Barriers to Innovation

Lucent telecommunications company knew that it had a wonderful research organization in the portion of Bell labs it had retained.  It also wanted to explore how it might do more with the labs and the research talent within.  Lucent thought that an internal VC could help new technology find another path to market, and it could also address the silicon paradox: companies most able to conduct research are the least able to profit from it.  To manage the balance between being entrepreneurial and not disrupting the innovation process, Lucent’s New Ventures Group emerged. The NVG consciously created what became known internally as “the phantom world”, which was a hybrid that was partly an internal venture capital organization and partly a business development activity within a large technology-based company – a space that enabled people and their ideas that were not ready to obtain outside VC to develop their ideas further within Lucent. The phantom world created a launching pad for ideas to move out of Bell Labs into markets outside of Lucent’s traditional business channels.

New Ventures Group helped Lucent to:

  1. Scout new ideas
  2. Address technical and market uncertainty involved in commercializing an early stage venture by carefully staging its investments in these ventures
  3. Reduce the Business Commercialization stage, which was very expensive and time-consuming

Lucent’s traditional commercialization process (without a new ventures group) provided many ways to correct “false positive” errors, where projects were initially judged to be promising, and later discontinued. However, Lucent’s traditional process did not address “false negatives”. Now, the NVG offered a process to deal with such “false negatives”, to loop back projects that were initially judged to lack promise, but actually turned out to be valuable.

Despite its achievements, the NVG model has been controversial nonetheless within Lucent. One issue is that the most important benefits of the NVG process are difficult to quantify.  Lucent cannot tell, for example, how much faster their technology has gotten to market as a result of NVG’s presence; nor can it determine how much its own sales have increased, as a result of the ventures that NVG has created.   When times are good and returns are high, this approach provides an additional path to market for underutilized technology, which can catalyze more rapid commercialization of technology internally in addition to creating new ventures. When times are bad and returns fall (particularly if they become negative), the costs of this approach rises, and the inability to quantify the strategic benefits makes the continuation of the approach problematic.

To read more about this, check out chapter 7 of Open Innovation (HBSP, 2003), by Henry Chesbrough!