Blake over at AA-RF sent me this article How Companies Turn Customers' Big Ideas into Innovations and there is a ton to chew on here... first comment:

"Specifically, 48 percent were unhappy with their company's ratio of innovation hits to misses, and 51 percent were dissatisfied with how their company identifies new service and product categories."

The first statistic suggests there is a general lack of understanding about how innovation comes about. A ratio is not a good way to measure innovation success. If not only because success is so hard to measure, and failures are often successes, or at least critical to learning. Over and over again failure is a benchmark for innovation-- companies have to fail early, fail often and fail cheaply. Only through multiple rapid failures that teach (and teach something other than don't fail in front of upper management) can innovation occur. This is one of the reasons so much innovation comes from small companies, who have less to loose and fewer managers who are afraid to be caught failing... The Innovator's Dilemma is required reading, if by some chance you haven't gotten to it yet. Despite the book's bestseller status and the insane number of business articles stating more or less the same thing (fail! fail often! fail small, but fail!) seeing this statistic makes me wonder. Of course it's possible that executives are complaining in a way that allows for failure-- what, .02% success? I want to see that ratio up to .04% by next quarter!-- I rather doubt it.

It's hard though, for a company to be comfortable with low success rates-- especially public companies who are expected to show quantifiable success every quarter, and for whom revenue per employee can be a success-measure. This drives companies to do more with less, and get productivity up. But productivity suggests a taylor-esque approach to work. The assembly line is rarely a home for innovation -- as you squeeze each second for efficiency, idle thinking is abandoned and no opportunity to explore alternatives (and fail at them!) is possible.

A common solution is the creation of a R&D team. But this is problematic on many levels-- innovation is done for its own sake apart from the main work, so it is not always easy to understand how to apply new ideas to existing business. Plus it creates innovation ghettos where the "blessed few" of a company can innovate and outside ideas are left to flounder. Programs like Googles 20% provide an intriguing alternative, but posts like this one do raise questions about its effectiveness.

In my experience, innovation comes out of the unfettered pursuit of excellence... and that provides the clues to managing innovation. It's not something you do, but rather how you do everything you do. And that is the beginning....

I am reminded, though, of a friend in Chicago. He used to have a job where he, as he said, "thought up things." That's what his job was--to think of innovative (digital) things. This was in the early '90s, mind you.

The problem was, he said, that little or nothing ever happened. He began to lose confidence in the company...so he began to come in later, leave earlier, and take longer lunches. So there is a correlation between innovation and ccompletion...not that this negates anything you said, but it's an additional dimension.

Organisation-wide systemic innovation is a result of a number of factors. One of the lessons that I take from the Google model is that innovation
happens when a bunch of exceptional individuals with fire in their
bellies and a dream to change the world are given unlimited resources
to work towards a focussed result.

You're absolutely correct that the R&D approach today is problematic as it tries to innovate for its own sake. A lot of people, including Bill G himself, believe that Microsoft can take a lead in any new market by pouring millions into R&D. It doesn't always work that way!! If they haven't leant that from their failure to lead the Games console market, they'll have an opportunity to learn it in search. Innovation is something that simply cannot be bought. Try to find commercially successful innovations that have come out of MIT's Media lab [US, EU and Asia] or PARC in the last five years and then look at those that have come out of Google and Apple during the same time.

In a 2003 talk, Eric Schimdt touches upon this topic. He said he learnt during his career at Sun that innovation comes from the Universities. This is what Google is doing! They are trying to take that university model and trying to replicate it in a business environment. It's not just about 20% free time or bean bags or free food. It's about creating an atmosphere for individuals that fosters risk taking and in which projects are driven by passionate personal involvement, not [always] business drivers.

From a Sergey Brin interview (emphasis mine):

"If you imagine running a company: you have a certain set of resources, and you decide how to allocate them; this is what works strategically. Well, that's not really the case. The researcher who developed Google News� this was what he felt was really important...he pursued it and I think it's very successful and I think it's nice to get the worldwide discussions now.
So, that's sort of how that happened. Perhaps we should be sort of designing our strategy more, but our R&D [people] are most productive when working on what they're motivated by. That has to be a pretty big consideration."

Those aren't regular people at Google. The company is well known for hiring only the most exceptional ones. Here's an amusing quote from Eric's talk:

"And if anything my transition now to Google has shown me... it's that this next generation of twenty somethings is frighteningly smart. They are terrifyingly smart. I'm so glad they work for me!"

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