Radical Innovations in Major Companies
How do major companies develop disruptive innovations to boost their activities? By creating a dedicated exploratory unit, which is both separate and integrated into the existing organization, responds Sihem Jouini. She based her conclusions on two years’ in-depth analysis of experimentation at a large automotive supplier.
Disruptive innovations are crucial for companies: this is what creates new markets and stimulates declining activities. Yet, the very organization of major companies—a source of competitive advantage in terms of incremental innovation and the optimization of existing products—may become an obstacle when the company wishes to renew itself. So what is the right organizational model to adopt? Traditionally the answer is meant to lie in project management. But project management only enables the development of successful innovations once the technology or customer expertise has arrived at a certain level of maturity. To explore entirely new areas, it is preferable to create an exploratory entity, upstream of the project, in order to generate and test the ideas, and once they have matured they can be developed using the project management method. This unit acts as an incubator for ideas and to show the way for the rest of the company.
SHOULD THE EXPLORATORY UNIT BE SEPARATE OR INTEGRATED?
When describing organizational models that combine both incremental and radical innovation, the debate is often reduced to a question of dichotomy. When it develops two separate structures within the company—product line units consecrated to productivity and optimization on the one hand, and exploratory units geared towards radical innovation on the other—companies come up against the difficulties provoked by this structural separation. This leads to the isolation of the exploratory unit, which fails to get its ideas accepted and to draw on the company’s resources. But complete integration of this exploration unit isn’t any better for companies pursuing a disruptive strategy. ‘The real question isn’t about a choice between separation or integration, but rather knowing how to apply the integration to the type of innovation,’ says the HEC professor.
STRUCTURING THIS EXPLORATORY ACTIVITY
Sihem Jouini investigated a company that managed to overcome this dichotomy. Domauto (a pseudonym) is a global automotive supplier that is divided into autonomous divisions specializing in parts like alternators or gearboxes. To boost its growth through innovation, Domauto created an innovation platform (PTE), whose mission was to explore new offers by placing the accent firmly on innovative synergies across its divisions. In fact, in order to be permanently competitive, western companies need to propose global offers—and not commodities—to customers. Therefore, the creation of a separate, dedicated entity for the exploration of entire systems becomes essential in order to generate ideas upstream and in a different perimeter from the company’s usual one. Starting off at zero, this small team progressively carried out exploratory activities like the identification of new innovation tracks using innovative creative initiatives; the establishment of new relations (through their support and their phase) through new interlocutors with customers; the elaboration of a technological strategy in a new area of innovation, identifying firms whose acquisition would complement the company’s resources and thereby contribute to more in-depth exploration. And what was the result? Twenty or so ideas are currently undergoing technological and marketing validation, and the divisions would never have produced these radical innovations separately. Sihem Jouini explains that this success is due to the implementation of a specific organization based on the varied modes of integration between the PTE and the divisions.
MULTILEVEL STRATEGIC INTEGRATION
Transversality isn’t common in major companies, especially between autonomous divisions that focus on their products. But synergies are necessary to develop the innovative offers that combine these products. To do this, the team making up the Domauto PTE is a cross-divisional one; as well as being linked to head office, the PTE director, who is a former R&D division manager, reports to a cross divisional committee and interchanges regularly with R&D managers. This organization has enabled the utilization of the company’s competencies while enjoying a certain level of autonomy.
INEVITABLE BUT SURMOUNTABLE TENSIONS
And, because the exploratory unit draws on the competencies within the divisions, it will come up against some resistance within the company, explains Sihem Jouini. Division directors will not appreciate division experts spending a fifth of their time on this exploratory unit, because it represents the resources required to develop the divisions. This can lead to disagreements over customer communication, competing projects, or the acquisitions required to match different technological strategies. But, once the new entity has shown its worth and proved its value in terms of innovative ideas and market renewal, the divisions are only too happy to resolve any tensions!
EXPERIMENTATION THAT PROVOKES FURTHER REFLECTION
One of the keys to success of this experimentation lies in this multiplexing. This means maintaining relations on every level between the exploratory entity and the rest of the company: senior management and division directors, R&D managers, and middle managers involved in exploratory activities. The structuring of the exploration conducted by PTE has raised new questions relating to creative methods for generating new ideas, innovative relationships with customers and their involvement, supporting material for the exploration, the evaluation of these activities, and so on. Sihem Jouini is pursuing all these research avenues in other industrial sectors.
Based on an interview with Sihem Jouini and her articles, “Favoriser l’innovation radicale dans une enterprise multi divisionnelle”1 ["Enhancing Innovation in a Multidivisional Firm"] (Finance-Control-Strategy , 2007), and “Multilevel Integration of Exploration Units: Beyond the Ambidextrous Organization”2 (Best Paper Proceeding from the Technology and Innovation Management department of the Academy of Management , 2007, and finalist of the Stephan Shraded Award in this Academy).
1. Sihem Ben Mahmoud-Jouini, Florence Charue-Duboc, and François Fourcade, “Favoriser l’innovation radicale dans une entreprisemultidivisionnelle” (enhancing innovation in amultidivisional firm), Finance-Control-Strategy, 2007.
2. Sihem Ben Mahmoud-Jouini, Florence Charue-Duboc, and François Fourcade, “Multilevel Integration of Exploration Units: Beyond the Ambidextrous Organization”, in the second stage of evaluation at Organization Science.
Sihem Jouini and two other researchers spent two years investigating the structuring of a new innovation organization within a major automotive supplier. This company was effective in incremental innovation and set up a new entity—called an innovation platform by the researchers— to stimulate its capacity for developing radical innovations. The researchers monitored the organizational change process by participating in regular meetings of the platform’s working groups, and by analyzing the integration modes between the innovation platform and the company’s established structures.