[Deutsche Fassung]

Projects that aim to introduce changes sometimes run into difficulties – particularly if they touch upon fundamental issues. The magazine Harvard Business Manager recently published a case study on this issue. The case study deals with the question of how to develop and implement new ideas effectively in the corporate context; its main topic is innovation and change management.

The key question: should the company outsource innovation projects or not?

We summarise the case study as follows:

Innovation projects: inhouse or outsourcing

Medium-sized computer peripherals producer Subito is in a relatively stable situation, but will need new, innovative products to be successful in the future. For a few months now, a project team headed by the Head of Marketing and the Head of Software Development have been working on such a new product. “Tweety” is a language-recognition application. One day, the Head of Production withdraws some employees from the project team because a big order has come in. She asks her marketing colleague whether the latter really wants the company to neglect its core business in favour of an idea which is nothing more than a vague idea right now. Obviously, there is no unanimous support for the project within the company. Many colleagues believe it to be absurd to work on an innovation which would make Subito’s core business – the production of computer keyboards – obsolete. However, the managing director of the company has supported the project right from the start. Nevertheless, the project team does not get any external support and is even getting flak from colleagues. Overall, the project is not well-anchored in the company. In the end, the project managers want to draw a line and propose to outsource the “Tweety” project to a spin-off. While the managing director understands the problems, but is against creating a spin-off. He doubts that external project team members will work more efficiently than those who can rely on the support of the company as a whole. Moreover, he is worried that Subito might lose future rights if “Tweety” is spun off. He has heard several tales of spin-offs which preferred to work independently in the end.

The Harvard Business Manager asks two key questions: Is the project manager right in proposing that the innovation project be spun off from the parent company? Or does “Tweety” fail due to bad organisation?

Normally, people try to push through their direct interests

From my experience, I would say that Subito’s situation is a good example of everyday practical problems. What is good is often replaced by what is better, and what is old is often replaced by what is new. New innovations will always raise questions about existing products or innovations – or at least about parts of them. And that is why the “Tweety” issue needs to be resolved once and for all for Subito’s well-being. While a complete or partial spin-off of the innovation project may resolve the “Tweety” situation, it does nothing to resolve Subito’s fundamental problem. Remember that what the organisation learns from an outsourcing of “Tweety” is that resistance against necessary change is rewarded. The disturbing factor is gone, and things can go on just as before.

Under normal conditions: conflicting interests of corporate divisions

It is normal that representatives of the different departments in a company have their own views and pursue their own interests. Sales focus on their main clients, product managers care about their cash cows, and R&D engineers only want to develop their latest product. All that is understandable and, as I said, “normal”. However, the problem is that there are no resources for innovative projects which go beyond the current operative agenda – projects which boldly go where the company has never gone before. In an empirical study, Birgit Stelzer, a researcher at the Institute of Technology and Process Management at Ulm University, showed that technology competence affects the success of innovations and ultimately long-term competitive advantages (see also “Technology competence creates competitive advantages (1/2)”). The behaviour of leading managers of a company plays a key role, beyond financial, structural and human resources. Silicon Valley is obviously a good example.

The solution: efficiently implement, manage and measure projects

What should be done in the concrete case? I believe things should start at the highest level of management. It is not enough to appreciate the innovation project “Tweety”. If managing directors only appreciate the new project, they behave just like their employees at lower levels. They voice their support, but basically leave the project to its fate. And then they are surprised if there is resistance from within the organisation. In order to prevent such a situation, the management needs to demonstrate its commitment to the project and ensure a steady flow of internal communication in order to enlist support from the organisation as a whole.

With regard to innovative projects such as “Tweety”, the management should ensure a good balance between evolutionary and revolutionary projects. Evolutionary projects are important in that they develop existing or similar products or services further and thus contribute to a company’s success in the short term. Employees must not get the impression that existing products and services are simply dropped or ignored in favour of uncertain new developments. Revolutionary projects are crucial in that they form the basis for new generations of products. The management has to make it clear that innovation is a necessity for survival and that existing beliefs need to be questioned.

Essential balance: evolutionary vs. revolutionary topics

The case study touches upon a second aspect of management, too: Giving the two project managers responsibility for the task, but not providing them with the necessary decision-making competences is not only unfair, but will also endanger the project’s success.

In operative terms, the “Tweety” project needs to be reviewed at adequate intervals. From my vantage point, the most important measure is the expected profit (for example in the first two years) in relation to the resources still needed for success (hours of development; for more information see my entry on “How to succed in innovation (Part 2)”). This ensures that projects are not stopped shortly before market entry, i.e. shortly before they begin to pay off. At the same time, an unprofitable product will be stopped if the market changes and makes it potentially worthless.

Conclusion: Outsourcing the innovation project “Tweety” will result in enormously high steering efforts. However, as the company Subito has proven itself to be incapable to deal with the issue internally, outsourcing will only intensify the problems.