Here is an excerpt from an interview of Simon Pryce by Tanuja Randery for the McKinsey Quarterly, published by McKinsey & Company. Learn how Pryce turned an aggregation of acquisitions into a cohesive innovation engine. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.
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Tanuja Randery: Innovation and intellectual property play a major role in Ultra. You established Ultra Labs, a growth accelerator. How do you make use of it?
Pryce: Between 17 and 20 percent of our revenue every year comes from development work. Sometimes it is funded development for customers, sometimes it’s money we invest in ourselves to develop capabilities to apply to future solutions. Ultra’s background is as an aggregation of acquisitions that were never fully integrated, and the transformation we are going through now is effectively integrating 30 years of acquisitions. We need to focus our investment in intellectual property and capabilities in the areas that we are good at.
Some capabilities and technologies span our businesses. For example, everybody is talking about big data, machine learning, and artificial intelligence. At its core, Ultra takes data that sensors pick up, usually in harsh environments, and turns it into information. We then send it somewhere so somebody can do something with it. We will continue to improve the sensors we manufacture, but where we will spend most of our time is improving the data those sensors produce and more effectively and efficiently turning it into information. That is an issue all of our businesses face, and therefore one of the reasons we created Ultra Labs was to create a cross-business capability in certain core areas. It stops us from inventing multiple solutions for the same problem. Where we can create modular solutions, such as modular machine-learning algorithms, we try to do that centrally and then adapt it to local customer needs or a particular situation.
The second area that Ultra Labs focuses on is innovation. It owns our innovation process. It pulls together skills and capabilities from across Ultra to work on unique problems that either many of our customers face or Ultra’s broader capabilities can help us provide better solutions. Thirdly, Ultra Labs is responsible for engagement with forward-thinking institutions within our principal customers, mainly the defense arena, such as DARPA strategists, to help us better understand what problems our customers will be trying to solve in ten or 15 years’ time. The accelerator is a conscious effort to isolate a group of people away from our strategic business units, to act as a service for those SBUs but also to identify and solve problems that cross those business units.
Randery: In our experience, two-thirds of business-building initiatives are not successful, and one of the reasons is the lack of specifically carved-out funding and talent. Often, the ventures end up being stifled by the mother ship or they have to be funded by business units, which creates a tension between the core versus the new business. How does Ultra Labs overcome that?
Pryce: It reports to our chief technology officer, who reports to me. It does not report to the business units. It has its own budget. It is treated like a business unit with specific objectives each year. It has five- and ten-year plans and it goes through the same quarterly operating reviews that business units do. Ultra Labs also can do some things the business units on their own would not do. Having done a two-week sprint on a particular problem, it may hand it off to one of the SBUs if we see a commercial possibility. It creates more business for those SBUs—it’s not an execution unit. But I absolutely understand the challenges others have faced in setting up these groups. We are not creating some sort of ventures hothouse. Ultra Labs is there to support the Ultra strategy and enable a more rapid execution of it. It’s making the core businesses more effective and allowing the core to evolve rapidly.
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Here is a direct link to the complete article.
Simon Pryce is the CEO of Ultra Electronics. Tanuja Randery is a partner based in McKinsey’s London office.