Building Capacity for Breakthrough Innovation

Understanding Breakthrough Innovation

One of the critical aspects of fostering breakthrough innovation, as highlighted by Gina, is first and foremost establishing a clear understanding and language around what constitutes true breakthroughs versus incremental improvements.

This distinction is crucial because the management systems, support structures, and resources required to nurture breakthrough innovations differ significantly from those needed for more incremental changes. Gina emphasizes the importance of not only recognizing the unique challenges that come with pursuing radical innovation, including higher levels of uncertainty and organizational resistance but also the need for a specialized approach to overcome these hurdles.

Organizations must develop a capability for breakthrough innovation that goes beyond traditional R&D functions. This involves creating a supportive infrastructure that can handle the ambiguity and uncertainty inherent in radically innovative projects.

A key enabler is to build a culture of ambidexterity within the organization, where there is a balance between exploiting existing assets and exploring new opportunities. This requires a deliberate effort to cultivate discovery and incubation competencies that can identify and nurture potentially disruptive ideas.

It’s important to underscore that breakthrough innovation is not a sporadic effort or the result of random creativity sparks. Instead, it's a structured process that requires dedicated teams, a clear strategic intent, and a supportive organizational culture that encourages experimentation and tolerates failure. These teams must operate with a degree of autonomy to explore uncharted territories without the constraints of the core business's immediate commercial pressures.

"Radical innovation is full of surprises. It's about leveraging new ideas in ways we never expected, breaking free from the confines of traditional R&D."

Developing a Capability for Breakthrough Innovation

Building on that understanding, it follows that developing a capability for innovation within an organization is not a one-size-fits-all endeavor. That requires a multifaceted approach, integrating various elements from organizational structure to culture, all aimed at fostering a dedicated environment where innovation can thrive.

At the core of developing an innovation capability is the distinction between maintaining the current business ("the core") and exploring new opportunities ("the new streams"). This dual focus is essential for sustaining growth and competitiveness. The challenge lies in nurturing an organizational culture that supports both without compromising the other. According to Gina, the key is to embed innovation into the organizational fabric as a distinct function, thereby moving beyond relying on individual champions or ad-hoc efforts.

Contrary to the popular mantra that innovation is everyone’s job, delivering breakthrough innovation clearly is not- it requires dedicated teams or units, with the specific mandate to explore and develop new business opportunities.

These units, often referred to as "new business creation teams," operate with a degree of autonomy, allowing them to pursue innovative ideas without being constrained by the existing business model or operational considerations. This autonomy is crucial for incubating ideas that might not fit within the traditional business units but have the potential to become significant growth drivers.

"It's not just about one champion or one sponsor; it's about embedding innovation as a capability as the company matures."

Moreover, the successful development of a (breakthrough) innovation capability hinges on the organization's ability to navigate the inherent uncertainties of innovation. This involves embracing a portfolio approach, where the focus is not on the success of individual projects but on creating a diversified portfolio of opportunities that collectively contribute to future growth. Such an approach necessitates a shift from a project-based mindset to a strategic, long-term perspective, recognizing that the path to commercialization and scaling is fraught with challenges and uncertainties.

Central to this endeavor is the role of leadership. Leaders must champion innovation, not just in word but in deed, by allocating resources, setting strategic priorities, and creating an environment where exploratory work is valued and rewarded. This includes recognizing and mitigating the risks associated with innovation, such as the potential for cannibalization of existing products or services, and managing the balance between exploiting current capabilities and exploring new ones.

Leaders must not only provide the vision and resources necessary for innovation to thrive but also actively participate in building the organizational capabilities required to sustain it. This includes committing to long-term investments in innovation, even in the absence of immediate returns, and creating a culture that values learning and exploration over short-term efficiency and risk aversion.

Gina mentions the case of DSM, illustrating how a company can transform its innovation approach from ad hoc projects to a more structured, persistent innovation function. By identifying several domains of innovation intent, DSM was able to focus its efforts on future-oriented problem spaces, setting the stage for a diversified portfolio of opportunities.

This strategic shift was not merely about generating a multitude of projects but about systematically pursuing those aligned with the company's long-term growth objectives. This approach underscores the need for organizations to transition from sporadic innovation efforts to a more consistent, capability-driven model. Over time, some of DSM's emerging business areas transitioned into main revenue streams, showcasing the effectiveness of a dedicated innovation function in achieving organizational renewal.

Challenges in Pursuing Breakthrough Innovation

Pursuing radical innovation presents a unique set of challenges for organizations, because they are entrenched in established markets and operating models.

Technical and Market Uncertainty

Breakthrough innovation ventures into uncharted territories, often pushing the boundaries of current knowledge and market understanding. This exploration is fraught with technical uncertainties, where the feasibility and practicality of new technologies are unknown.

Similarly, market uncertainties loom large as organizations attempt to predict the acceptance and demand for novel offerings in non-existent or nascent markets.

These uncertainties require a different approach from conventional project management, emphasizing learning and adaptation over rigid planning and execution.

Resource Allocation

Securing funding and resources for ventures with long time horizons and uncertain outcomes is another significant challenge. Traditional budgeting and investment appraisal mechanisms favor projects with clear, short-term returns, sidelining radical innovation initiatives that require longer gestation periods. This challenge is exacerbated by the difficulty in demonstrating the potential returns on investment for breakthrough innovations, often leading to their premature termination.

It’s best to adopt a portfolio approach to innovation, focusing on a broad set of potential opportunities rather than individual projects, to help manage uncertainties and spread risk.

Organizational Resistance

One of the most prominent challenges in pursuing breakthrough innovation is overcoming organizational resistance. Established companies are designed for efficiency and predictability, creating systems and cultures that inherently resist change. As organizations mature, processes become bureaucratized, and routines solidify, making it increasingly difficult to maintain the agility and openness needed for innovation. This resistance is not merely an operational hurdle but a cultural one, necessitating a strategic rethinking of how innovation is embedded within the organization's DNA.

At the heart of addressing this challenge is developing a nuanced understanding of the dynamics at play within mature organizations.

As companies grow and evolve, their initial innovative spirit often gives way to a focus on efficiency and scalability, which are crucial for operational success but can inadvertently stifle innovation. The transition from a startup's agility to a mature company's rigidity introduces layers of bureaucratic processes that can dampen the enthusiasm for and feasibility of groundbreaking projects.

Here again, leaders have a critical role to play. They must recognize the value of building an innovation capability that is distinct from the core business operations yet complementary to the overall strategic objectives. This requires a deliberate effort to cultivate a culture that embraces ambiguity, tolerates failure, and rewards exploration, even when the outcomes are uncertain. Such a culture shift demands that leaders themselves exhibit a willingness to champion and participate in innovation initiatives, setting a tone that encourages others within the organization to follow suit.

The deployment of an Innovation Council, comprising high-level executives with a forward-looking vision for the company, further aids in overcoming resistance. This council's role is to guide and support the innovation teams, ensuring that their efforts align with the organization's long-term growth objectives and providing a buffer against the inertia that can pervade large organizations.

"Building a capability for innovation requires persistence, not just throwing money at new projects. It's a long-term commitment beyond the initial excitement."

Making Lufthansa Future-Proof

As Gina highlighted, breakthrough innovation efforts can only succeed in the long run to the extent an organization embraces the inherent uncertainty that comes with those, and develops a truly supportive culture in the core business.

In the same Learning Lab session, we heard from Florian Bruckner, how they go about that part- making Lufthansa future-proof by scaling innovation capabilities and culture.

The Lufthansa Innovation Hub, established in 2014 and based in Berlin, was initially conceived to tap into the burgeoning tech and startup ecosystem in the city. Its mission was to explore potential partnerships with startups in the travel space, marking the beginning of Lufthansa's focused efforts on innovation and digital transformation.

Over the years, the Hub has evolved significantly from its exploratory beginnings to become a strategic innovation entity within the Lufthansa Group. The Hub, now a team of approximately 60 individuals, operates across three main capabilities:

Strategic Intelligence: This team is pivotal in scanning the horizon for customer and technology signals, which are instrumental in shaping the strategic direction of the Lufthansa Group. Their research fuels the innovation funnel, ensuring that ventures at various stages are aligned with emerging trends and customer expectations.

New Business and Venture Building: The core of the Hub's innovation efforts, this segment focuses on cultivating partnerships, developing digital products, and managing a portfolio of ventures through their lifecycle—from ideation to scaling or integration into Lufthansa's core operations.

Transformation and Capability Building: Since 2020, the addition of the Transformation capability has further solidified the Hub's role, not just as a bridge to the Lufthansa Group, but as a powerhouse for fostering innovation culture and capabilities within the core organization, rooted in the belief that nurturing innovation capabilities and culture is essential for making organizations future-ready. They employ a strategic framework to facilitate this cultural shift, focusing on three critical aspects.

Behavioral Transformation for Innovation

This approach begins with defining clear outcomes related to innovation capabilities and then identifying the behaviors necessary to achieve these outcomes. Finally, the framework addresses the enablers and blockers that could impact the desired cultural shift, providing a comprehensive pathway for transformation.

Key to this cultural transformation is the emphasis on specific behaviors that promote innovation. These behaviors include embracing failure as a learning opportunity, fostering curiosity and continuous learning, promoting psychological safety to encourage the sharing of ideas, and adopting a mindset of experimentation. The Innovation Hub leverages various methods to instigate these behaviors, such as workshops, training sessions, and digital platforms offering self-service upskilling resources.

"We can't change people; you can't tell people to change...you need to change the environment in which people interact."

At the individual and team levels, the Lufthansa Innovation Hub has initiated a series of learning and development programs designed to equip employees with the skills necessary to innovate. This includes workshops on customer centricity, agile methodologies, and digital product development, among others. These programs are not just about imparting knowledge but are structured to foster a mindset shift towards continuous improvement and innovation.

On a broader scale, the transformation team has focused on reshaping the organizational culture and operating models to support innovation. This involves reevaluating traditional hierarchies, communication channels, and decision-making processes to encourage more cross-functional collaboration and faster iteration cycles. The goal is to create an environment where innovation is not just a buzzword but a core component of every employee's daily activities.

"Building innovation capabilities within the core organization has obvious benefits...the more the organization understands innovation, the better for us as an innovation hub."

As Lufthansa Group looks to the future, the emphasis is on embedding innovation into the DNA of the organization. This involves not just the creation of new products and services but a fundamental rethinking of how the organization operates, collaborates, and grows. The success of this journey will be measured not just in financial terms but in the establishment of Lufthansa as a leader in innovation within the aviation industry and beyond.