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Why Corporate Skunk Works Need to Die

Steve Blank, lecturer, Haas School of Business | November 12, 2014

In the 20th century, corporate skunk works® were used to develop disruptive innovation separate from the rest of the company. They were the hallmark of innovative corporations.

By the middle of the 21st century the only companies with skunk works will be the ones that have failed to master continuous innovation. Skunk works will be the signposts of companies that will be left behind.

 

In the 20th century companies could be leaders in a market for decades by just focusing on their core product(s). Most companies incrementally improved their products withprocess innovation (better materials, cheaper, product line extensions) and/or through acquisitions. Building disruptive products were thought of as “risky” and a distraction since it was not “core” to the company and did not fit existing corporate structures. Why make big bets if no one was asking for them and competitors weren’t doing so.

A few innovative companies did push the envelope. The way they did so was to set up “skunk works” to develop their most advanced, disruptive products. (IBM used the process to develop the IBM PC.) But it was Lockheed, then an aircraft manufacturer that coined the term and perfected the art. The Lockheed Skunk Works led by Kelly Johnson was responsible for its Advanced Development Projects – everything from the P-80, the first U.S. jet fighter plane, to the U-2 and A-12 spy planes.

Skunk works differed from advanced research groups in that they were more than just product-development groups. They had direct interaction with customers and controlled a sales channel which allowed them to negotiate their own deals with customers.

Decades before we were able to articulate the value of “getting out of the building” and the Lean Startup, the value in having skunk works controlling their own distribution was starkly evident. Other companies with world-class R&D groups built radical innovations only to see their company fumble the future and others reap the rewards (think of Xerox and the personal computer, Fairchild and integrated circuits, Kodak and digital photography, etc.) Common themes in these failures were, 1) without a direct connection to the customer advanced R&D groups built products without understanding user needs, and 2) the core of the company was so focused on execution of current products that it couldn’t see that the future didn’t look like the past.

a-12

CIA A-12 spy plane. Developed by Lockheed Skunkworks

Kelly Johnson’s 14 rules about how to manage a disruptive project described how to remove a small innovative team from the politics, policies, procedures and processes a large company had built to support execution of its core business (and its military customers had developed to procure large numbers of standard aircraft.)

With the vantage point of the 21st century, we can now see that a successful skunk works – separated from its corporate parent, with its own culture, in control of its own R&D and distribution channel – looked much like a startup.

But as successful as skunks works were to the companies that executed them well, innovation and execution couldn’t co-exist in the same corporate structure. Skunk works were emblematic of corporate structures that focused on execution and devalued innovation.

Until now.

Continuous disruption requires continuous innovation

In the 21st century market share is ephemeral – ask General Motors, Blackberry, Nokia, Microsoft, Blockbuster, etc. –disruption is continual.

Therefore companies need to master continuous innovation – the art of executing on core products while continually inventing new products and new businesses. That means that somehow we need to take the innovation that a skunk works removed from the core of the company and integrate the two.

Here’s how.

We need to realize that skunk works epitomize innovation by exception. But to survive companies need innovation by design.

We now know how to do just that. We can get innovation and execution to work side-by-side.

To start it requires board support and CEO and executive staff agreement. And recognition that cultural, process and procedure changes are needed to embrace learning and experimentation alongside the existing culture of execution.

I’ll provide details on how companies can organize this way in a follow-on post.

Lessons learned

  • Skunk were advanced/disruptive product groups organizational isolated from the rest of their company
  • Skunk works had control over their sales channel and had direct customer feedback
  • World-class R&D groups that didn’t control the channel often saw their innovation die internally
  • Skunk works looked much like a startup
  • Skunk works epitomized innovation by exception
  • Companies now need innovation by design – innovation and execution that work side-by-side
  • We now know how to do this

Comments to “Why Corporate Skunk Works Need to Die

  1. It is in this day and age possible for an enterprise to practice effective continuous innovation as you suggest, and to also use the skunk works model.

    Isolating a group within the enterprise can be useful or even necessary if the mission of that group is to explore fundamental changes and optimizations that would likely be rejected by the enterprise or cannibalized in their infancy.

    For example the enterprise might want to explore more efficient sales/distribution models, perhaps with a lightweight free offering aimed at a market different from the focus of the enterprise’s core sales team. Without isolation the users acquired through these efforts would easily be treated as sales leads for the core team, putting the radical experiment fully at risk.

    Once mature and defined, and once a new model has been proven, then the skunk works can potentially be thought of as a new division for the enterprise.

  2. no no no no. just no.

    the whole point was to build things, quickly in secret to fight a war.

    everything else, in an attempt to pretend to be important, is not.

    these things were built, in an attempt to prove if russians had what they said they had.

    not to sell stock or ‘the next best thing’ which is likely meant only to collect data and virtual advertising space; or otherwise everything that startups have been trying to do for the past 12 years.

    no other country out there is risking political warfare to steal intellectual property from apple or google. china already makes nearly all their hardware products in that country. its pointless.

    youve lost the whole point of it all. the military, needing an edge, leveraged a fantastic group of engineers, to disrupt politics. theres nothing to sell other than the defense of a nation.

    the things that skunkworks garners, are meant to fulfill very specific criteria. i.e. a SR-71 flies high and fast and is armed with a camera. its meant to outrun missiles. russian ones. what did it otherwise disrupt in the market? nothing. people continued, of that era, to buy other planes that did not travel mach 3+… the same goes for the U-2… it served a specific purpose.

    somehow youve lost the idea that skunkworks, a secret division of a defense contractor, is relative, in any way, to other commercial companies competing with each other for, simply, money…

    its a foolhardy comparison.

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