendo.com/2013/02/05/perfecting-your-rd-portfolio/
5. https://innovationcrescendo.com/2014/05/28/restoring-rd-productivity-after-a-merger-or-acquisition-a-case-study-in-good-timing-comprehensive-approach-building-consensus/
6. https://innovationcrescendo.com/2014/06/11/the-unexpected-role-of-process-mapping-in-change-management-after-a-merger-or-acquisition/
7. https://innovationcrescendo.com/2014/07/23/improvements-in-both-innovation-culture-and-npd-process-are-beneficial-to-restore-rd-productivity-after-a-merger-or-acquisition/

Stainless steel kitchen appliances are essential elements in kitchens these days, yet most of us know little of the innovation that occurred nearly 100 years ago that made this possible. It was in 1913 that Harry Brearley in Sheffield, England, produced the first ingot of what was later to become known as stainless steel. The more I delved into this story the more it fascinated me, not only because of Harry Brearley’s story, but also because it embodies many of the innovation themes found in many of my other innovation posts.

Today, steel has an important place in consumer products as well as the aerospace, automotive, manufacturing, food processing, medical, chemical, petroleum, construction, railroad and marine industries. However we all know that steel has a major flaw……it corrodes, it rusts and will eventually degrade into a powder. Stainless steel does not rust. It contains a certain critical amount of chromium which forms a molecularly-thin layer of chromium oxide on its surface which prevents any further corrosion in a process called passivation. This unique property sets stainless steel apart from other steels and accounts for its importance in our daily lives.

Harry’s History [1,2]…Harry Brearley was a self-taught man who worked his way up from absolute poverty. Harry was born in 1871 and was a bottle washer for a chemist at the age of 12. He was promoted to laboratory assistant, was interested in Maths and Chemistry, and eventually became an analytical chemist. At the age of 31 he wrote his first book, “The Analysis of Steelworks Materials”. Harry went to Riga, Latvia as a chemist in 1904, was promoted to Heat Treater and then to Works Manager, and returned to Sheffield after several years.

Thomas Firth and Sons and John Brown and Co were neighboring steelworks in Sheffield and decided to set up a joint research laboratory – a modern day skunk-works [3]. In 1909 Harry was 38 and became Manager of Firth Brown Laboratories, their joint research laboratory. Harry was given free rein over his research projects and had co-ownership of any patents that might arise from his work at the lab – incentives for innovation that you will rarely find today [4].

While at Firth Brown Laboratories, he became interested in the erosion and wear-patterns of steel rifle barrels, thinking that steels with high chromium levels might be a solution. In August of 1913 when Harry was making high chromium steels he noticed these steels were resistant to acid etching after polishing (a technique required to study the microstructure of the steel). He also noticed that cut surfaces from these steels did not rust. These steels did not solve the rifle barrel problem, but Harry began to realize that rust-resistant and acid-resistant steel could have many applications – Harry’s technical competency and acute powers of observation were about to lead to a disruptive, breakthrough innovation [5]. Harry tested these steels with acid food products such as vinegar and lemon juice with good results – they didn’t stain or corrode.

In 1914 Harry talked about the use of this new steel for cutlery/flatware, as well as for other uses. Until that time, cutlery was either made from carbon steel, prone to rusting and requiring frequent polishing, or expensive EPNS (electro-plated nickel silver) or sterling silver. In 1914 the town of Sheffield was the center of cutlery manufacture. You might think that Harry was at the right place at the right time and that his invention of a rust and acid-resistant steel and the cutlery idea would find an immediate receptive audience. Unfortunately that isn’t what happened.

Almost everyone was against the idea and could not see the value of a new rust-resistant steel or its use in cutlery. Firth’s directors refused to supply steel blanks that could be processed into cutlery and refused to apply for a patent. Harry was undeterred. He set out to have some prototype cheese knives made – in other words, he took his project under-ground into what we typically call a skunk project today [3].

In June, 1914, Harry met with the manager of a local cutlery manufacturer who agreed to make some knives with a sample of the new steel. On the first attempt, the knives were made but the steel was very hard and damaged the expensive stamping tools. On the second attempt, the stamping tools were not damaged but the knives were too brittle. The steel apparently had been over-heated….it could be worked easily when hot but became too brittle when cooled. On the third attempt Brearley attended the run and was able to direct the cutlery maker to use the correct heat for working and hardening the steel and a dozen knives were made – an early example of a technology transfer process implemented at the fuzzy front end of innovation. He worked with a manufacturer directly in making prototypes and so transferred his knowledge from the lab scale to someone who could make these products at the commercial scale. The cutlery maker observed that “This steel stains less”, and inadvertently introduced use of the term “stainless steel”.

The steel was quickly accepted by other cutlers in the Sheffield area and within two months they had ordered seven tons of the new steel that previously was considered worthless. Brearley felt wronged by the Firth’s directors who had refused to supply blanks and would not apply for a patent, and so gave his resignation at the end of 1914. Although the manufacture of stainless steel products made it impossible to file patent in England, Harry applied for a US patent on March 29, 1915. It was initially rejected but granted on September 5, 1916. To overcome existing patent applications for chromium steels, Harry did not patent the alloy but rather cutlery made with the alloy. Thomas Firth and Sons then realized that the patent might hinder their US operations and offered to purchase a half share of his patent. Brearley agreed only if they established a Firth-Brearley Stainless Steel Syndicate which he hoped to manage.

An early ad (1915) for stainless steel cutlery can be seen on the left here.

In the US, an unexpected patent problem turned up. Elwood Haynes, a noted US industrialist had applied for a patent for a metal tool containing iron, chromium and low carbon. He had filed his application just a few days before Harry Brearley’s and opposed the granting of Brearley’s patent by applying for an “interference” [6]. The patent problem was resolved when the Firth-Brearley Stainless Steel Syndicate established a patent-holding company, “The American Stainless Steel Company”, in 1918 and offered the Elwood Haynes partial ownership of the new company in exchange for his patent – an example of how new business development licensing projects and joint ventures can eliminate barriers to commercializing innovative new products. The two patents together became a formidable barrier to anyone planning to make stainless steel without paying the company royalties. The American Stainless Steel Company continued to operate profitably until 1929 but dissolved in the 1930s.

Back in England, Harry Brearley was hired as Works manager of Brown Bayley’s Steel works in Sheffield from 1915 until 1925 when he retired. Harry continued to write books and was a director on Brown Bayley’s board until his death in 1948 at the age of 76.

Innovation Lessons Learned …Harry Brearley had a unique set of innovation characteristics and personality, but there are common themes that are seen in other great innovators. In Harry’s case, although, there is no doubt that he was a good example of a technical expert who developed a very good knack for business.

1) First, innovators typically have deep technical expertise. Harry knew the business of steel making inside out and wrote several books on it. He was in the forefront of experimenting with new types of steel and developed techniques to work and harden them. He was a person with the necessary skills and experience to recognize new innovation, unlike his non-technical bosses. When he made his discovery his deep technical content enabled him to draw inferences, make connections, use his intuition and look into the future, understand the significance of his discovery, and know what to do about it.

2) Another unusual situation occurred that helped this innovation …the formation of the joint research laboratory for the neighboring steelworks. This, in today’s language, was the formation of a “skunk-works”. We have seen this happen before in other innovations I have discussed [3] and often the formation of a dedicated innovation center (i.e. skunk-works or research lab) precedes and is catalytic for an important innovation later. Harry saw the opportunity in this new position and modified the terms of his contract so that he was given free rein on the projects he could choose as well as 50% ownership of any patent rights. In modern companies, research workers assign their patent rights over to the company, but I believe if modern companies allowed inventors to retain some ownership in patent rights, that might be a good incentive for innovation. Also, non-directed research is very rare. Today, even basic research grants are nearly always in fields where success is guaranteed based on previous work and are conservative in nature. Industrial labs now are tightly controlled to do research only in specific, applied areas. The era of Bell Labs is over for industrial research institutions although organizations such as Google[x] have been formed recently for the purpose of developing major technological developments or “moonshots”. Any incentive which allows for some non-directed research will, in my opinion, be rewarded with good results.

3) In spite of huge skepticism, Harry Brearley remained committed to his idea and never gave up. There was persistence, almost an obsession to get this idea to market and commercialize it. This persistence, his technical competence and several other attributes were also present in other inspirational innovators that I have also written about such as Antoni Gaudi [7].

4) Harry Brearley quickly developed practical prototypes of his idea. Without making these prototypes, customers and suppliers could not have seen the value of his idea and would not have been able to compare his product to existing products. It also had the added value of letting Brearley develop the correct processing instructions for manufacturing his product. In other words, he developed a successful technology transfer process for commercializing his innovation.

5) Harry recognized that the timing was right and immediately pushed forward with his ideas. Several new industries were emerging, such as autos, aircraft, medicine, engines, marine components etc that needed a material that was light, strong and corrosion free. Aluminium was available as a possible alternative but was extremely expensive and soft. Stainless steel was less expensive and could be made in a way that its corrosion-resistant, tensile and ductile properties could be controlled. Consequently it was used in many of these emerging industries in new applications thus nucleating a whole series of new innovations. The discovery of stainless steel occurred at the right time.

6) Brearley understood the full commercial potential of his idea and had enough commercial business savvy to realize that the US market was important. Harry intuitively understood what the sharp back end of innovation was… he commercialized his ideas quickly, successfully, and in the case of the US patent holding company, in an unusual “win/win” situation. Harry Brearley was able to understand that even though the train had left the station in terms of getting a patent in the UK, it was still worthwhile trying to get a patent in the US. Because of this, he was able to form the American Stainless Steel Company, partner with Elwood Haynes, create an additional revenue stream and further promote the commercialization of stainless steel. Eventually a whole new stainless steel sub-industry was created around his ideas.

Creative and Adaptive Innovation Models …As discussed previously in my blog [8], innovators can be classified as either creative innovators or adaptive innovators. Creative innovators, like Leonardo da Vinci, are gifted ideators but are not so good with execution. Adaptive innovators, like Thomas Edison, tinker with ideas, make prototypes until it they work perfectly and are strong on the execution side. The development of stainless steel is an example of creative innovation followed by adaptive innovations to develop and commercialize new products using the breakthrough innovative new material. The creative innovation was supplied by Harry Brearley in developing the first stainless steel and in realizing its potential for several products. However many adaptive innovations occurred afterwards both by Harry Brearley and by many others that resulted in the development in scores, maybe hundreds, of different stainless steel variants, each fine-tuned for a specific niche market. Many other innovators then developed new uses and products for stainless steel, thereby causing a rippling innovation effect. Stainless steel is used in food processing, medical surgical instruments, marine parts, pumps, construction and aircraft manufacture to name a few.

Summary …Harry Brearley had innovative skills to develop and commercialize one of the most important alloys ever discovered. He exemplifies an innovator with both creative and adaptive tendencies. He was not the first person to study the effect of adding chromium to steels. He was also not the first to notice that chromium inhibited the corrosive properties of steel. He was, however, the first to understand the importance of these qualities and the first to see many of the commercial opportunities that this new material could provide in developing novel products with unique properties.

Of all my posts on innovation, this example best reinforces several themes I have discussed before …the formation of a joint research lab (skunk-works), the importance of prototyping and developing a scale-up process, an obsession to commercialize, the right timing, and the power to be able to influence others when you are a technical expert.

References…
1. http://en.wikipedia.org/wiki/Harry_Brearley
2. http://books.google.com/books?id=E30rCBeM8nkC&pg=PA41&dq=Harry+Brearley+August+1913&hl=en&sa=X&ei=Z60wUb-IKJH08ATWz4D4Ag&ved=0CC0Q6AEwAA#v=onepage&q=Harry%20Brearley%20August%201913&f=false
3. https://innovationcrescendo.com/2014/01/15/innovation-in-large-corporations-managing-skunk-projects-to-success/
4. https://innovationcrescendo.com/2013/03/25/a-case-study-for-disruptive-innovation/
5. https://innovationcrescendo.com/2013/04/25/innovation-culture-talent-incentives-4/
6. https://innovationcrescendo.com/2013/08/24/patents-incentives-or-hindrances-for-innovation/
7. https://innovationcrescendo.com/2013/11/26/the-anatomy-of-an-inspirational-innovator-antoni-gaudi/
8. https://innovationcrescendo.com/2013/03/12/ideation/

Novartis recently announced an exclusive agreement with Google to in-license their “smart lens” technology for use in both accommodative contact lenses and intraocular lenses for presbyopic patients (think no more reading glasses), as well as using the technology to make glucose-sensing ‘smart’ contact lenses for diabetic patients [1]. At first, this might seem an unusual and unlikely collaboration but I see it as an exciting new model for future disruptive innovation: Innovative West Coast think-tank with break-through new ideas and technology collaborates with old school East Coast pharmaceutical company with proven know-how in conducting clinical trials and getting FDA product approvals.

Specifically, the partnership is between Google[x], a “skunk works” within Google dedicated to “big ideas” and Alcon, a division of Novartis [2]. This appears to be a perfect collaboration for true disruptive innovation. In fact, disruptive innovation will likely fail without input from an executional expert. I am reminded of an innovative health-related genetic report product by 23andMe which ended up being withdrawn from the market after a regulatory impasse with the FDA. Unlike Google[x], 23andMe did not partner with an established device/pharmaceutical expert company with experience in navigating the complicated processes involved in bringing a new healthcare product to market and ran onto rocky ground. Eventually, 23andMe took their health-related genetic reports off the market in November 2013.

Google[x] …Google[x] is a semi-secret “skunk works” of Google that is dedicated to developing “big ideas” such as the driverless car, Google glass, and several other “big” projects. Google[x] is overseen by Sergey Brin, one of Google’s co-founders. The “smart lens” technology was developed by Google[x]’s healthcare team, led by Andy Conrad, who previously co-founded the National Genetics Institute where he served as Chief Scientific Officer. The ‘smart lens’ technology involves non-invasive sensors, microchips, and other miniaturized electronics embedded within a contact lens.

Alcon …According to their website [3], Alcon develops and manufactures innovative medicines and devices to serve the full life-cycle of eye-care needs. It offers the broadest spectrum of surgical, pharmaceutical and vision care products to treat many eye diseases and conditions, including cataracts, glaucoma, age-related macular degeneration, retinal diseases, dry eye, eye infection and eye inflammation, ocular allergies, refractive errors, and other ocular health issues. Alcon is recognized as a global leader in the world of eye care with sales of approximately $10.5B in 2013.

23andMe …23andMe [4] is a company that developed a genetic testing kit to provide information about your genetic ancestry. However, the CEO and co-founder of 23andMe, Anne Wojcicki, wanted to be part of the much larger health-diagnostics market. The idea was that a 23andMe genetic test could be used to predict a person’s genetic predisposition to certain genetic diseases. 23andMe began to offer health-related genetic reports in 2007.

On November 22, 2013, 23andMe received a warning letter from the FDA asking it to immediately stop selling its health-related genetic reports. FDA officials cited 14 face-to-face meetings and teleconferences, hundreds of e-mail exchanges, and dozens of written communications about its concerns. Yet 23andMe inexplicably stopped responding to the FDA’s requests for more information in May of 2013 and began airing the company’s first national TV ads featuring attractive people of various races talking about their genetic results, seemingly in direct defiance of the FDA’s concerns. On Dec 5, 2013, 23andMe Inc. announced that it would comply immediately with the U.S. Food and Drug Administration’s directive to discontinue consumer access to its health-related genetic tests during the ongoing regulatory review process. It was also agreed that the company could continue to provide consumers with both ancestry-related information and raw genetic data without interpretation.

The FDA’s concern was that the company might be misleading consumers with false negative or false positive results that could encourage people to self-medicate or make lifestyle changes for conditions they don’t have. Health-related genetic reports apparently also provide risk factor percentages for various gene variants that are thought to be statistically predictive of future disease, as well as other genetic information. However the US regulatory landscape requires proof of health claims like these before products can be sold to consumers. For example, what does a 20% increase in risk factor for type 2 diabetes mean if your genetic report came back with this information? How accurate is this data? Should you act upon this data? Are consumers able to accurately process this information and choose to medicate or not medicate appropriately? Genetic counselors are available to discuss the context of the information but the accepted normal channel to discuss your health would be with your physician. The FDA had valid and appropriate concerns about the validity and accuracy of the information as well as how the information would be used by consumers in an environment without medical guidance.

In a recent Washington Post article [5], Anne Wojcicki said that “Clearly we weren’t clear on what they were objecting to.” However, anyone who has worked in the pharma industry for a reasonable period of time will tell you that 14 face-to-face meetings with the FDA for a single product is an ominously large number of meetings. Clearly the FDA was bending over backwards to communicate their concerns, and anyone with even a little FDA Regulatory experience would have known that a warning letter was imminent based on the tone, content and volume of communications with the FDA. It is unclear whether 23andMe was simply naïve in its dealings with the FDA or chose to ignore them. To me, either explanation is indicative they were in over their heads. It seems as though 23andMe may have regarded the FDA as an obstructive bureaucracy, and a barrier to innovation, when a more successful strategy would have been to partner with an expert who understood the complexity of making health claims and who could help the company navigate the regulatory process of bringing their product to market.

Creative and Adaptive Innovation Models …As I have previously discussed in my blog [6], innovators can be classified as either creative innovators or adaptive innovators. Creative innovators, like Leonardo da Vinci, are good with ideation but are not so good with execution. Adaptive innovators, like Thomas Edison, tinker with ideas, make prototypes until it they work perfectly and are strong on the execution side. Innovation teams require both types of innovators to be successful. If an innovation team has too many creative innovators, plenty of ideas will be generated but few of them will reach development or the market. By contrast, an innovation team with too many adaptive innovators will tend to execute a large number “me too” type projects. Google[x]’s partnership with Alcon is a predictive example of the creative innovator pairing up with the adaptive innovator to develop and commercialize a break-through innovative product.

The “Smart Lens” Innovation …Google[x] had the initial idea of a “smart lens”, and utilized new technologies to develop a prototype “smart lens,” but has little experience with the FDA and does not have the infrastructure or experience to develop and register a commercial product. Alcon plays the role of the adaptive innovator. Alcon’s experience is execution in the eye care space. They will be able to conduct the appropriate clinicals needed for approval and have a history of working with the FDA to get products approved. They also have Marketing and Sales divisions in place to rapidly expand the approved product into a global marketplace. Both companies seem to recognize their respective strengths and weaknesses. Alcon alone did not have access to the technologies involved in the “smart lens” and would have found it very difficult to prototype such a device. And Google[x] does not have experience conducting clinical studies or dealing with the FDA. However, together the two companies will play off each other’s strengths to hopefully develop a truly disruptive innovation.

An Alternate 23andMe Scenario …That brings me back to the 23andMe situation. My personal opinion is that if 23andMe had followed a similar model to Google[x] and had partnered with a device or diagnostic expert with experience in conducting clinical trials and communicating with the FDA, their innovative product would have progressed more easily. Partnership with a pharma/device/diagnostic expert would probably not have resulted in a FDA warning letter and FDA issues would have been understood and addressed more quickly and professionally, perhaps by using different nomenclature, claims, and distribution channels, such as health care professionals. In these healthcare examples, Silicon Valley was indeed a hotbed for “creative innovation” but not for “adaptive innovation” and the traditional pharma/device companies back East, in spite of the perception of plodding bureaucracy, are actually the efficient “adaptive innovators” and necessary partners for complex innovation.

Summary …Partnerships between Silicon Valley companies rich in creative innovation and traditional companies that specialize in adaptive innovation will likely be a successful model for disruptive innovation. I’m betting partnerships along these lines will result in many of the upcoming disruptive innovations to come in healthcare.

References…
1. http://www.alcon.com/news-center/news-item.aspx?id=307
2. A separate case study on the role of skunk works in innovation is at https://innovationcrescendo.com/2014/01/15/innovation-in-large-corporations-managing-skunk-projects-to-success/
3. http://www.alcon.com/about-alcon/
4. https://www.23andme.com/
5. http://www.washingtonpost.com/national/health-science/23andme-co-founder-anne-wojcickis-washington-charm-offensive/2014/06/27/b465b086-f240-11e3-9ebc-2ee6f81ed217_story.html
6. https://innovationcrescendo.com/2013/03/12/ideation/

Innovation Crescendo

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Are there unique Innovator “Personality Types”? ….. A new classification to better understand Innovators

The Power of Process at the Fuzzy Front End of Innovation – Revisited

Identifying Great Innovators in the Workplace: Nikola Tesla – Crazy Scientist or Great Inspirational Innovator?

Make Innovation as Stunning as Possible – The Importance of Packaging

Legal Bullying – a New Barrier for Innovation?

Essential Coaching for R&D Leaders – The Importance of the ‘Human Element’

Cost-Reduction Innovation…a Good Thing or Nothing Left to Cut?

The Practical Innovator – The Stainless Steel Story

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