(Coauthored with Ken Gray, Director of Innovation, Caterpillar, Inc.)

The startup world has started to recognize that entrepreneurial teams based on the corporate divisional structure work poorly. Rather than building teams based on representation from each functional area (e.g. sales, marketing, engineering), it has become popular to talk about creating startup teams composed of a hacker, hustler and hipster (the hacker creates rapid prototypes, the hustler engages customer feedback to capture users, and the hipster frames beautiful user interfaces or connects the team to the important teams). Although this team structure works well for startups working with a blank canvas, it ignores the unique challenges faced by companies with established products and services. Consider the case of Caterpillar Inc. developing its 336E H hydraulic hybrid excavator.

As described in an earlier post, the Caterpillar excavator team had been under immense pressure in 2011 to develop a diesel-electric hybrid excavator. But after spending millions of dollars to develop a best-in-class diesel-electric hybrid excavator, a pivotal meeting with competitive hybrid excavator customers led the Caterpillar team to realize the product was doomed to fail just months before making the decision to scale up to production. Careers hung in the balance as leadership continued to push toward production on what could soon become (at worst) an expensive embarrassment, or (at best) a product customers simply would not want.

Some time before this pivotal customer meeting, a trusted engineer had approached Ken Gray, who was then the global product manager for large excavators, with a radical idea: why not create a hydraulic hybrid excavator? Rather than going to production with the expensive and complex machinery to convert hydraulic energy into electric energy and back again, why not rethink the entire system to capture hydraulic energy directly and re-use it? At first it seemed like a crazy idea, especially since Caterpillar had been so influenced by its proximity to the auto industry, which widely used the hydraulic-electric-hydraulic conversion process. But as the team started to explore the idea in a sequestered location near the Illinois River, it began to seem more plausible. Ken and a colleague had provided an old prototype machine, spare parts, and just enough budget to run a bare bones experiment for a small, passionate team to demonstrate that their idea would really work.

Ideas often arise from the diversity of the team involved in addressing a question. Along the way, another engineer, from a completely different part of the business, asked another critical question: rather than focus on capturing and reusing excess energy from the hydraulic system, why not start by focusing first on the diesel engine itself to run it at a more efficient point? "This hybrid stuff is cool, but is there a better speed to run the engine to help it use less fuel?" he thought.

A powerful question for sure... but would it work? For years, development of excavators has hinged on one key assumption: the engine needs to run at 1800 rpms to optimize the hydraulic flow, pressure and efficiency needed to operate the excavator. But asking a simple question, of whether the engine could run another way, led the excavator team to explore alternatives. In the end, they discovered that running the engine near 1500 rpm proved much more efficient in terms of fuel consumption.

At the same time, running the engine at lower rpm decreased the hydraulic pressure in the excavator, a serious problem that the Caterpillar team solved because one team member recalled a hydraulic accumulator system that Caterpillar developed over a decade ago and then shelved. This "new" technology allowed the hydraulic system to share pressure between pumps, rather than operate independently, thus conserving pressure. In the end this old technology, brought into the project by a well-connected team member, made the engine innovation possible.

In a very short period of time, with no budget, the team worked many nights and weekends to question their key assumptions, resurrecting and combining several technologies from the edges of Caterpillar to create the hydraulic hybrid excavator, which today accounts for nearly 1/3 of large excavator sales and outperforms traditional excavators by over 50%.

Although serendipity plays a role in everything, the team that produced the 336E H hydraulic hybrid excavator had a very purposeful structure that facilitated their success. Rather than hackers, hustlers, and hipsters, the hydraulic hybrid team were composed of what we would call: lunatics, experts, and connectors. The experts provided the foundational understanding of the core technology and also Caterpillar customers. The lunatics questioned the key assumptions and brought new technologies and approaches to the table. And the connectors brought the two groups together, while connecting them to willing customers and supportive leaders. Ultimately, it was the experts and lunatics that developed the hydraulic hybrid, but the connectors and experts commercialized it.

The Caterpillar experience matches our observations in other companies: in situations where you have established customers and knowledge, small teams composed of lunatics, experts, and connectors appear to succeed more frequently than teams composed according to the corporate divisional structure... or even the hacker, hustler, hipster metaphor. Of course, every situation differs, but there are a few core lessons from the hydraulic hybrid experience.

Lessons Learned:

  • Innovation teams in established companies should be structured differently than execution teams and even startup teams: lunatics, experts, and connectors work best
  • Teams need expertise in the core area, but empowering team members to challenge the core assumptions lead to the insights that create the most value
  • Diversity of thought is an essential ingredient in finding creative solutions to difficult problems. It's essential for the leader to find a way to keep contrarian ideas afloat. Had "Ken's" experiment not been running in parallel with the prime path, and had Ken assumed the diesel-electric approach was the only option, there would not have been a timely solution available for his customers. Worse yet, Ken may have had to either go to production with what customers were saying was the wrong solution, or would have had to defend to his superiors the indefensible decision to further delay introducing a sustainable excavator to the marketplace.