Big Ideas, Little Budget: Scaling Innovation for Small to Mid-Size Companies

Scaling Innovation For Your Organization

I’ve always been inspired by the stories of the original blockbuster R&D labs in the US, where a culture of deep exploration led to amazing discoveries. These facilities were scientific utopias, carefully designed to promote learning and creativity. Take Xerox Parc: nestled into the hills surrounding Palo Alto, this cascading, modular building provided researchers with a workspace surrounded by lush California vegetation. Or consider Bell Labs – the first transistor invented here! – with its tremendously long corridors where everyone was instructed to work with their doors open, thereby facilitating collaborative hallway conversations. In 1930, personnel were given an operating budget of $19 million dollars to pursue new inventions – a figure that in today’s world would amount to over $290 million per year.

These days, it’s more likely that your scientists reside in a pleasant industrial park, perhaps down the hall from the production line in your headquarters, and that you make do with a much more modest budget. Many companies have experienced an overall culture shift that has reduced the emphasis on R&D investment for the sake of near-term returns, so shelling out hundreds of millions of dollars for a landmark research center is out of the question.

Accomplishing legendary innovation in this climate is still a possibility, but some factors should be considered differently, particularly for small- and medium-sized companies. While these organizations spend a similar percent of revenues on R&D compared to their larger peers, the nominal available budget supports fewer man-hours, less lab space and equipment, and/or fewer dedicated team members. As such, the small- to mid-sized company may need to take a thoughtfully scaled-down approach to innovation:

• Maintain a narrower (but iterative) focus – If your research team consists of 20 people instead of 200 or 2000, you will need to be more selective about which projects you work on and how you staff them. Choosing too many will spread your resources too thin for meaningful progress. The budget impacts of letting things linger in a small team can be even more profound, so find ways to kill bad projects quickly.
• Use the lack of program management bureaucracy to your advantage for speed – You may meet less frequently or have a less robust protocol for internal project updates than bigger companies, but this isn’t necessarily a bad thing. Limited governance has its risk, but it also means that there are fewer decision-makers to satisfy and, often, a flatter political climate, making it easier for entrepreneurial project managers to accelerate or pivot when necessary.
• Assume risks that you can handle – You’ll be allocating fewer dollars, so aim for fewer moonshots overall and prioritize rapid testing of assumptions and progress. It is likely your portfolio may include more horizon 1 or 2 programs and fewer horizon 3 programs – it’s better to execute several solid base hits than lose it all on a home run attempt.
• Require early customer validation – While this might be tougher if your sales force is spread thin already, having a customer in mind and being able to articulate a value prop hypothesis and refine it at each stage of development is critical regardless of your scale. Whenever possible, take interdisciplinary teams with both sales and technical reps to meet prospective customers and test ideas.

Even if you scale back your innovation process to fit your organization and budget, don’t forget to incorporate some of the positive lessons from “R&D utopia:”

• Strong innovation culture and routines will keep you on track – Steven Chu, a Nobel Prize-winning physicist and former researcher at Bell Labs, said it was a place that “doesn’t destroy a kernel of genius; it focuses the mind.” Strong R&D leadership to reinforce innovation culture can start at any team size. A growth or innovation council with management support and a routine to review progress keeps innovation and business aligned. At a small company, you may even have the benefit of your founder or owner(s) in the front row of your innovation portfolio review!
• Interdisciplinary interactions are still relevant – You may not have a miles-long corridor through your research department, but there are other ways of ensuring cross-pollination of ideas. Draw in people from all angles of the opportunity – there may be talent in your finance group, your manufacturing team, or your sales team who can help debate and make progress on growth initiatives.
• Consistent criteria and clearly articulated innovation strategy guide good decisions – What defines program success? Is it revenues, profits, or diversification? Do you have good measures to compare specific projects to an ideal to help make portfolio-level decisions? No matter your size, setting clear criteria and communicating those expectations to your team is the only way to ensure consistent choices are being made.

You can make financially productive innovation decisions at all scales. And if you make good use of your R&D dollars, you never know; you might be able to spring for some beanbag chairs like the ones they had at Xerox Parc in the 1970s: