For the existing business to be capable of innovation, it has to create a structure that allows people to be entrepreneurital. . . . This means, first, that the entrepreneurial, the new, has to be organized separately from the old and existing. Whenever we have tried to make an existing unit the carrier of the entrepreneurial project, we have failed.
One reason is that . . . the existing business always requires time and effort on the part of the people responsible for it, and deserves the priority they give it. The new always looks so puny -- so unpromising -- next to the reality of the massive, ongoing business. The existing business, after all, has to nourish the struggling innovation. But the "crisis" in today's business has to be attended to as well. The people responsible for an existing business will therefore always be tempted to postpone action on anything new, entrepreneurial, or innovative until it is too late. No matter what has been tried -- and we have now been trying every conceivable mechanism for 30 or 40 years -- existing units have been found to be capable mainly of extending, modifying, and adapting what already is in existence. The new belongs elsewhere.
This means also that there has to be a special locus for the new venture within the organization, and it has to be pretty high up. Even though the new project, by virtue of its current size, revenues, and markets, does not rank with existing products, somebody in top management must have the specific assignment to work on tomorrow as an entrepreneur and innovator. . . .
And innovative efforts, especially those aimed at developing new businesses, products, or services, should normally report directly to this "executive in charge of innovation" rather than to managers further down the hierarchy. They should never report to line managers charged with responsibility for ongoing operations. . . .
The best, and perhaps the only, way to avoid killing off the new by sheer neglect is to set up the innovative project from the start as a separate business.
The best-known practitioners of this approach are three American companies: Procter & Gamble, the soap, detergent, edible oil, and food producer -- a very large and aggressively entrepreneurial company; Johnson & Johnson, the hygiene and health care supplier; and 3M, a major manufacturer of industrial and consumer products. These three companies differ in the details of practice, but essentially all three have the same policy. They set up the new venture as a separate business from the beginning and put a project manager in charge. The project manager remains in charge until the project is either abandoned or has achieved its objective and become a full-fledged business. And until then, the project manager can mobilize all the skills as they are needed -- research, manufacturing, finance, marketing -- and put them to work on the project team.