Big corporations need central innovation units despite the obvious pitfalls

Over the last year or two I've noticed more big organisations establishing centralised 'Innovation Units' (or similar terminology). Client confidentiality prevents me from naming names, but this practice spans all sorts of sectors: technology of course, but also cosmetics, transportation, FMCG and so on. These units provide a central focus for the organisation's research and strategic activities in diverse areas including IoT, AI, blockchain and so forth.

In the past these types of initiatives have generally been unsuccessful. Central business units do their central business unit stuff, coming up with ideas and initiatives that are roundly ignored by the operating BUs within the group. I remember one interesting meeting in Tokyo with the IoT unit of a Keiretsu looking at global opportunities for their internally developed IoT capabilities. It transpired that they couldn't even get their own BUs to use their capabilities. Not an unusual problem. And it's reflective of the fact that (a) BUs can often be highly parochial and (b) the central BUs tend to come up with solutions developed in isolation from what is required by the BUs. All of which means that these central strategy/innovation units get fired up, come up with probably some good ideas, get ignored and then get closed down.

I would argue, however, that these central units are increasingly critical, although they need to be provisioned in a particular way.

It's debatable whether the pace of technological change is actually getting faster. I suspect there's high degree to which this is an illusion based on the fact that people as they get older perceive new technology to be increasingly diverging from 'the way things should be'. Check out Douglas Adam's quote on this topic and I think you'll agree. However, I don't think it's contentious to say that IT considerations have gradually occupied more time, effort and money of more businesses over time, and will continue to do so. Consider the car industry, or retail or manufacturing more generally. Whether it's under the IoT banner, or automation or whatever, IT has become and will become more fundamental and strategic to every organisation (unless you're an organic cheese-maker). Essentially every company has a process that it needs to go through to become 'technology shaped'. My best moniker for this is 'technomorphing' (i.e. becoming technology shaped). Given that dynamic, every organisation needs to understand the technological tools at their disposal and challenges that exist. I think this is best done through a central BU and I will explain below why.

With the increasing IT-isation of most businesses, the process of horizon scanning for market disruption becomes broader. The range of topics needs to include AI, blockchain, edge computing, IoT, 5G etc. And to be successful, horizon scanning should also consider second and third degree implications of the changing dynamics that are found. For instance, the impact of autonomous driving directly on a retailer may be negligible, including perhaps autonomous delivery trucks. However the deeper impact is likely to be much more substantial in terms of how it affects visits to the stores, location of stores (people will be more footloose), and even requirement for stores at all (as it further streamlines delivery). Narrowly focused horizon-scanning will struggle to pick up these impacts. It's only with specific dedicated functions that organisations can hope to track all of these potential threats and opportunities.

There is also a requirement for consistency of approach across the whole organisation. Using ten different technology platforms is clearly inefficient. That's not to argue for complete consolidation, given that sometimes the right tool for one BU isn't the right tool for another. However, allowing all BUs to make technology choices independently inevitably results in unnecessary fragmentation.

The key for success with Innovation Units is subsidiarity, i.e. having the unit perform the functions which it is most able to perform, and leaving everything else to other units. In most cases this would involve having the Innovation Unit responsible for horizon scanning and for co-ordination of effort and company-wide consistency in technological approach (i.e. the two things I've noted above). And that's it. The actual work on the new technologies should be hived off to the most appropriate BU to act as centre of excellence for that particular aspect of technology strategy.

I would also argue very strongly for a greater degree of collaboration between organisations of different types across the various technologies that are now on their radar. Historically car manufacturers and FMCG companies (to pick two sectors at random) would have had little to share in terms of knowledge. Now, however, with each considering IoT, AI etc. they have the opportunity to collaborate with and share knowledge with organisations with whom they do not compete.

Technomorphing is the future, and those organisations with centralised BUs able to coordinate a group-wide response to the increasing IT-isation of their business will be fundamentally more able to shape their organisation to the prevailing technology trends.


ThePendulum said…
Even organic cheese makers can use technology! I am talking to some using sensors to ensure optimal humidity and temperature across their properties!