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Ok, I hate writing in absolutes, but the title catches your intention. Now that I have your attention, let's say that HP's new innovation strategy is more likely to fail than succeed.

HP's New Innovation Strategy

HP's new innovation strategy is boiled down to fewer, bigger bets. Business Week has the article toting HP's vision here. Let me highlight some key quotes from the article.

1. On May 1, HP's new labs director, Prith Banerjee, plans to unveil a list of 20 to 30 major projects HP Labs will pursue, a dramatic cut from the 150 or so currently on its docket...The labs' $150 million annual budget will remain the same, but he'll group the most promising related projects while dropping those with little shot at a profitable payoff.
2. Researchers will compete for money and manpower by pitching projects, complete with written business plans, to a central review board that will approve ideas and monitor progress.
3. A new technology transfer office aims to speed promising projects into HP's product groups, and license those that it can't use itself.
4. Projects will focus on five strategic areas: intensive data analysis, building clusters of machines that can tackle complex problems, transforming analog into digital content, mobile computing, and environmentally friendly machines.
5. Accountability will also be stronger: Researchers who go for too long without a funded idea risk expulsion to more mundane product engineering groups. "If not enough progress is made, the plug is pulled," Banerjee says.

Innovation Is NOT a Pipe!

Last quarter, my Strategic Innovation class got a heads up about HP's change in innovation policy. A Finance Director for one of HP's business units talked about the innovation funnel and how HP was going to make it into a pipe stating "we need more correct ideas at the beginning". My immediate thought was "Spoken like a true finance guy". Unfortunately, we did not have time for follow up discussion after the presentation, so that comment stayed in the back of my mind and exploded when I saw the Business Week article.

My position is that innovation is a funnel. You will likely need 18 or 19 failures for every successful idea. Failure is not a bad thing, it provides you with powerful knowledge; a greater understanding of technology and your markets. The projects in HP labs likely will not hit market for 6-8 years. Think back 8 years ago, did you predict exactly how our technological landscape would look today? Sure, you go a few things right, but think of all those things you missed.

HP's Finance Director told of a story where 10 years ago two guys from Stanford came to HP trying to sell them on a search algorithm - the price $1 million! HP refused because it didn't fit in their view of the world and where technology was going. Today, that algorithm is the foundation for Google who has a market cap larger than HP! The point is that we never know what the next great idea will come from. It most certainly will not come from an area that everyone is expecting. Placing few big bets is equivalent to your company saying we know how the world will look in 8 years. The best practice is to place numerous small bets to find the ideas to make bigger bets. Sure you can make a bigger bet in areas you are confident about, but don't forget the small bets.

Too Much Accountability is Stifling

I love accountability - Just ask people with whom I've worked. However too much accountability will kill innovation. Point 2 requires business cases for new projects to get funding. Business cases are great, but not for early ideas. Cases require understanding of the market opportunity and costs. For product research 6-8 years out, often markets have yet to form; and who could guess input costs that far out (gas prices anyone?). There is a place for a business case in innovation, but not at the start.

Give your researchers the ability to explore ideas - just limit the initial investment. When they want greater funding, then have them build a business case that must show the technology's potential and that a market is forming. I promise you that in a year, HP will have a pile of business cases with ridiculous assumptions. The irony will be that the more ridiculous the assumption the more likely the project will be funded!

Look at point 5! Talk about creating a fear of failure in your company! Researchers who don't get ideas funded will face expulsion to more mundane projects! Let me translate this for you: Researchers who do not pump their business cases with ridiculous assumptions that match HP's senior leaderships view of the future will face expulsion to more mundane project groups! Hold your researchers accountable for improper research methods and control your investment on the small bets. Do not punish them for not having their ideas match HP's pipe vision - this is very, very wrong.

It's Not All Bad

After piling on HP, I would like to end on something position. Point 3 - the creation of a technology transfer team - is a great idea. Empowering a group to communicate all the great innovations coming out of the HP Research Lab to HP's product lines and the outside technology community is fantastic. I would also mandate them to connect with the outside community to bring new ideas or technologies to the research lab. Innovation is a flow, not a stock!

Conclusion

I am not saying HP will colossally fail. Their 5 main areas of research (point 4) seem to be growth areas from today's point of view. If they are right, they could be leaders in these spaces. However, by narrowing their focus the eliminate the possibility of stumbling into unknown. The great thing about the technology industry is that today's unknowns could be the Google's of tomorrow. So to sum up this lengthy diatribe:

• Innovation in a pipe assumes you can predict the future and that failures are bad - Two views that will hurt innovation
• Accountability in a research setting should only be for how they conduct the research. Punishment for not bringing ideas of management's view of the future is a sure way to stifle true innovation.
• Companies should have a conduit mandated to disperse innovations out of the research lab and bring new ideas in.