Johnson Controls, the Wisconsin-based building and energy technology company, has been innovating since it was founded by Warren Johnson in 1885. Johnson was a college professor frustrated by his inability to control the temperature of his classroom, so he invented the first thermostat and temperature regulation system for buildings. Today, the $37 billion company has 130,000 employees, and is in the midst of a mega-merger with Tyco, the global fire and security provider.
In recent years, Johnson Controls has developed a new approach to treating and funding new ideas more like startups — and also keeping them separate from the existing business units.
“It’s really driven by a desire to accelerate growth,” say Chief Marketing Officer Kim Metcalf-Kupres, right. “The trends that are driving demand for our technologies and services are moving fast, and they’re moving fast on a global basis.”
The company opened an innovation center, below, near its Milwaukee headquarters in 2012. “The intent isn’t to fire up a bunch of science projects to go after,” says Avi Sahi, the company’s Vice President for Global Innovation. “All these things go through a rigorous process of selection based on the ability to prove that there’s a business case.”
One example is the company’s distributed energy storage (DES) technology — that is, batteries and digital control systems that let commercial building owners store electric power from the grid or renewable sources to reduce their costs and boost energy efficiency.
They grew out of an idea that emerged within the company’s power solutions unit, where Metcalf-Kupres was previously Vice President for Global Strategy, Sales and Marketing. “We started work on that in a very organic way in our power solutions business when I was in that business, and an individual on that team with a very entrepreneurial spirit and a lot of energy took on the task to be a champion,” she says.
After the project matured, it ultimately moved from the power solutions unit to become part of the company’s “innovation engine organization” reporting up to Sahi, who himself reports to Metcalf-Kupres.
“It has a budget of its own,” Metcalf-Kupres says. “It’s accountable to deliverables of its own, as if it’s a startup in the company portfolio.”
She explains, “What makes a successful, mature operating business hum in a very successful way is often at odds with the space and the flexibility that you need to have to explore areas of opportunity that are less mature and more uncertain.”
Pursuit, Realization and Commercialization
New projects at the company pass through three stage-gates. “When we’re talking about the formal gates of our innovation process, we talk in terms of pursuit, realization, and commercialization,” says Metcalf-Kupres.
The pursuit stage generally involves early assessments of the business and technical possibilities around an idea — “assessing strategic fit, ability to win, technical viability, commercial viability,” she says—and perhaps some early technical experimentation and prototyping.
If the idea seems viable, it’ll make it on to the realization stage— “a time-bound first phase of work to determine whether this is something we’re going to push into commercialization,” says Metcalf-Kupres.
Generally that phase lasts less than a year, she says, with the company probing different business models, building prototypes, testing minimum-viable product versions.
“We may be investing in some first-generation products and some piloting,” she says. “We may be partnering with some folks.”
Then, if the product moves into commercialization, Johnson Controls effectively approaches it as a venture capital firm or lender would, setting profit-and-loss targets to unlock continued funding, says Metcalf-Kupres.
How Funding Works
“The management team is the bank, and [each project team has] got to justify their existence based on achieving these earning points as they go,” she says. Ultimately, a project can be merged into an existing business unit, set up as its own business, sold, or formed into a joint venture with a partner company.
“We’re actually quite flexible, and I think it’s one of the strengths as a multi-industrial company that we have is our ability to flex in our equity models, and our organization models,” she says.
Since some projects that have already hit the market, like the distributed energy storage system, remain in the incubator, staff working on the project get the same “privilege of focus” they would at a startup, along with the support of the larger organization, like procurement and sales channels, says Sahi, right.
“DES is a product development innovation, which in this case has created a standalone product,” referring to the energy storage product. “We’re allowing the team to focus here on strategy, development, execution, sales and launch, because there’s value in being laser-focused on building this specific product.”
Promoting Innovation All Over
The company is similarly flexible about where these processes take place. Johnson Controls has the innovation hub in Milwaukee, and it will add a second as it builds a second headquarters in Shanghai. Other innovation projects taking place at locations throughout the world. Some take advantage of employees working within their particular business units, and some allow employees to leave their “day jobs” for a short term assignment on an innovation project.
“Or they can take a longer-term development assignment, such as the ones that are resident in our incubator right now, where those people are full-time employees of the incubator,” says Metcalf-Kupres. “It’s a great way to keep talent within a broader organization and allow them to continue to advance in their career.”
Keeping Eenior Execs in the Loop
Making decisions about which projects to prioritize, and when they’ve successfully made it through the particular gates, is part of Sahi’s team’s job, in cooperation with the heads of individual business units and the company’s executive operating team.
While some incremental innovations are handled purely within business units, larger-scale projects are often developed in partnership with the innovation team, which will typically assign a “coverage lead” to coordinate with a core team from the business unit.
“We do it in partnership with the business unit, all the way through,” Sahi says. “Together, they take it through macro level thinking all the way to ‘here’s what we should do—here’s how we should pilot it.'”
Sahi also speaks with the company’s executive operating team at least monthly, as part of the group’s regular meetings, to study and refine the company’s innovation pipeline and highlight individual projects’ progress, he says. And his team meets about every four to six weeks with the presidents of individual business units to go into more detail about projects that overlap with their areas.
“At the [executive operating team] level, we select a specific subset of projects to highlight based on the maturity and the advancement of the project,” he says. “At the president level, which is a separate meeting, it tends to be often more comprehensive.”
The business unit heads will look carefully at a project and decide whether to give it additional support, he says.
“For example, they can say, for the stage ‘X’ is in, let me give you half a million or a million dollars to prove it,” he says. “[Once] we have the proof, now if there’s a case to go further, that might be bigger resourcing in terms of money, that might be more senior level commitment of certain professionals or their calendar.”
And if that proof fails to materialize, or projects fail to meet growth milestones, the company is willing to wind them down.
“You can’t go after everything,” he says. “Choices have to be made.”