Cross Business Unit Innovation: A New Frontier

by Steve Garcia & Kate Lynch, June 21th 2013  

Retailers and consumers demand an unfettered stream of creative new products from their favorite brands. When a company's new product development efforts seem to falter, the backlash is severe. Recent press on Apple provides an illuminating example1.

Innovation is notoriously difficult, however. Bigger and better ideas are elusive. What are companies to do? Many have embraced Open Innovation, an approach that entails sourcing new product ideas externally. The belief behind Open Innovation is that while companies have finite market research and R&D dollars to spend coming up with new ideas, there is a wide world out there full of customers, inventors, academics, entrepreneurs, etc., all of whom would appreciate the chance to commercialize their great ideas. Why not mine this potential?

Indeed, Open Innovation has been a boon for many companies. P&G, for example, helped spearhead the Open Innovation movement through their Connect + Develop program. Their efforts to cultivate innovative ideas from outside the company have resulted in some of their most popular - and lucrative - brands, including the Mr. Clean® Magic Eraser® GLAD® Force Flex and Press 'n' Seal, the Swiffer Duster®, and the Olay Regenerist® line.

While Open Innovation is a valuable tool in a company's innovation toolkit, there is a second, complementary approach that is often overlooked. Sometimes referred to as "Semi-Open Innovation," cross-business unit (x-BU) innovation is innovation that results from interactions between business units, or divisions, within a larger company. Examples include Philip's Ambilight TV, Pfizer's Listerine PocketPaks, Apple's Iphone, and Church & Dwight's Arm & Hammer plus OxyClean laundry detergent. X-BU innovation has some benefits over Open Innovation. For example, it makes it easier to keep initiatives secret, provides easier access to information, and offers simplicity in coordinating the resources required to bring the innovation to market.

Outsiders might assume x-BU innovation is commonplace; after all, the employees work for the same company. However, the truth is that it's fairly rare. This is because organizational silos limit collaboration, goals are typically set at the individual, business unit level, and procedures for sharing revenues and allocating expenses across multiple units often don't exist.

Companies that wish to harness x-BU innovation typically adopt one of five approaches. While these approaches are not exclusive to one another, each is progressively more challenging to implement.

1. Relentlessly communicate the importance of x-BU innovation

You don't get what you don't ask for. Leaders who wish to encourage x-BU innovation need to make clear through persistent communication, that x-BU innovation is a priority. Champion it at town halls, include it in corporate strategy documents, and revise the company's mission statement to highlight the importance of x-BU innovation. The purpose of these communications is to make clear that x-Bu innovation is everyone's job. The best communications don't just lay out a logical argument; they include an emotional component that serves as a source of inspiration and motivation.

2. Bring different business units together

According to legendary innovator Steve Jobs, "Creativity is just connecting things." If you want to innovate across businesses, you need to encourage connections between them. Unfortunately, in most organizations, each business acts as its own little kingdom. With the exception of support functions, HR, IT, Finance, etc., there is often little, if any connectivity, between different business units. Everyone goes about their own job with little opportunity to talk to others from different divisions. Worse yet, in the absence of interaction, an "us vs. them" mentality can creep in that actually discourages communication. Ideas get rejected simply because they're "not invented here."

The best way to encourage interaction between business units is to increase proximity. Simply put, people in the same physical space are much more likely to establish relationships with one another. While it may be expensive to move people or co-locate offices, the same effect can be achieved cost effectively. Establish rotational programs, conduct cross-business unit innovation workshops, invite members of one business unit to attend meetings within another business unit, or create a cross-business unit mentorship program. Each of these initiatives brings people from different parts of the company into the same place at the same time. Connections will result.

3. Create a "Playbook"

With a thorough understanding of where and why you and the other individual agree and disagree, you can brainstorm Often x-BU innovation is derailed by a lack of established procedures or policies. When a single business unit innovates, everyone knows who the decision makers are. When two business units collaborate, it's less clear. It gets more complicated when the decision criteria vary. For example, for one business unit, net incremental sales of $5MM could be huge, while for another business unit it's a drop in the bucket - they're only interested in $50MM projects. Likewise, how the business units will allocate costs and share revenues must be negotiated. Even the language that business units use can cause problems. For one business unit, the "feasibility" stage in the new product development process might be refer to a paper exercise, while for another business unit, it encompasses the creation of physical prototypes and market research with consumers. Imagine the difficulty of trying to negotiate how to resource an innovation project when the two business units have different perspectives on what needs to get done when.

The best x-BU innovation examples often begin with two business units defining how they will work with one another. Instead of jumping into a project head first, they take time up front to answer the above questions and capture them in a playbook that is used to educate everyone involved. It's a classic example of going slow to go fast.

4. Hold leaders accountable

You get what you measure. Organizations that want to promote x-BU innovation can establish specific metrics for measuring success. How much revenue should be generated from x-BU projects? What percentage of R&D resources should be invested in x-BU innovation? These metrics can be incorporated into leaders' performance objectives and then measured through portfolio management. Once per quarter the organization can analyze their existing portfolios against x-BU innovation targets to determine where they're doing well and where they need to improve. Business unit leaders who are hitting the mark should be rewarded. Those that are not should be given feedback that they need to improve performance.

5. Build an Incubator

Finally, companies can establish a new organizational entity, an incubator, dedicated to x-BU innovation. These groups typically seek out, facilitate, and fund x-BU innovation initiatives early in the lifecycle and then hand them off to one or more existing business units to commercialize. Alternatively, if the innovation is truly unique, the incubator can spint it out as a new, separate business unit.

Ideally, such a x-BU incubator has dedicated full-time resources (i.e. R&D, inbound marketing, etc.) as well a leader with both the technical and commercial clout to influence successfully within the company. This represents a significant investment and makes this approach the most costly to implement. According to Deborah Mills at Corning, "The creation of Strategic Growth [Corning's x-BU organization] was a hugely courageous act. Corning had just let go half of their employees worldwide so some people thought we should be focused on more applied, near term stuff."

The payoff, however, can be significant. A distinct, x-BU team does not get distracted and have to drop everything when things go wrong in the plant. Moreover, they are not limited by the scope or biases of a particular business unit. As a result, they are often able to come up with more revolutionary innovations.

Ultimately, X-BU innovation represents a significant, if underutilized, opportunity for businesses to leverage complementary skills, to engage in larger and more complex projects, to draw upon a wider range of resources and expertise throughout the business, and to increase value for stakeholders. There are many ways to reap the benefits of x-BU innovation - from communicating the importance of x-BU collaborations to creating a new organizational entity dedicated to pursuing opportunities across business units. This flexibility allows companies to choose an approach that's right for them, resulting in a consistent stream of bigger and better ideas.

1 "Apple plans upgrades to regain its luster" by Jessica E. Lessin in Wall Street Journal, Monday, June 20, 2013, p. B1.

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