The Benefits of Centralization for Innovation

Everybody has to be involved in innovation, but you do need someone who can coordinate activity and explain how the process works?

Innovation is broader than just the technical or technology functions; one should be concerned with the whole gamut from shop floor improvements to breakthrough innovations. In addition to company preferences, business pressures can create the need for a centralized innovation model.

For that, one needs to get buy-in not only from the product development people, but from the operations people who have to deploy new products, the marketing people who have to package them, and the sales people who take them to market. This should include all key internal stakeholders as well as customers. It has to be a balancing act. On one hand, innovation wouldn’t happen if organizations didn’t have a centralized group really focused on it and on the other, the innovation group wouldn’t prosper if it didn’t have broad company representation and inclusion in the process-ownership on all fronts.

Another point the report talks about is the role of teams in Innovation. Why have teams become an integral part of the innovation process, whether they start at the very top of the organization or are convened on the plant-floor of a manufacturing firm?

Implementing Innovation: The Innovation Team
The objective is to speed the trajectory of new ideas to the top of the organization. In about 40 percent of companies, membership of at least half of the innovation teams is global.

Strategies for success

Asked which activities have proven most effective in sustaining their teams, participants point to the impact of high potential employees. Evidently, human resource participants feel confident that the culture in their firms is supportive of teams/collaboration, with 63 percent reporting this is a minor obstacle.

Participants point to number of practices that have helped their teams prosper:

–Holding an annual planning meeting with business development, R&D, new product development, and marketing prior to respective budget planning cycle
–Organizing international expert groups/teams
–Using off-site meetings managed by a creative facilitator
–Having a documented approach to evaluating new product ideas to ensure that various opportunities can be compared
–Focusing on short life cycle projects (typically three to five months)
–Using reasonable stretch goals that lead to a consistent stream of innovative new products
–Offering leadership training for senior executives and diversity and motivation training for all executives

The Innovation Portfolio

Work on major product/service breakthroughs or efforts to create highly experimental, “disruptive” products, strategies, or models have been on the back burner over the past few years. Many companies have chosen instead to concentrate on process innovation and product/service enhancements or extensions. Still, executives in firms that are serious about product/service innovation strive to have a mix of projects in their portfolio.

Respondents report that over the past three years about 15 percent of their portfolios have been targeted to efforts that are “breakthrough” or even “disruptive” in nature. Breakthrough innovations may spawn entirely new products, services, or performance levels while disruptive innovation (e.g., the growth of the Internet), according to Clayton Christensen, upsets the prevailing business model or creates entirely new markets. Looking ahead to 2005, respondents hope to double their levels of breakthrough and disruptive innovation.

Among the sub-group of 25 firms supplying details on implementing innovation, about 40 percent use goals pegged to an annual level of investment in innovation (such as a percent of sales) or calculate the total revenue from new products introduced within a specific time span (e.g., two years or five years). A quarter track net profitability from new products introduced in a designated time span.

A recent study sponsored by the Industrial Research Institute tracked 12 research projects at 10 large industrial companies over an eight year period to pinpoint the criteria for “readiness” in the commercialization hand-off from the R&D operation into a business unit. The researchers found that companies make a preliminary assessment by looking at 14 dimensions in two categories:

Readiness factors

–Product/System development
–R&D-comfort level with pass-on
–Market development
–Sales force
–Receiving unit understanding/commitment

Other influences

–Clarity of competitive advantage
–Market entry strategy
–Human resource issues (for both the R&D team and the receiving unit)
–Informal support system
–Alignment of expectations

Many firms are contemplating changing their approach to promote more innovation, including:

–Creating an internal venturing capability
–Keeping innovation separate longer
–Realigning the structure and processes to make key people more market-facing
–Improving the alignment of business lines with R&D strategy and market implementation
–Focusing central R&D on breakthrough/disruptive innovations
–Creating individual business plans and responsibility for integrating innovations into existing product lines
–Appointing a global coordinator for each new service/solution

Tapping New Ideas

Sources for the experiences and ideas that spark innovation are vast, and come from both inside and outside the organization. Companies differ in how they gather these inputs, how they process them, and how new concepts make their way through the innovation pipeline to emerge as successful new products, services, or technologies.

Customer insights

In addition to gathering new ideas from universities, government agencies, and a host of outside sources, companies are applying a variety of techniques to glean insights from current and potential customers. The most frequently used methods to collect information are:

–Feedback from sales representatives and distributors
–Market research and satisfaction surveys of customers
–Input from meetings with customers
–Focus group results
–Customer interviews

Teams assigned to opportunity identification are most likely to gather input from focus groups, customer meetings and interviews, and ideas submitted by employees. In addition to these sources, they also receive market research findings and feedback from sales and distribution channels and from employees working at customer sites or facilities. Teams assigned to product/service development draw on the same sources and also use customer observation. R&D teams are equally reliant on focus groups, customer interviews and meetings, and market research but are less likely to receive feedback from sales and distribution channels or from employees who work at customer sites or facilities.

The highest priorities over the next few years for a majority of the firms are:

–improving key business processes;
–achieving high levels of revenue growth;
–developing extensions/improvements of current products and services; and
–using customer knowledge to improve their sales and marketing strategy.

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