Why are some major companies good at driving corporate innovation in technology? For some answers to that question, Enterpriseleadership.org turned to Dr. Ron Pierantozzi who built his entire career on driving corporate innovation in a technology-related company and doing research in this area. Before retiring from Air Products, a $10 billion supplier of industrial gases and chemicals, Dr. Pierantozzi was the company's director of business development. He worked on new venture creation and technology transfer. He also served as Air Product's director of technology. Since retiring, Dr. Pierantozzi has been a member of the Radical Innovation Group, a consulting firm that works with global companies to develop their innovation capability. He lectures at the Wharton Business School, and was an executive-in-residence at Rensselaer Polytechnic Institute's Lally School of Business. The holder of 32 U.S. patents, Dr. Pierantozzi co-authored the article, Implementing a Learning Plan to Counter Project Uncertainty, which appeared in Sloan Management Review, January 2008.
Here is what Dr. Ron Pierantozzi had to say:
EL. Can you briefly describe the innovation programs at Air Products?
RP. We had a couple of different things going on. I worked on the business development team, structured as a separate organization. It reported to the development organization and aligned parallel to the technology organization. We focused on new market entry, new business ventures and new business starts. We also invested in startup businesses to generate new ideas and new technologies. Likewise, the technology organization had teams focused on developing products and bringing them to market. This organization reported to the office of the CTO. It had a number of different processes in place to develop new opportunities.
EL. Did both of these organizations have people dedicated to innovation and nothing else?
RP. In the new business development group, we had between six and 14 people whose only job it was to create new business opportunities for the corporation. They looked primarily outside the existing markets and existing capabilities. They looked to emerging markets in technology or market trends with the goal of developing ideas around how to create large business opportunities. I managed that group. It would grow depending on how the opportunities grew. We supplemented our permanent staff with consultants. The technology organization was organized the same. We had a corporate research group whose job it was to create new long-term technology options for the company. It was a corporate entity. The funding did not come directly from the business units.
EL. Can you describe Air Product's corporate innovation program?
RP. The education program began with the idea for creating new opportunities in the company. The tool sets we had were not appropriate for innovation. These tool sets focused on building incremental new products or reducing the cost or improving the efficiency and productivity of our existing capabilities. We began to bring in educators to help us develop the new tool sets we needed. The process included bringing in people from the Radical Innovation Group. They worked with us on how to identify opportunities in highly uncertain markets, and how do deal with bringing folks from the Wharton Business School to work with us on the discovery-driven planning methodology. As activity grew, we began to formalize this program under the auspices of a quasi-Air Products University. Within it, we were already doing things around Six Sigma and project management, and quality. Inside of this, we created the innovation college. Within it, we began to teach classes ranging from creativity to how to develop market opportunities and assess those opportunities, right up to the execution of new businesses and new startup opportunities. At one point, we had 35 courses in the innovation college ranging from creativity to business execution. I am still involved in teaching some of those classes.
EL. Can you describe some of the methodology that has come out of the Radical Innovation Group's seven-year innovation project?
RP. I was involved with this Group for several years. The initial aspect of this Group and its methodologies included tools around planning for uncertainty. Most large companies operate on information culled from their existing businesses or existing experiences. As you look beyond your current technologies and current markets, you see many uncertainties. There are many assumptions that come into our thought processes. With the Group, it initially developed a set of tools that enabled us to manage those uncertainties at the very earliest stages. We called that the learning plan. It has grown not only to a set of tools, but to a set of organizational competencies.
Within the innovation process, the Group can identify the required separate competencies. For example, discovery incubation acceleration is a competency. It is the discovery of new ideas and new opportunities. The incubation focuses on formulating them and experimenting with them to get to a reasonable business proposition. Acceleration looks at growing them to a commercially successful entity or business or technology.
You also need a set of competencies that differ from anything else you have in the company. The idea of having a functional capability in innovation includes the competencies, tools, and the career paths for the individuals who work on the innovation processes.
EL. How do you feel about open innovation communities such as InnoCentive?
RP. InnoCentive and Nine Sigma are great tools for tapping the minds of the global audience. Companies need to tap into these tools as much as they can. You need to get outside of your own company. Open innovation enables you to do that. Companies not only need to do that, but they need to have their own people spending some time outside the existing company walls. For example, although Air Products is an industrial gas company, we would have people going to conferences that dealt with IP infrastructure for machine-to-machine services. It presented an emerging market opportunity for using IP to develop decision processes and analytics. We were doing it internally to some extent to run our plant. We wanted to get out and learn how to develop businesses in those kinds of markets.
Open innovation goes beyond using InnoCentive or Nine Sigma. Those two communities are part of open innovation. You need to get the innovators and the business leaders out into new spaces. They need to get outside of their existing business comfort zones and seek more insight from sources such as universities, startup companies, conferences and emerging markets.
EL. What is the status of innovation right now in U.S. companies, given the economic downturn? Is it something we need to focus more on?
RP. Companies are focusing less on it. Instead, they are working on improving their bottom line in this economy. There is not much top-line growth going on right now. I should clarify that I have not done a rigorous statistical analysis to know the extent of this. Obviously, there are exceptions to this comment. In reducing that cost, companies have eliminated much of the longer-term focus around innovation and new products. Instead, they have focused their new products' organizations around products that have more reactive market payback within 12 months to 18 months. Because of the economic downturn, companies have cut their long-range research and development. In the long term, this could potentially prove disastrous, not only for companies but for innovation in this country. That is a big issue.
The question: Should they be doing more innovation? As an outsider from the Wharton Business School, I find it easy to say 'Yes, they should be doing it.' Senior managers have a difficult time deciding to spend money on things that will not happen for three to five years, especially when the company is struggling to get in the black. Some of the forward-looking companies have started to increase their innovation efforts. I see some light at the end of this tunnel.
EL. What takeaways would you give CIOs and CTOs about innovation?
RP. If you talk to CTOs about building some functional capability around engineering or chemistry, they would know exactly what to do. They would put in place a set of guidelines, strategies, and hire the right type of people to drive the right type of programs. They need to do the same thing around innovation and around longer-term growth opportunities. We keep treating innovation as though it is something similar to what we do today. We just need to take a couple of bright people and put them in jobs to go after innovation. The reality is the way CTOs and CIOs need to think about this. Innovation is a function, but it is a different function than what we do today.
The Radical Innovation study at Rensselaer looked at the importance of innovation as a function. This function, according to the study, needs to include a set of tools, a set of capabilities, and a group of people who see a career path in this. If you do not have these things in place, then it will be difficult to carry out innovation. You might take a one-off kind of innovation occasionally. For the most part, sustaining this type of innovation would be extremely difficult. My simple one-line message to CTOs and CIOs is this: Start thinking of innovation as a function and do exactly what you have done in your other functions to build the capability.
EL. At the Wharton Business School, you teach a course in entrepreneurship and innovation. What was the 2009 response to this course?
RP. I teach on the West Coast in Silicon Valley in San Francisco. The course has always been popular. This year we have the highest number of students that we have ever had. At one point, enrollment was nearly double what we had in 2008. Is that due to the economy and everyone thinking they want to start their own business? Is it due to us doing a good job teaching the course? I cannot explain the reason for the spike in enrollments. My class a year ago was probably the most successful class I ever had. Six of our business plans made it to the semi-finals of the Wharton Business Plan Competition. We see many young engineers and managers of large companies (this latter audience populates our executive MBA program) thinking they want to go off on their own. Perhaps, they do not see the growth and career opportunities in their own companies.
EL. What made the two different innovation departments at Air Products successful?
RP. It was many things. We got people out of their comfort zone. We had a group of people who went out and found new things. We had a group of managers who spent time on it. We used to meet with the senior management team monthly to talk about ideas. Senior management put an enormous amount of effort into helping and thinking about the growth opportunity. It turned into the growth board comprised of the senior-level executives who controlled 90 percent of the resources of the company. They focused on what new opportunities we looked at, and what we did. This type of thinking and support contributed much to the success. Then we taught people how to do things. We learned that you could not use the existing type of Six Sigma Stage-Gate tools to drive long-term innovation. You needed a set of different tools, like the learning plan methodologies and discovery driven growth.
EL. Did you work with the CIO at Air Products?
RP. Yes. We launched a couple of business initiatives that dealt with IP capabilities because the company was into this type of monitoring. The CIO sat on our advisory board. He understood the needs that we had from an IP perspective. He was a manager looking outside the company. At the time, our IT organization primarily focused on infrastructure support, which is what most IT organization in large companies concentrate on. We needed to go outside and get some development capabilities. He was a strong supporter of the innovation capabilities as they related to IT.
EL. Are you seeing much innovation from U.S. companies?
RP. Emerging companies right now face the challenge of lack of capital. I am on the board of two emerging energy companies that have a fair amount of innovation going on, but they have found it difficult to raise money from the venture capital community. A decade ago, VCs had no qualms about funding companies. During 2008 and 2009, VCs cut back substantially on funding new ventures.
Meanwhile, large companies face a similar dilemma around funding new ventures. They, instead, look for more sure bets rather than taking a risk. Everyone wants to put their money in a sure bet. Sure bets often do not turn into big new things. People like Andy Grove are not convinced they will see the next Google or Microsoft. I do not think there is anything like that out there now. Today's good technologies will not turn into major innovations that will drive the next generation of growth in this country.
EL. Where do you think the next information technology innovation will come from?
RP. We now have the Internet and tremendous IP capability. This entire issue of smart services will probably be the next area of innovation. Much of the runway there can create a tremendous amount of value, particularly in the energy space, as well as other industries. Many service layers need to be on top of this capability to drive not only Web 2.0 kind of stuff and social networking, but real industrial-type analytics that allow us to drive smart services and decision-making. This one area of the IP space still has opportunity.
Elizabeth M. Ferrarini is a technology writer from Boston, MA. Reach her at email@example.com