Solving the Innovator’s Dilemma: How successful companies are embracing innovation units

Liam Geraghty

Audio Content Producer, Intercom

@Liam_Geraghty

Beth McEntee

Principal Editor, Intercom

November 9, 2022

More and more established companies are creating semi-autonomous units to drive new innovation. We talk to Atlassian, Vermeer, and Gartner about how they do it.

Few books have chronicled how innovation takes place – and how market leaders fail to seize it – as well as Clayton Christensen’s seminal book The Innovator’s Dilemma. First published in 1997, the bestseller has influenced several generations of entrepreneurs, startup founders, and tech enthusiasts.

It’s kind of a modern-day cautionary tale. As companies become more established, they naturally start allocating their resources based on the needs of their most profitable customers, on building reliable features that can quickly return their investments and increase profits. And it’s a sound strategy. It, however, comes with a catch. Not only do smaller customers get overlooked in the process, but when new technologies or opportunities emerge, those customers tend to avoid engaging with them until there’s a carefully studied market fit or tangible ROI. And that opens the space for newer, faster, agile startups to serve those neglected customers, gain traction, and challenge the bigger businesses.

Reinventing your product offering and even competing with yourself is a crucial mindset in the tech industry. So why not take a page from the startup book and set up new avenues and opportunities so people can innovate in their job? Or even, perhaps, set up an autonomous team that can take the helm?

“Creating innovation-driven divisions within a company may just help you solve the Innovator’s Dilemma”

With innovation units, there’s no need for the traditional rules and regulations that typically bind a more established organization. No need to get saddled with historical tech debt or antiquated third-party tools. Progress gets measured by learnings – not growth, revenue, or retention – so you get to try new ideas, take bigger risks, move fast and break things. And that’s what we’re exploring today. While foolproof strategies to newer, disruptive threats are still unknown, creating innovation-driven divisions within a company may just help you solve the Innovator’s Dilemma.

In today’s episode, you’ll hear from:

Beth McEntee, our own Senior Editor
Jeff Loomans, Senior IT Manager at Vermeer Corporation
Neil Caron, VP of Product at Gartner
Sherif Mansour, Product Manager at Atlassian

Together, they’ll talk about how each team is pursuing a startup-like strategy to innovate and how it plays into the larger organization.

If you’re short on time, here are a few quick takeaways:

When you focus on learnings, not tangible customer outcomes, innovation groups can be free to take bigger risks and try new, innovative ideas.
For innovation hubs to be successful, the leadership must clearly articulate the vision and create space within that vision for innovation to happen.
Innovation hubs have the best of both worlds – the agility of a startup and all the resources of the parent organization (authority, expertise, data, customers, etc.).
Typically, third-party tools from the parent organization come with many stipulations around usage and governance. Giving the new team ownership of their tech stack boosts innovation.
Early on, maximize your learning speed. As you get to a problem-solution fit, it’s time to think about how to go forward with the common standards and tech stack of the organization.

If you enjoy our discussion, check out more episodes of our podcast. You can follow on iTunes, Spotify, YouTube or grab the RSS feed in your player of choice. What follows is a lightly edited transcript of the episode.

Innovator’s Dilemma

Liam Geraghty: Hello there, and welcome to Inside Intercom. I’m Liam Geraghty. Forgive me – I’m going to start today’s episode with a quote. It’s from Thomas Edison. He once said, “There’s a way to do it better – find it,” which, for me, neatly sums up what today’s episode is all about. Innovation, or more specifically, innovation units. Depending on where you work, some people call them innovation labs or innovation hubs, but whatever you call them, that’s what we’re discussing today with Intercom Senior Editor Beth McEntee. Hey, Beth.

Beth McEntee: Hey, Liam.

Liam Geraghty: So, you’ve been talking to some of Intercom’s customers who have innovation units.

Beth McEntee: Exactly. I’ve been chatting to our customers Gartner, Atlassian, and Vermeer about the benefits of innovation units and adopting next-gen technology like Intercom.

Liam Geraghty: It sounds like we might be in the area of disruptive innovation.

“In order to safeguard against disruption, incumbent companies should create a separate division within the organization to explore a new disruptive model”

Beth McEntee: You’re not wrong. Disruptive innovation was a theory put forward by Clayton Christensen, the famous American academic and business consultant. He theorized that large, established companies, often known as incumbents, can become too focused on building better products and services for their most profitable customers and end up overlooking smaller customers in the process. When this happens, an opportunity for disruptive innovation presents itself, which, according to Christensen, is when a smaller company identifies an opportunity to enter at the bottom of the market and serve those overlooked customers before moving upmarket and challenging the established business.

Liam Geraghty: How could an established company safeguard against this kind of disruption?

Beth McEntee: Well, universally effective responses to disruptive threats remain elusive, but Christensen believes that, in order to safeguard against disruption, incumbent companies should create a separate division within the organization to explore a new disruptive model. And that’s why so many companies have set up innovation units.

Liam Geraghty: Have companies been successful in setting them up?

Beth McEntee: Quite a few have. Perhaps the most famous example is when Steve Jobs created an innovation unit with the original Mac team. They became known as Pirates within Apple, funnily enough. They worked in a different building than the rest of the company back in the early eighties. Completely separate. And he repeated a similar trick with the iPod two decades later. Clayton Christensen’s book, The Innovator’s Dilemma, was actually on a list of Steve Jobs’s favorite books. And there are loads of other examples of companies that have set up innovation units. Everyone from Walmart, number one on Fortune’s list of the world’s largest companies by revenue, to Starbucks and NASA.

Breaking the rules at Vermeer Corporation

Liam Geraghty: So, you’ve been talking to some of Intercom’s customers about their experience setting up and running these kinds of units.

Beth McEntee: I have. The first person I spoke to is Jeff Loomans. Jeff is the Senior Manager of Technical Excellence at Vermeer Corporation. They manufacture equipment that serves the industrial and foraging industry.

Jeff Loomans: Vermeer’s been on a journey when it comes to technology and digital products. We’ve been given the opportunity to step into a space that’s a little bit new. Our IT organization has traditionally been that command and control-type unit controlling the risk that technology brings into the organization. Vermeer has the need and desire to turn technology into a competitive advantage, and we’ve got a cultural barrier to overcome there. We have history and a lot of people’s mindsets that prevent us from jumping the gap between where we’ve traditionally been as an organization in the space of technology, and where we want to go.

Beth McEntee: And that’s where the innovation unit comes in.

“You’re set up in an environment where you take those guardrails off and say, ‘Okay, don’t be afraid to try new ideas. Don’t be afraid to fail along the way’”

Jeff Loomans: I think it’s a really great opportunity that these units have to push into something new and different, to break down some of the traditional barriers they would run into. In large corporations, there are usually a lot of rules, regulations, or traditions in how we typically solve those types of problems, and these innovation units have the opportunity to discover something new without those traditional guardrails in place.

Beth McEntee: And it’s really interesting. When you’re talking about how these innovation units are breaking down traditional rules and regulations, how do you think that autonomy fuels innovation?

Jeff Loomans: It gives team members the freedom to try something new. You’re set up in an environment where you take those guardrails off and say, “Okay, don’t be afraid to try new ideas. Don’t be afraid to fail along the way. Don’t be afraid to use technology in a new or different way.” When you give people that freedom and get them in that mindset, that’s where innovation can grow and you see truly innovative ideas coming out of that working environment.

Beth McEntee: When you talk about the tools and technology these teams use, it sounds like it’s important that these teams own their own tech stack rather than inheriting the tools of the parent corporation.

Jeff Loomans: Oh yeah, totally. Traditionally, those tools that come from the parent organization come with a lot of stipulations: “This is how we use it, this is the team that sets it up, this is the team that has oversight or governance of those tools.” That slows down your ability to create and make changes. And giving the team ownership of that tech stack allows for the speed of innovation we’re looking for.

“‘I’m going to give them the outcome we’re going after, but also the freedom to innovate their way into the outcome.’ And there’s a bit of trust that goes in with that”

Liam Geraghty: Listening to Jeff talk about innovation units and the relationship with the larger company, it strikes me that, at times, it must be like crossing a tightrope.

Beth McEntee: Totally. I asked Jeff how he balances that autonomy and still aligns with the rest of the organization.

Jeff Loomans: I think this question is one of the hardest to answer. Those two things collide with each other at so many levels, and we’ve definitely experienced that as we stepped into this space. But to me, the biggest thing that makes it successful is if leadership can give a clear vision of where they want to go, of what they want to do, and then create space within that vision for innovation to happen. I think we struggle when that vision isn’t articulated clearly upfront, and the teams don’t fully grasp why they are creating the products.

On the flip side, it’s up to the organization. It’s a little bit of a leap of faith from the organization’s perspective to say, “I’m not going to give a clear path for this team. I’m going to give them the outcome we’re going after, but also the freedom to innovate their way into that outcome.” There’s a bit of trust that goes in with that, and it takes a lot of faith from the organization’s perspective to take the reins off of those teams. Those are the two things that I feel are the most critical – clear vision from the leadership of the outcomes we’re trying to achieve and really giving those teams the freedom to try things that may or may not work.

Riding different motions at Gartner

Liam Geraghty: So Beth, I know you also spoke to Gartner.

Beth McEntee: I did. Gartner is a tech research and consulting firm. They deliver actionable, objective insights to executives and their teams. I spoke with their VP of Product, Neil Caron, about Gartner’s foray into innovation units. Theirs is called Buy Smart, and it’s actually what Neil joined Gartner to work on.

Neil Caron: I joined Gartner back in March of 2021, and I joined for a specific reason – to essentially build a SaaS platform inside Gartner. Gartner is a publicly traded company, it’s been around for quite some time, and it’s a really powerful brand that delivers value really, really well. But the reality is the way we deliver value to the market isn’t necessarily the most innovative or the best way. So we stopped and said, “Hey, if we were to reinvent Gartner today, how would we do that?” We would do more of a tech-first approach and make it more of a SaaS platform, similar to Monday and Asana. That’s what I’m here doing.

Beth McEntee: Neil has that experience in innovation across a wide variety of companies. He started doing this at an innovation group at barnesandnoble.com, building e-tech book platforms for the higher education market, then for a tech startup, then a tech agency, and now with Gartner. He says innovation units can be a little dependent on the organization and the domain.

“In innovation, the currency of progress is measured by learnings. With the mothership, it’s quite different – the currency of progress is the typical revenue, growth, retention, et cetera”

Neil Caron: At a high level, the value of an innovation group is to be able to take a moment and say, “Hey, we’ve got a very powerful traditional company that is optimized to drive value in a particular way, and all of the motions in the operations are optimized to be able to do that very purposefully.” And as a result of that, over time, as the company grows larger and larger, the culture becomes more ingrained, and operations become more hardened to work in a particular way. As you start to scale employees, it becomes naturally more challenging to innovate because, by design, it’s just not the way they’re organized. And so, injecting innovation groups that have some autonomy from the rest of the organization to operate a bit differently gives companies an opportunity to essentially place bets no differently than a VC would with startups, but with the backing and the power of the company behind it.

Autonomy is absolutely key for a couple of different reasons. The first is that our motions are different from the mothership. The currency to measure progress is very different in an innovation group versus the mothership. In innovation, the currency of progress is measured by learnings. With the mothership, it’s quite different – the currency of progress is the typical revenue, growth, retention, et cetera. The motion and rhythm of an innovation group are going to be dramatically different from a well-run organization as well. In innovation, there are ebbs and flows. There are moments where we unlock major obstacles that catapult us forward, and there are other moments that set us back. Two steps forward and one step back, if you will. That’s the nature of the business. You have to be comfortable with that, and you need to have the space to be able to do that.

The mothership, however, is designed to tune efficiencies and grow incrementally. It may not be wholly accurate to say this, but one way to think about it is that, with innovation groups, there is an opportunity to grow at more of an exponential rate, either forward or backward, whereas traditional companies are usually more linear. And so, in many ways, autonomy creates space for different motions to operate at a different pace and to be able to be measured differently. Powering that is the culture of the working team, which is fundamentally different than the mothership culture.

“First of all, getting saddled with historical tech debt is just a horrible way to get started. It’s a total morale killer”

Beth McEntee: How important is it for these teams to own their own tech stack rather than inherit the tools of the mothership?

Neil Caron: Creating your own tech stack is table stakes, and that’s what we’ve done here at Buy Smart. First of all, getting saddled with historical tech debt is just a horrible way to get started. It’s a total morale killer. So, being able to start from scratch is absolutely key. But there are also things like DevOps processes, which, at the mothership, are going to be designed for corporate governance. They’re usually supported by independent teams, and working with all those teams is going to require more coordination and longer cycles to be able to get things done.

The third thing is third-party tools. The third-party tools that work well for a well-tuned company aren’t always necessarily the right fit. Sometimes, some of those tools are just antiquated and haven’t been modernized because a whole organization has rallied behind them and built processes, and there’s a tremendous investment and inertia behind them. But sometimes it’s just overkill. When you’re starting something in the early days, something leaner and easier to manage to be able to gain some of those learnings as I mentioned earlier is much more critical than having the full robustness of some really, really large and sophisticated tools that’ll end up being more harmful than helpful.

Beth McEntee: And I guess that also puts innovation teams in a position to be able to adopt next-gen tech that you might not be able to otherwise.

Neil Caron: Selfishly, I want to leverage the best tech stack that will help us accomplish our goals, and they’re going to be a little different than the mothership’s because, from a maturity standpoint, we’re in the earlier days. There are so many amazing tools out there to help companies at earlier stages of maturity, and we have an opportunity to try out those tools, find success behind them, and in finding that success, we have an opportunity to be the tip of the spear for the rest of the organization, to be able to demonstrate the types of tools that we have found to be successful and where there might be opportunities for integration with the rest of the organization. And that is happening. There are multiple tools that we have led the charge with that are a bit more modern in terms of implementation and maintenance cost and are leaning into some of the principles that we try to adhere to as an innovation group. We’re a lean organization that’s going to try to rely as heavily on modern tools as possible to be able to automate things that, in the past, humans and teams have managed. We also take more modern approaches.

A lot of it is just that. The same job to be done has existed for 10 or 15 years, but a lot of the tools in the market today have taken a more modern approach that has enabled more automation and less work on the actual team. And hopefully, in addition to that, more insight and more value on the outcome.

Beth McEntee: It sounds like being within a large company also gives you advantages that a startup might not have.

“We’ve got access to content, we’ve got access to data, and more importantly, we’ve got access to customers of any shape and size”

Neil Caron: Absolutely. One of the things that attracted me so much to Gartner is all the different assets we have available. The first point is fundraising. I would argue that fundraising is a bit easier. I don’t have to go out and convince a bunch of angel investors and VCs to fund us and lay out how we’re going to use that money or when that run rate is going to run out.

Two is domain knowledge. There’s so much knowledge and expertise inside the organization. Even though we’re innovating and building something a bit differently, obviously there is a strong overlap in the domain. We’re going to be building a product within our domain. And as a result, there are lots of assets that we have access to. We’ve got access to content, we’ve got access to data, and more importantly, we’ve got access to customers of any shape and size. So when we go out and do discovery and research, and when we’re doing early concepting of our products, we have access to endless customers to reach out to and gain those insights. And when it comes time to go to market, we’ve got a brand and a customer base to accelerate our early momentum. And then, we’ve got the operation of sales and marketing groups ready to lead that charge for us.

Decentralizing innovation at Atlassian

Beth McEntee: The final person I chatted with was Sherif Mansour, Product Manager at Atlassian.

Sherif Mansour: I perform two roles. I’m Head of Strategy for Atlassian, and I’m also launching a new product right now, so I’m head of one of our new products. I’m having a lot of fun.

Beth McEntee: Atlassian is a software company that develops products for project managers and software development teams. And their innovation unit is called Point A, although they don’t call it an innovation unit, they refer to it as a product incubator.

Sherif Mansour: We started that incubator almost two years ago now. We have an allocated portfolio of Atlassian’s people, teams, and money to work on new product opportunities, and that’s called Point A. But there are many other innovation programs across the company. That’s just one of them.

Liam Geraghty: So they have a few of these?

Beth McEntee: Yeah. And Sherif shared Atlassian’s history of them with me.

Sherif Mansour: I’ve been at Atlassian for nearly 13 years, and about six or seven years ago, we created a Central Innovation team, and we realized that it actually sent the wrong message to the whole company, and it didn’t create the environment we were after. All of a sudden, the perception around the organization was that “Hey, it’s someone else’s job to innovate, not mine.” And the people in the job felt an enormous amount of pressure of, “I am the only innovation unit.”

“We’re trying to create these avenues where people can feel like they can innovate in every aspect of their job, not just a central team producing new products”

Since then, our thinking’s evolved quite a bit and is more around, “Hey, if we have the mental model that innovation is everyone’s job, how can we involve this traditional perception of an innovation unit?” And from there, a whole bunch of other things happened for us inside Atlassian. Many organizations have 20% time, but we have a thing called “innovation week”, where every team that works on a product, at the end of an epic [a large body of work] – a few months or a few weeks of work, depending on the size of the epic – will take an innovation week and everyone in the team can work on anything they want.

Liam Geraghty: Oh, we do that here at Intercom. We call it wiggle week.

Sherif Mansour: Wiggle week.

Beth McEntee: I love that name.

Sherif Mansour: I love it. We also have a company-wide quarterly hackathon and our new product incubator. We’re trying to create these avenues where people can feel like they can innovate in every aspect of their job, not just a central team producing new products.

“You don’t have to get to a tangible customer outcome every single time. All you have to do is share a learning. And all of a sudden, people are willing to take more bets with their time”

Beth McEntee: I was going to ask you how that autonomy fuels innovation, but given that you’re moving to the mental model of innovation being everyone’s job, how does giving autonomy to everyone in the company fuel innovation across Atlassian?

Sherif Mansour: There are three things that popped into my mind. The first is that the autonomy we give people often comes with a relaxation of constraints. The relaxation of a constraint might be time, but what it typically is is you don’t have to deliver anything. You don’t have to get to a tangible customer outcome every single time. All you have to do is share a learning. And all of a sudden, people are willing to take more bets with their time, take bigger risks, and capture more learning. It helps with psychological safety. And so, what we celebrate in our new product incubator or in our innovation weeks is the learning.

The second thing that popped into my mind is that autonomy also creates a bit of wonder in someone’s mind. When you have that space to wonder and you’re not working sprint by sprint or towards a deadline, that space and that mental model of wondering and “what if” scenarios fuels innovation.

And the third thing, which is probably the most obvious and arguably the most important, is that, hopefully, these teams are cognitively diverse and have people working from all sorts of backgrounds with different mental models and thoughts. That gives them a bit of fire to explore different things or a problem from different perspectives.

Tech stack alignment

Liam Geraghty: What did Sherif have to say on Point A’s tech stack?

Beth McEntee: Well, Sherif said there’s still an overall desire to ensure they have the appropriate number of tech stacks. If every single team is using a completely different technology, it’s going to be hard to support customers and transition between teams. But specifically about Point A, their new incubator, he had this to say:

Sherif Mansour: Our new incubator splits work into phases. There’s a bit of a wondering phase and an exploring phase, where you’re trying to learn more about the problem and look at how we might solve it. In those two phases, it’s not important at all. Teams can choose whatever they like. The specific product I’m working on, Atlas, was built because one of the founding engineers who worked with me knew a particular technology. It wasn’t Atlassian-standard technology and it was totally fine because the goal was to get to a learning outcome as quickly as possible. So when we’re wondering and exploring together, being on a standard tech stack is not required at all.

“One of the things we’re doing in the new product incubator is looking at the tools we use across our established products. Do they need a refresher? Should we try different tools?”

The next phase, which we call the “make phase,” is when you have confidence in your problem-solution fit, and you just need to take it into production and build it. There, we do require teams to go into a set of tech stacks for support, security, reliability, scale, mobility between teams, and all that stuff. But the choice we have as a multi-product vendor is pretty large. Many products in our portfolio have been written in different tech stacks, so it hasn’t been too much of a problem for us. The quick summary is: early on, do what you can to maximize your learning speed. We’re really all about velocity. And as you get to your problem-solution fit, you should think about how to go into some common standards.

One of the things we’re doing in the new product incubator is looking at the tools we use across our established products. Do they need a refresher? Should we try different tools? And so, Intercom has been brought in, we trialed it in Atlas first, and now three of the other new products are using it as a tool to look at how we can scale contextual messaging and customer onboarding and support as well. And so, we’ve been using it in the new product incubator. It’s been great. I’m loving it. We installed it a year and a half ago, and it’s been awesome.

“It doesn’t matter which tool you use, as long as we’re all rowing in the same direction”

Beth McEntee: That’s great. I was going to ask how you balance autonomy and alignment with the rest of the organization. It sounds like it’s really moving into that phase of adopting the more Atlassian-standard tech stack.

Sherif Mansour: Yeah, it’s funny. The product I’m working on right now, Atlas, is trying to enable teams to work with autonomy and alignment. And the irony of this conversation is that the product we’re working on right now is a result of teams choosing to work in their own ways. And we see that trend happening everywhere in the market – I’m sure you’re seeing it as well.

But if we believe that teams are best equipped to decide on what tools they want to use for their job, all of a sudden, we have a different set of problems to solve. How can we let these teams choose their tools while remaining aligned with the rest of the organization? And I think the solution to the problem is largely around common vocabulary between teams. Every team needs to have a shared vocabulary around what they’re doing, why they’re doing it, what success looks like, and how it’s connected to a broader outcome. That common vocabulary could be practiced through a set of spreadsheets that get emailed around, et cetera. We’re working on Atlas to solve this problem. But it’s really just about letting teams choose the tools they want. The outcome the organization really cares about is alignment with the rest of the organization. It doesn’t matter which tool you use, as long as we’re all rowing in the same direction. That’s the most important thing.

Liam Geraghty: I love all these different approaches.

Beth McEntee: Yeah, it’s been really inspiring to hear everyone talking about how they approach innovation units or incubators, or whatever you’d like to call them. You can hear the passion and the energy for innovation when they talk. And since we started with Jeff Loomans from Vermeer, I thought we’d wrap up with him today. This is how he summed up their ongoing innovation journey.

“Excitement is definitely building. People see the potential for these teams and understand the innovation that can come from them”

Jeff Loomans: I think it’s going to get easier for us. We’re new to this space, and we know that, yes, we want to take the traditional guardrails away and do things differently. We didn’t have a clear understanding of, “this is how we’re going to work”, when we started this journey. We weren’t able to paint that picture very clearly because we didn’t know where it was going to take us. We’ve seen it play out with our first couple of teams and I think we have a much clearer vision of, “this is how we want the teams to operate.” Excitement is definitely building. People see the potential for these teams and understand the innovation that can come from them. As we look forward, I think there’s going to be a lot of excitement, and a lot of people will want the opportunity to join us in this space.

Liam Geraghty: Beth, thank you so much for that.

Beth McEntee: Anytime.

Liam Geraghty: And special thanks to Intercom customers – Jeff Loomans of Vermeer, Sherif Mansour of Atlassian, and Neil Caron of Gartner. That’s it for today, but we’ll be back next week for more Inside Intercom.