While companies that place a high emphasis on creating new products, services, and technologies are likely to have a designated R&D unit, not all innovation comes from this source. In fact, at least 25% of firms in the services sector do not currently fund such a unit; and, among those that do have such a function, developments often come from more than one source, including units in key businesses-63 percent-and units in key geographic regions-34 percent.

How does a company’s structure-whether it is centralised, decentralised, or in transition-have a strong impact on innovation development?

Establishing a Framework

The Corporate Role in a Decentralized Organization

Each unit has its own embedded R&D department. To create a centralized unit for basic research requires people, skills, and an investment that would possibly be, beyond the firm’s resource base. Instead, the business units could conduct research that leads to incremental improvements.
–Look for breakthroughs
–Maintain a peer network
–Work with your firm’s venture group to identify technologies to buy and
–Concentrate on current and emerging markets and their perceived needs.

Business units can have a combination of R&D and innovation groups.

The innovation group could focus on understanding new markets and opportunities and on taking current brands into new product categories that are a high priority.
Although the corporate office generally does not become heavily involved in activities within the lines of business, some steps can be taken to emphasize the importance of innovation.

At one organization for example:

–The bonus system has been changed to emphasize attainment of innovation goals.
–Information is gathered quarterly on new product sales by regional line of business and compared to targets for increases as a percentage of total sales.
–A monitoring system is now in place to track R&D and other innovation-related costs.
–Innovation has a key place on the agenda at senior level management meetings, and an
Innovation Award ceremony is now part of the annual President’s Conference.

The Alignment Challenge

Not every firm aspires to organization-wide alignment, but many participants are reaching for this goal. Aligning the company around innovation remains a prickly problem.
The challenges include process integration of multiple new product groups, management of information technology resources to develop and support new product development, and integration of sales and marketing of products across major business units.
There is a phobia in businesses against a corporate innovation activity and therefore, aligned support from top management is needed. High-level backing is necessary because alignment requires working across a number of functions, whether within a specific unit, among R&D operations, between the corporate office and individual units, or across business
units. Also, in a cost-conscious environment, alignment may produce a tighter focus on strategy and greater efficiencies. But, more importantly, to the extent that significant innovation in an industry or market requires “convergence,” the need for alignment becomes crucial.

Participants in the survey report that they are utilizing IT tools and creating a number of collaborative entities, the most popular being cross-unit project teams.

Approaches to creating alignment

–how to leverage the company’s technologies and incubate both exploratory research and the early stages of product development.
–an internal Web site – to serve as a portal to outside databases and, via an extranet, which connects to business partners.

In a highly decentralized environment, resources tend to be consumed by doing development and innovation within the existing product line. You need to underscore the need for collaboration:
–Created cross-business marketing and technical councils responsible for market sensing as well as defining opportunities for potential products.
–Establish the position of “innovation champion”
   –float among the units,
   –gather the knowledge and tools the firm has developed to promote inter-unit collaboration and
   –help embed the knowledge within the organization.
–Set aside a separate funding pool for innovation, which could allow the company to
divorce the kind of risky, speculative initiatives that produce innovation from the firm’s standard reward system, which is economic-value based.
–Introduce a formal phase-gate process with defined steps for opportunity identification, testing concepts for feasibility, and determining marketability and compliance before a final decision is made.
–Convene innovation summits.

Innovation Councils

A high number of firms have a central coordinating body for innovation and all of those firms had created this body since 1999. The primary roles for these councils are:
–to carry out high-level reviews of new opportunities and to make the final decision on moving them towards commercialization;
–to approve resource allocation and
–to help spot new opportunities for the firm.

Other roles of Innovation Councils volunteered by individual firms include:
–sharing best practices,
–coordinating knowledge management and
–offering a platform for cross-business initiatives.

(Source: Conference-Board Report “Making Innovation Work: From Strategy to Practice” by Kathryn Troy.)