When Google gave birth to its own parent company, Alphabet, earlier this year it may have been onto something. By creating an umbrella company it was able to separate not only Google and its web-related products, but also Google X, its experimental research division. 
“They recognised that you can’t set up innovative ideas in a mainstream business so they’re allowing them to be separate. I think that’s probably the only way that you’ll overcome the gravitational pull of the big organisation,” says Martin Hess, VP of Enterprise Sales for the UK & Ireland at Hewlett-Packard.
In Criticaleye’s recent Global Conference Call, Building a Culture of Innovation, held in association with BDO International, leaders agreed that pockets of innovation are often more effective than trying to reshape the entire organisation. But support is needed if those green shoots of creativity are to grow. 
Edd Read, Co-founder and Chief Technology Officer at snacks company Graze, explains how, like Google but on a smaller scale, it has fenced off its sapling ideas. “In the last few months we put a focus team together to resolve a particular problem we had with the business. We gave them a mandate to do their own thing. We were really clear on the objective but ultimately left them to it,” he explains. 
It meant not only separate KPIs but also a different room in which they could talk freely about their ideas without colleagues listening, assessing and infiltrating.
However, he also realises that there are limits to this approach: “We can’t keep putting people into rooms to solve problems. We need to learn from the process they’ve been through to understand how we can make changes in the business.”
As Andrew Minton, Managing Director of the Advisory Practice at Criticaleye, notes: “Companies must protect and nurture their innovative side projects if they’re to benefit on a wider level and stay competitive.” 
If the innovation behind a skunkworks is to grow outside the context of its own silo, it must find something to stick to, or what Martin calls “corporate Velcro”. Skunkworks have a finite life, so this ‘Velcro’ is essential if innovative ideas are to “overcome the organisational antibodies that come out,” he reasons. 
Martin gathered a team of 12 people at HP to create an independent digital practice within the company. The remit was to build a new revenue stream and to reposition the brand. The success of the skunkworks became its own burden. Everyone wanted a piece of it, which threatened the project’s autonomy. 
“Digital crosses the organisational boundaries,” Martin explains. “For example in HP, we have an analytics practice, security business and integration division – digital is a theme that weaves its way through all of those organisational entities and they each wanted to grab it as theirs. Although they probably didn’t realise they were doing it, they were fighting against it being a separate entity.” 

Failing with fortitude
Recreating your company in the image of an innovative virtuoso like Google or Graze can be a daunting task. 
Beverley Eagle Head of HR at Veolia Water Technologies, warns that “in order for any skunkworks to succeed, the culture within which it operates needs to be open to innovation and change and there must be commitment from the top of the organisation. It’s vital that senior management communicate the objectives of the skunkworks with clear goals and guidelines.
“Resources need to be agreed in advance and communicated to everyone so the larger organisation understands the benefits of the skunkworks and why it may not be carrying full costs,” she adds. 
Simon Pringle, Head of Sustainability and Innovation at BDO agrees that it can be hard to stand firm and alone in strong headwinds, which is why he heartily argues for a clear mandate: “In the absence of a really well explained purpose and intent, a systematic approach to innovation can lead an organisation to march briskly in completely the wrong direction.”
In addition, it’s not unusual for people to become too close to the projects they’re working on, which can lead to optimism bias – an unreasonable expectation for what can be achieved, notes Simon. As such, he advocates a sturdy corporate governance structure that “knows when to pull the plug on things, and when to be persistent and robust”. 
When things do go wrong it’s important not to penalise people despite their effort. Indeed, failing is part of the process, but the trick is to recover quickly and learn from it. 
Simon illustrates this point with the story of a major steel company which gave out a ‘heroic failure award’ – a pat on the back for someone who had failed but learnt through the process. “That one got the biggest cheer of the night. I thought that was a tremendous way of encouraging people,” he says. 
KPIs and financial incentives are another way to encourage creative ideas, but only if you get them right. In a former role at an engineering organisation, Simon realised the targets were actually stifling experimentation with staff hitting but never exceeding them. 
“We’d unconsciously placed a constraint within the business; people were beginning to fear the consequences of missing the target by being bold… so they played it very safe,” he explains. 
The tincture was to reassure staff that even without success, a valiant attempt would be recognised rather than chastised. 
To get all this right, you need a CEO who’s continuously signalling for change, says Martin. “Unless it’s set in your objectives, you probably won’t see it happen.”
As with many leadership issues it requires clear communication. Andrew notes: “Only if leaders voice, and continually champion, the company’s need for innovation will those lower down live by that ethos.” 

By Mary-Anne Baldwin, Editor, Corporate
Do you have a view on this subject? If you have an opinion that you’d like to share, please email Mary-Anne at: maryanne@criticaleye.com