Large organizations are not natural innovators, especially not when it comes to breakthrough innovations like Nestlé’s invention of the Nespresso pod—the kind that produces lasting, sustainable value.
While there are exceptions—in particular, the “magnificent seven” tech companies: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla—that account for a massively outsized share of recent growth in the S&P 500, most companies outside the technology sphere lack start-up DNA. They are better known for incremental innovation—the refinement and improvement of existing products—with incremental valuation impact.
A large organization seeking breakthroughs can try to acquire or invest its way to innovator status. Or it can follow the most widespread piece of popular advice and build its own internal innovation team.
The downside is that “intrapreneurship” is the hardest option to manage because it is about managing talent and balancing cultures.
But that creates a strategic opportunity for CHROs: to guide leadership through the innovation team formation process. Success means making a direct contribution to the organization’s growth.
Key considerations for building an internal innovation team
In important respects, a large organization is the opposite of a start-up:
They are risk-averse
Breakthrough innovations may have a high upside, but they also carry a high risk of failure. Individual leaders and managers are often reluctant to take them on. Corporate risk aversion manifests as management risk aversion; rewards and promotions end up going to those who avoid failures and never miss their budget targets. All of this is fine for day-to-day operations, but is not a recipe for innovation.
They struggle with how to manage like capitalists
Instead of cutting off resources for failing concepts and rapidly expanding resources for those exceeding expectations the way a start-up does, too often, they operate a high-risk new product plan the same way they would operate a mature business. Once a project is “green-lit,” management becomes committed to it and has a hard time forcing the team to adjust as new information becomes available—whether that means increasing resources to reflect improved outlook, adjusting to new competitive threats or even closing the project down if it is not on track to deliver the MVP (minimum viable product).
When you set out to recruit and manage an internal innovation team, these disconnects come into play. Internal innovation teams are notoriously difficult to recruit, manage and integrate into a large organization. The team’s work style and motivations are start-up-like; they are often not a fit for large-organization culture and systems.
7 steps to create a successful internal innovation team
Success requires a pragmatic, hands-on approach and a focus on talent and culture. Leaders must:
1. Build a dedicated team
Start-ups have it easier because breakthrough innovation is their main focus. An internal innovation team needs to be laser-focused as well. That means full-time team members, not part-time staff with other commitments and other priorities. Remember that smaller is better. Too many large organizations try to equip the team with a wide variety of backgrounds and viewpoints—which, in practice, means 10, 20 or 30 distracted members. Better to start with two to four people who are devoted to the project full-time.
2. Develop people with the right skills and outlook
Breakthrough innovation requires a different way of thinking—focused on success, taking “the next shot” and treating each failure as a learning opportunity. This stands in stark contrast to the standard corporate approach: focusing on detail and avoiding failures or omissions. The innovation team needs to keep blue-sky ideas in play and focus not on barriers but on customer solutions and opportunities. How to make this happen? Some companies use high-profile internal leaders to help spark creativity. Others leverage external speakers and coaches. The point is to create an environment where naturally creative people are encouraged to add value in roles that take full advantage of their capabilities—and to balance those “liberated” individuals with others who are more traditional and risk-averse in appropriate positions.
3. Balance risks and rewards
Investment in the right kind of talent will be wasted if those people aren’t retained and motivated. Large organizations often tacitly present the prospect of punishment for product failures without the prospect of extraordinary rewards for product success. It’s ironic because there’s nothing holding them back. For example, they could offer special stock grants if the business line meets its goals and gets established. They can also downplay the downside risks. Why shouldn’t involvement in breakthrough innovation be seen as a career requirement for high-potential managers?
4. Offer recognition and legacy
Innovative start-up entrepreneurs are not just in it for the money; what really motivates them is the prospect of building a team, creating a product and developing a business with their name on the door. Large companies need to be proactive in recognizing and celebrating innovation through awards and public recognition. This doesn’t have to be dramatic. One company names meeting rooms after its breakthrough innovators. This kind of callout becomes important as breakthrough products move into the mainstream and need incremental management. It’s better for the breakthrough innovator to move on to another innovation—and for that to be seen as a smart, desirable career move.
5. Always allow accelerated decision-making—but with guardrails
Start-up entrepreneurs can adjust priorities and reallocate resources as circumstances change. But they’re constrained by limited resources. Large organizations can be more flexible about allocating resources and delegating decision-making—but still need to keep budget discipline and keep the organization’s priorities (like pricing or avoiding channel conflicts) in focus.
6. Encourage support from other business units
Breakthrough innovation teams in large organizations have an advantage: They have access to corporate infrastructure and capabilities. But other divisions don’t always see the reason to support the innovation unit and may even decide it’s a threat. The company needs to take steps to encourage support by providing incentives for cross-selling or resource-sharing. It can help to have a senior corporate sponsor who acts as a mentor for the breakthrough team. To help get established business units on board, the internal innovation team should expect to work hard to get their buy-in and give them the credit for successes as they are achieved. Where necessary, the innovation team should have the option of working with external resources when those are more responsive than internal service centers.
7. Define clear milestones and tie budgets to achieving them
In a start-up, the fundraising cycle provides discipline by signaling investor satisfaction with progress. Large organizations should create a similar environment by setting clear milestones and expectations. These could be financial metrics or—for longer lead-time innovation—could be related to product performance or market-testing outcomes. If progress stalls, it might be necessary to apply venture capital discipline to avoid over-investing in a losing proposition.
Success stories show the way
Large organizations have successfully risen to the innovation challenge. Nestlé invented the sealed coffee pod in the 1970s, and then over the decades methodically built Nespresso into a $6.5 billion global business. Nespresso’s success was the result of Nestlé’s patience and deep resources—as well as its insight in defining the competitive set as broadly as possible to include not only direct competitors (home coffee machines) but also indirect competitors (Starbucks) and substitutions (Red Bull and other energy drinks that an office worker might choose). Investment capital, a long-time horizon and extensive analytical capabilities are the hallmarks of large organizations, and the Nespresso story illustrates the “best of both worlds” results that can be achieved when they are brought to bear in support of an innovation.
The story of Collins Aerospace shows how to balance incremental and breakthrough innovation. In 2000, the company refined its cockpit instrumentation products by creating the Pro Line 21 that combined six separate instruments into a single, easy-to-read electronic display, reducing pilot workload and enhancing safety. Then, facing immediate competition—which is characteristic of incremental innovation—Collins took the next step by pulling together several business units into Connected Aviation Solutions, which created a customer-focused “connected aviation ecosystem.” This is a data-sharing system backed by data analytics that seamlessly integrates information and produces recommendations about aircraft maintenance, flight dispatch, ground equipment, catering and even customer check-in. The result was a high-value-add breakthrough.
Creating an internal innovation team is not the end of the challenge
Creating the innovation team is just the first hurdle. The role of the unit is to innovate, not to manage innovations. Long-term product management responsibilities will just serve to distract the team from its core task. Leaders will have to determine how and when to move innovations from the internal start-up into the core structure. And on an ongoing basis, they will have to wrestle with how to balance incremental and breakthrough innovations—and how to manage both to maximum effect.
But the fundamental truth remains: Large organizations that commit to internal innovation—and that build them pragmatically, with the challenges always in full view—are more likely to create breakthrough innovations more predictably and with less risk. They will become breakthrough innovators and create and sustain value. CHROs can—and should—help make it happen.
