Breakthrough innovation – innovation aimed at delivering disruptive impact, or creating new market spaces or step-changes in product, process or business-model performance – is increasingly important for companies. However, outside of the software industry most organisations, especially those with complex engineered products and longer development lifecycles, struggle to deliver it systematically.
This is principally because the agile approach needed to realise breakthroughs is a challenge to the established practices that have served them well. In this article we look at how non-software product-based companies can successfully embrace agile, as well as non-agile, methods in a complementary way.
Using the optimal approach to realise breakthrough innovation
Business executives have always been under pressure to generate growth, and today’s fast-moving and competitive business environment does not make that any easier. Arthur D. Little’s eighth Innovation Excellence Survey revealed that leading companies expect their share of revenue from breakthrough, as opposed to incremental, innovation to double over the next five years.
However, achieving breakthroughs is easier said than done: the survey also found that 88% of business leaders were dissatisfied with their breakthrough innovation performances. They have become increasingly frustrated with the limitations of their current innovation systems on producing significant results.
The underlying issue for these organisations is usually that they are applying a non-optimal innovation approach to realise breakthrough innovation. For the past three decades, most technology-based companies have employed a phase-gate or waterfall approach to all of their innovation efforts. In fact, they have made significant investment in the design and adoption of these approaches so they would become rigorous and mechanical.
The software industry has consistently produced patents at three times the level of the next-most prolific sectors.
Their fundamental goal has been to minimise variances (i.e., risk) from a well-understood set of requirements and a detailed plan that are both established at the beginning of a development project. As a result, they have created the perfect environment for incremental innovation, reducing cycle times and improving on-time delivery. Unfortunately, this well-honed model is not conducive to breakthrough innovation, in which requirements are rarely set in stone and uncertainty is not only the norm but a vehicle to explore beyond the usual boundaries.
In the meantime, for the past two decades the information technology and software world has been applying its own, highly dynamic innovation model – the agile approach. For some time agile has been applied almost exclusively to software development, and this has borne fruit: the software industry has consistently produced patents at three times the level of the next-most prolific sectors.
Today, agile approaches are increasingly being deployed alongside phase-gate processes in engineering and R&D functions outside software, with positive results. Arthur D. Little’s research reveals that companies that have successfully added agile methods to their toolboxes, and tailor their innovation approaches by the type of innovation, perform significantly better than those that stick to single, waterfall approaches.
Applying key principles with an agile approach
When applying an agile approach to product development the key agile principles remain the same. However, certain elements take on a different twist.
- Iterative approach. The heart of the agile approach in product development is the use of a series of rapid, iterative loops, similar to an agile iteration for software. At the early “exploration” stages of the development lifecycle, each loop focuses on answering a key question that is determined to have a high degree of importance and uncertainty, in order to build a progressively clearer picture of the desired solution. Through these loops, the team is effectively building the user stories. A key artifact of each typically two- to four-week loop is a prototype used to test the part of the concept in question. Prototypes need to be fast and inexpensive – simple mockups, models, videos and simulations are appropriate. Prototypes are shared with a sampling of customers, the key questions tested and the learnings assessed to determine if the team can move on to a new objective for the next loop.
- Teams. Clear roles and responsibilities and the right balance of authority and accountability are important for team success in an agile product development environment. Teams must be nimble and the individual members comfortable with ambiguity and experimentation. In the product development environment, agile teams are multidisciplinary teams of specialists that expand and contract depending on their current focus. This would be different from the skills needed to do a technology-feasibility loop. To support this model, agile product development teams are often put together with part-time or limited-time resources. A very small “core” stays constant, and there is a designated team leader throughout the development cycle.
- Governance. While governance is not often identified as a key element of agile software development, it is critical within product development. In the agile environment, governance acts less like a go/no-go decision-maker and more like a coach to project teams. Governance also serves to mitigate “organisational antibodies” that try to impede or marginalise breakthrough innovations. Loop reviews done at the end of each loop to assess whether the key question has been addressed are discussions between project teams and their governance, using poster boards, prototypes and other visual aids to facilitate the conversation. To enable this environment, it is important that an agile governance group is comprised of individuals who can foster a culture of experimentation and learning, a sense of urgency and agility, and a passion for helping teams jump over hurdles (versus governance being the hurdle itself).
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Integrating agile by running processes side by side
The phased and agile approaches are distinct in their implementation, and generally suited to different innovation objectives when applied in the context of companies with engineered products. We see companies adopting two general approaches when trying to introduce agile into an existing phase-gate process: integrating agile into a single innovation process or adding a partly parallel agile path.
Integrating agile into a single innovation process typically involves using iterative loops within the existing phase-gate process, but with the overall structure retained as-is. Our experience is that attempting to integrate approaches will sub-optimise at least one of them. A better solution is to run them side by side, so an organisation can apply the right approach across an innovation portfolio of both incremental and breakthrough innovation. In this model the agile path is the right size to handle the anticipated flow of breakthrough innovation as per a company’s particular innovation strategy, which is usually substantially less volume than the phase-gate path.
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It is increasingly important for companies to deliver breakthrough innovation to their markets. However, the approaches that have been successful at improving innovation delivery over the last 30 years are holding most organisations back.
Senior executives in product- and process-technology companies are already championing agile approaches to improve breakthrough innovation performance. Creating a separate path with agile principles tuned for a product development environment has been shown to be an effective approach.
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Mitch Beaumont is a partner at Arthur D. Little.
Ben Thuriaux is R&D best practice study leader at Arthur D. Little.
Prashanth Prasad is a management consulting business analyst at Arthur D. Little.
Chandler Hatton is a manager at Arthur D. Little.
Colin Davies is a manager at Arthur D. Little.