Archive for the ‘R&D’ Tag

Being a frugal innovator

Apple and Google recently created a buzz as they launched their latest phones with all sorts of new features.

Improved cameras, fingerprint sensors and gizmos to save battery life were among the offerings to win over the public.

Slick designs and major international product launches may make innovation seem like a sophisticated practice that’s easy for companies with big budgets and plenty of time, but what if you don’t have that luxury.
The reality is that some of the most successful innovators get significant results without outspending their rivals. For example, Procter & Gamble minimizes research and development (R&D) investment and time by getting product teams to tap into the creativity and problem-solving efforts of outside entrepreneurs, universities and start-ups.

Apple has launched some of the world’s most successful products despite spending less on R&D (as a percentage of revenues) than many of its competitors. And companies such as Amazon and Google have used quick, low-cost experiments to quickly gain consumer knowledge and to identify and scale winning ideas, while also to pulling the plug on white elephant projects.

Most companies need a practical approach to innovation that can be used regularly to get good results.

More than 15 years of client work and research has taught me there’s a middle way between ad hoc initiatives and building expensive innovation factories. We developed a system I call the Thrifty Innovation Engine (TIE), which offers companies an alternative approach.

It’s based on the view that innovation is simply fresh thinking that comes from inside or outside of the organization, combined with actions to create market results through higher revenue, or lower cost.

Here’s how the process worked for a software client. This firm’s approach to innovation veered from rushing emergency product upgrades for single clients to funding ‘new venture’ business units that looked well beyond a two-year planning horizon. Neither approach delivered the expected business results, but they did generate plenty of politics and expenses to boot. We helped the client implement a TIE – a 120 day innovation germination and commercialization process.

Phase 1 – 10 days

Assessment, priority-setting and getting a team together

This was vital, as management didn’t have a clear picture of spending, or accountability. A small team of product managers, programmers, financial analysts and marketers looked at ideas and bucketed them according to potential customer appeal, capabilities, financial returns and ease of commercialization. The team then chose five ideas for customer feedback.

Phase 2 – 20 days

Market validation

We introduced the five ideas to 16 strategic and prospective clients and four industry leaders through a series of sessions. Our goal was to find out how each idea met customer needs, what features were important and how emerging technological trends could be used. Two of the ideas generated significant customer interest and were placed in the commercialization pipeline.

Phase 3 – 75 days


A small and highly motivated group of programmers were dedicated to each idea, along with a budget and internal mandate. This wasn’t a sideline project starved for internal support. The core project group continued to be accountable and provide input but were told to use a minimalist touch. Low cost, speed and client consultation were guiding principles. For example, the team was encouraged to use lean methods such as open source tools. Each team also collaborated with the clients to minimize risk and assure market acceptance.

Phase 4 – 15 days

Final steps

The team reviewed the process and what they learned to fine tune the framework, which included committed resources, defined practices, metrics and knowledge management policies. A system was also set up to track the business results and customer feedback and to cycle these findings back into the TIE knowledge bank.

Developing an innovation engine like this won’t guarantee your firm becomes the next Apple or Google, however it can help your efforts become more productive and ensure your great ideas are market driven and not long shots.


Innovation from left field

Most companies are on the hunt for breakthrough ideas and technologies that will enable them to leapfrog competition. Increasingly, the big innovations are found outside of their existing products’ or technologies’ domains.  Usually this is a result of serendipity but it doesn’t have to be. New research out of Wharton Business School (published in the Knowledge@Wharton newsletter) outlines how creative problem-solving techniques can be used to bring new innovation to products and service categories.

There are many examples of innovation that have seemingly come out of left field.  Semiconductor firm Qualcomm’s unique colour display technology is rooted in the microstructures of the Morpho butterfly’s wings.  The cushioning in Reebok’s best-selling basketball shoe is based on technology borrowed from intravenous fluid bags. Design firm, IDEO, leveraged technology from a shampoo bottle top to create a leak-proof water bottle.   How can other firms efficiently find and exploit innovation from the outside?

Wharton management professor, Martine Haas and doctoral student Wendy Ham, studied how to harness ideas from the “periphery”.  Their conclusion — supported by our client work — is that there are two ways to bring in peripheral knowledge to advance breakthrough innovation: Idea transplantation and perspective shifting.

Idea transplantation is the leveraging of technologies or practices from outlying areas into core product domains, with or without some modification. This is what IDEO and Reebok did.   Perspective shifting occurs when a R&D team’s know-how or experience in a tangential area leads them see a problem in their core category differently, thus revealing new solutions.  The researchers cite the example of Israeli entrepreneur Shai Agassi and his mission to commercialize electric cars.  Agassi borrowed the concept of contract-based leasing from the mobile phone industry and applied it to battery purchasing and consumption, one of the barriers to consumer acceptance.

Both idea transplantation and perspective shifting rely on individuals paying attention to and filtering seemingly irrelevant information in a systematic fashion. This can be a time consuming task fraught with many false starts and dead ends.  Some of the challenges include information overload, not choosing enough peripheral domains to study, and neglecting the importance of idea filtering criteria.

As with other complex undertakings, using a disciplined analytical framework can help improve the chances of success.   The authors along with our innovation generation model recommends a number of strategies including:

Consider multiple external domains

Initially, there is often no way of knowing whether one external domain will yield breakthrough innovation.  The odds of success improve when the team considers a range of peripheral areas and where these might be compatible with the current technology set.

Naturally, companies that already compete in different product categories will be at an advantage (although internal silos may scuttle this advantage).  For single-domain firms, managers should look outside through open innovation strategies and regularly engage in collaborative outreach.  A word of caution:  studying too many peripheral areas can result in diminishing returns.

Focus matters

Since exploring new domains is not easy, companies can maximize the effectiveness of the effort by increasing organizational and individual focus like adding more people, raising the percentage of the day focused on key domains, and lengthening the mandate.

Yet, sustaining this focus can be a challenge.  Firms need to ensure their R&D initiatives have the appropriate internal priority and time to conduct a proper assessment.  Furthermore, managers can institutionalize  “patience” by tweaking management schemes.  Still, being focused is not a sufficient condition by itself.

Dabble outside

The Wharton study reinforces the problem-solving and brainstorming value of taking breaks and engaging in outside activities (like a hobby or project) while undertaking innovation-oriented work.  However, it is unclear how much outside activity is too much or too little to stimulate the identification of peripheral innovation. The research suggests that breakthrough innovation will be more quickly generated by input from seemingly irrelevant areas, such as creative industries, product design or entrepreneurship” – as opposed to fields that have “rigid problem-solving paths,” like engineering or accounting.

Some of the innovative companies we work are successful at bringing outside creativity in.  They maintain a variety of policies including deliberately looking for hires outside of their industry or technical domain; encouraging employees to pursue outside interests during company time, and teaching creativity and problem solving skills as part of corporate training.

At the end of the day, you often don’t know where the big idea will come from.  Firms that can be optimistic, patient and deliberate in their approach will maximize their odds of success. They should also be mindful that tapping peripheral innovation is as much about the journey as the outcome.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Opening up innovation

Hundreds of companies are pursuing open innovation strategies (OI) to kick start creativity and crack difficult R&D problems.  OI is a relatively new approach to fostering innovation.  Instead of relying solely on internal R&D, OI programs help firms leverage expertise and resources outside of the company.  In many cases, this has proven to be a smart and cost-effective way to become more innovative.  However, the reality can be very different.  Opening up your innovation strategy to outsiders is not always easy nor does it always pay immediate dividends. Managers seeking to maximize OI’s potential should first look to establishing the right management practices and program tactics.

Conceptually, OI is a more distributed, participatory, and decentralized approach to innovation, based on the fact that knowledge and problem solving today is widely distributed. The premise is that no company, regardless of its size and capability could innovate effectively and efficiently on its own.  There are two sides to OI.  The first is the “outside in” approach through which ideas and technologies are brought into the firm’s own innovation process.  This is the most popular type of OI.  The other, less commonly recognized approach is “inside out,” where a firm’s dormant or under-utilized technologies are disseminated externally, to be incorporated into others’ innovation processes.

Simply put, OI works.   Innocentive, a well-know OI services firm, found that in 30% of cases problems that could not be solved by experienced corporate R&D staffs were cracked by non employees. Other Innocentive research on problems broadcasted from 2001 to 2004 found that each question received (on average) detailed attention from more than 200 people and 10 solution submissions.

The genesis for OI was in the Open-Source software community, where thousands of programmers collaborate to develop and troubleshoot software code. In the past few years, the notion of Open-Source problem solving moved beyond software to industries as diverse as airlines, custom integrated circuits, pharmaceuticals, content production, and packaged goods. Companies like P&G, Whirlpool, 3M, Philips, and Eli Lilly have successfully leveraged OI to improve R&D productivity, increase the pace of innovation, re-purpose inventions and gain greater market differentiation. We have helped organizations successfully leverage OI strategies to address a variety of business challenges including identifying customer service fixes, brainstorming product names and finding new uses for spin-off technology.

Reaping the rewards from OI, however, depends as much on program design and process as it does from getting creative ideas.  To improve OI’s effectiveness, companies should consider how they can fine tune their strategy, culture and management systems.  Below are 6 best practices in designing and implementing a winning OI program:

Ready, aim, fire

OI must be aligned with corporate goals.  Managers should carefully consider where and when to deploy – and don’t deploy – an OI initiative.  Specifically, a firm should look externally for ideas and technologies that fit with their business model.  On the other hand, dormant internal ideas and technologies that don’t fit the model or corporate strategy should be monetized by releasing them to the outside world.

Engage the right players

The more diverse the people and entities canvassed, the more likely a problem will be solved or an idea germinated.  Here’s why. True innovation often happens at the intersections of different technologies or disciplines; individuals tend to link problems that are distant from their fields with solutions they’ve encountered in their own work.  Furthermore, OI should engage individuals beyond a user community or supply chain to include inventors, universities, research labs and start ups.  Managers should be mindful that these people can be influenced but should not be managed.

The question

Managers would be prudent to consider the maxim, “garbage in, garbage out” when it comes to defining the problem, opportunity or requirements.  If the “spec” is not clearly articulated, the OI outreach may not receive a sufficient number of good responses.  Accordingly, crafting the right pitch is part skill and art.  Too much or too little information will limit the number of quality and quantity responses.

OI inside

OI requires a supportive business system – process, structure, knowledge management and cultural norms – within the enterprise to identify opportunities, work with the contributors and manage the disparate activities.  This system should regularly encourage network communications and face-to-face interactions to foster awareness, collaboration and mutual trust.

Payment plus…

OI programs should provide reasonable compensation to the individuals for their contributions – if they are used.  However, managers should be mindful of two other proven behavioral drivers when creating participatory incentives.  First, many contributors seek peer or public recognition for their efforts.  Secondly, many people enjoy and have a passion for solving problems.

Focus on the prize

Ultimately, innovation commercialization and adoption is what really matters, and this depends on the efforts of employees and partners.  These vital cogs can not be ignored. Internal business owners and stakeholders like product managers, engineers, and project managers are critically important to executing the OI program and determining which solutions or ideas are worthy of further study and implementation.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Four secrets of innovation success

Before Silicon Valley, there was Bell Labs the R&D organization of the former telephone monopoly, AT&T.  For much of the 20th century, New York/New Jersey-based Bell Labs led the world in groundbreaking R&D that spawned some of the greatest inventions ever created.  A new book by Jon Gertner, “The Idea Factory:  Bell Labs and the Great Age of American Innovation,” documented the history of the lab and what companies can learn to kick start their innovation engines.

Among its many accomplishments, Bell Labs can take credit for many disruptive innovations that have impacted virtually every consumer and organization.  These include the invention of:  the transistor and semiconductor, the communication satellite, the silicon solar cell (precursor of all solar-powered devices), optical fiber, the UNIX operating system, the C programming language, foundational cell phone technology and the laser.  Importantly, Bell’s breakthrough thinking also crossed over into management practice. Their mathematicians were the first to apply statistical analysis to manufactured products, creating what is today known as quality control.

It would behoove managers to explore the secrets behind Bell Labs stunning success. Based on my 20 years of helping organizations innovate, I think they got 4 key things right.


Behind every innovative organization there is usually strong, consistent and visionary leadership.  At Bell Labs, the man most responsible for building a culture of creativity was Mervin Kelly.  Between 1925 and 1959, Kelly was employed at Bell Labs, rising from researcher to chairman of the board. His vision was to establish an “institute of creative technology” that needed a “critical mass” of talented people to foster a “busy exchange of ideas.”  Kelly provided the critical leadership and management practices that allowed innovations and a supporting culture to flourish.


The Bell Labs’ mantra could have been stated: to boldly envision the future, move deliberately and build things.  It was clear to everyone that the ultimate aim of their organization was to transform new knowledge into transformational things that can be commercialized.  Behind this credo was a recognition that the innovation process was serendipitous and that real breakthroughs took a long time. This required both management and researchers to exhibit patience – having the time to do what was necessary – and to be practical, working on things with a commercial focus in mind.


This institution employed some of the smartest people in America, purposely recruiting across many disciplines, thinking styles and roles.  They put them under one roof, giving them the freedom to create and the duty to support each other.  Providing this autonomy was critical in ensuring the researchers were empowered and not hamstrung by organizational barriers to creativity.  Forcing collaboration was essential to mobilizing the necessary brain power, breaking down information silos, and avoiding politics.  For example, every expert was required to mentor new hires in order to transfer their subject matter expertise and to reinforce the organization’s esprit de corp. Bell Labs would end up pioneering the development of cross-functional, cross-specialty teams working under one roof on major initiatives.  Although harmony and sharing were important values, there was also recognition that creative tension and project competition was useful in solving certain hard-to-crack problems.

Organizational dynamics

At Bell Labs, management used a variety of organizational strategies to encourage a busy exchange of ideas and to create a culture of collaboration.   For example, satellite labs were set up in the phone manufacturing plants to improve the odds of commercialization and to foster 3-way collaboration between the manufacturers, design engineers and researchers.  From an office perspective, the laboratories and common areas were physically laid out to ensure that people and ideas flowed freely and randomly.  The physical proximity of individuals was seen as important to driving collaboration; communicating via the phone was not enough.  In another case, there was an office open door policy (this before the era of cubicles) to encourage free-flow communications.

Two fundamental lessons can be drawn from the Bell Lab’s story.  First, to generate breakthrough innovation (as opposed to incremental improvements that are easily matched in the market) organizations must leverage both sides of the R&D coin:  basic research plus commercialization-focused development.  Second, innovation can just as easily happen with deliberate corporate teams as it could with young entrepreneurs working out of their garages.  Today’s dominant approach to innovation in IT – Facebook’s “move fast and break things,” and Google’s “gospel of speed” – is not the only way to produce R&D breakthroughs and winning products. Though technological revolutions happen quickly, they tend to evolve slowly.  Firms would be wise to spend the requisite time getting the technology, culture and products right.

For more information on our service and work, please visit the Quanta Consulting Inc. web site.

The best innovation strategy

It’s one thing for a company to prioritize innovation. It’s quite another to reap the rewards over the long run.  The hard reality is that most product innovations will fail the market test.  Our research has shown that a company can increase their R&D returns by better aligning their innovation initiatives to their core business strategies, management systems and cultural norms & practices.  A recent survey of global innovators bears out this learning 

In their annual survey of the top 1000 global innovators, Booze & Company looked at the relationship between strategy, culture and innovation.  Three different approaches to innovation emerged from the corporate feedback – Needs Seeker, Market Reader and Technology Driver.  

Many high performance firms such as Dell,Toyota and Samsung are Market Readers. They use innovation to keep up with, not outflank, competition in their core markets.  These enterprises take a cautious approach to innovation preferring to be “fast followers.” On the other hand, Needs Seekers like P&G, GE and 3M pursue customer-centric innovation strategies.  They actively survey current and potential customers about their existing or unmet needs in order to shape new products and services.  Technology Drivers like Google, Apple and HP let their technology direction and existing intellectual property dictate the pace and scale of their innovation.  Technology Drivers seek out first mover advantage with breakthrough products that redefines existing markets or creates new market space.

According to the research, all three innovation approaches were successful in delivering positive financial results.  However, the study found that the Needs Seekers had a superior approach to turning potential innovation into superior financial performance. Six of the top ten most innovative companies were Needs Seekers, although they represented only two of the ten largest R&D spenders.  This variation in innovation outcomes did not trace to R&D spending levels or prior success.  Rather, differences came down to how enterprises managed two critical organizational variables: how receptive were their cultures to innovation and how innovation efforts were aligned to their business and functional strategies.

Needs Seekers out-perform as a result of their deep understanding of the customer and innovation management expertise in areas like failure analysis and commercialization.   These firms combine excellence in customer research, product development and operations with tight strategic alignment and an innovation-accelerating culture.  They are also very open to collaborating with external organizations for ideas and technology.  Needs Seekers are passionate about delivering and marketing superior products that address customer needs and experiences.  

Because of management, resource and cultural factors, not every company can be (or wants to be) a Needs Seeker.  These organizations can be successful by borrowing from the Needs Seeker playbook and maximizing their own unique attributes.

Market Readers will drive innovation by staying attuned to local markets customers and competitors. Once a Market Reader detects an important product innovation hitting the market, they must be quick to replicate, and if possible, leapfrog it.  As a result, they require effective decision making and resource allocation mechanisms, agile product development and close partnerships with their supply chains.

Technology Drivers seek both incremental and game-changing product innovations. They fund both applied and basic R&D initiatives, looking to develop compelling platform technologies that can germinate new product categories and create legions of new customers.  To be successful, these companies must: have an ambitious, technology-inspired vision; foster creativity and technical excellence, and; encourage collaboration between R&D, marketing and product groups.  As well, Technology Drivers will regularly seek out exploitable ideas and innovations from outside their organizations using sophisticated Open Innovation strategies.

Although there are different paths to accelerating innovation, all firms can leverage the above best practices:  expert innovation management capabilities, strong familiarity with relevant markets, customers and technology ecosystems, cross-functional strategic alignment and an innovation-supportive culture.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Fix your culture to drive innovation

My most frequently asked client question in 2011 was around innovation.  Senior managers wanted to know: “What is the best way to foster innovation in my organization.” This came as no surprise. Ongoing economic uncertainty, relentless global competitiveness, sustainability concerns and the high cost of R&D has put innovation near the top of most corporate agendas.

My answer is as simple as it is complex.  In our experience, firms can drill deep into their customer’s needs, hire the best minds and allocate generous amounts of capital, and still fail to ignite the innovation engine. Though investment and ideas are important, delivering real innovation comes down to getting the “soft” factors right, such as a company’s culture, management systems and leadership.  

A new survey published in strategy+business magazine supports these learnings. The authors, Booz & Company, canvassed 600 innovation leaders from 400 companies on their innovation strategies, practices and results. For perspective, these high-flying B2C and B2B firms represented $182B in 2010 R&D spending. Below are some of their key findings, mated with our insights:

  1. Spending lots of money will not necessarily lead to more innovation.

High R&D funding does not correlate with financial performance. Whether the measure is absolute investment or R&D spending as a percentage of revenue, there is no relationship between the amount invested and the results it generates.  In fact, some notable innovation and financial leaders like Apple and GE tend to rank at the bottom of R&D spending tables.

  1. Innovation is expensive and must be effectively managed.

R&D spending has a large and growing bottom line impact.  Thanks to improving business confidence and growth prospects, 68% of respondents (across all sectors) increased their 2010 innovation spending to $550B, up 9.3% versus 2009 and 5.6% versus the 2008 pre-recession high. And, these investments represent only part of the picture.  All initiatives carry significant indirect costs such as management time, business risk and opportunity cost. As a result, CEOs need to remain diligent around innovation priority-setting, program ROI and commercialization challenges.

  1. Innovation goals do not account for the difference in financial performance.

Both financial leaders and laggards shared the same innovation goals. Specifically, “superior product performance” and “superior product quality” were ranked as number one or two by a plurality of more than 40% of respondents.

  1. Having an enabling and aligned organization is the key innovation driver.

Organizational enablement (i.e. supporting cultural attributes and strategic alignment) is strongly associated with superior financial performance.  Firms with a high level of organizational enablement (interestingly, only 44% of the total sample) outperformed the average firm in the study by approximately 15% in terms of enterprise value and by 8% in terms of gross profit.

Many companies do not fully support innovation, notwithstanding the substantial amount of capital deployed. For example, 36% of firms did not strongly align their innovation initiatives to their corporate strategy while 47% reported that their culture did not support innovation.  Ominously 20% of the respondents reported having no innovation strategy at all.

Our client experience has identified two other prerequisites for innovation germination. For one thing, an innovation mandate can only flourish when accompanied by supportive management systems – business processes metrics, scorecards, and capital allocation mechanisms. Secondly, corporate leaders must maintain a strong commitment to innovation in order to sustain project momentum, reduce conflict and ensure alignment across functions and lines of business. 

  1. Cultural and alignment enablers will vary by organization

Significant research and market experience underscores the critical importance of culture – a firm’s norms and practices that govern behavior – in driving long term financial performance.  Innovation-friendly cultural attributes would include tolerance for failure, a focus on the customer, silo-spanning collaboration, and openness to external technologies or ideas. Although most firms will agree with these enablers only a minority such as P&G, Google and 3M have been able to fully inculcate and leverage them.  Other companies seeking to be more innovative will need to consider transformational strategies like redesigning their organization or bringing in innovation through M&A or alliances.  

Importantly, the vital role played by culture and alignment is not impacted by the firm’s approach to innovation, for example, whether they are customer needs seeking, technology-driven or market-based. How these 3 innovation strategies stack up in terms of effectiveness and efficiency will be the focus of a later column.

The last word on the role of organizational enablement goes to Dover Corporation’s Soma Somasundaram:  “Poor innovation performance is usually not caused by a lack of ideas or aspirations.  What some companies lack is the structure needed to effectively dedicate resources to innovation.  It’s the lack of will to develop a strategy that can balance today’s need with tomorrow’s.”

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Drive innovation by unlocking middle management

For many companies across a variety of industries, the rate of product innovation is a major driver of competitiveness and shareholder value.  When high levels of R&D spending and new innovation strategies do not turn into product wins, leaders will naturally question how innovation is spawned, cultivated and commercialized.  While idea generation and marketing are crucial, one important way to increasing innovation may lie with the R&D process itself.  New research on the drug industry from the consultancy Booz & Co. suggests that midlevel managers may hold the key to improving the odds of innovation success.

Despite dramatically rising R&D spending over the past decade, drug companies have little to show for it.    Moreover, increased pharma consolidation has saddled large firms with bloated R&D departments that suffer from cumbersome bureaucracies and diseconomies of scale.  A variety of process, structure and collaboration strategies have been tried to improve R&D productivity – the ratio of R&D inputs to product outputs.  Unfortunately, most of these initiatives have not met expectations.  Not surprisingly, one industry leader dubbed the past 10 years the “lost decade.”

Booz studied R&D productivity in 15 leading academic-based pharmaceutical firms.  The study concluded that breakthrough innovation and problem solving occurs when individual scientists connect their own subject matter expertise to similar work being undertaken by their peers. One example of this was when Albert Einstein credited the discovery of his theory of relativity to his discussions with his peer, the engineer Michele Besso. 

Typically, organizations attempt to generate rich scientific interactions by executive decree, through traditional networking activities or by changes in their management systems, such as new measurement tools or reward schemes. Unfortunately, these strategies often fail to meet expectations, for a variety of reasons.  For example, in large companies the R&D leaders who set priorities and control resources are often too far away from the action:  the most creative scientists; high potential opportunities in technology adjacencies and; the mechanisms that generate deep and regular collaboration. Furthermore, even the most cutting-edge innovation strategies will suffer if the people implementing and managing them can not (or do not) exert the right kind of leadership.  I’ve witnessed these subtle organizational barriers in such diverse industries as consumer goods, software, telecom, aerospace and healthcare.

According to Booze, firms should focus on elevating the performance of middle managers in order to trigger serendipity-based innovation.  This key group has the mandate and ability to identify, connect and manage the crucial interactions between scientists, product developers and customers.  Business leaders can optimize middle management performance through a variety of measures, such as:     

Enable and empower midlevel leaders

  • Remove overlapping roles and responsibilities to avoid duplication and political strife while ensuring key activities are being executed;
  • Ensure senior, middle and project managers have the appropriate authority and autonomy to avoid decision making paralysis;

Optimize information rights and collaboration

Enhance the function

Improving middle management productivity is a tall order for any organization, but especially for those in dynamic, knowledge-intensive sectors. To be successful, senior leaders will need to adopt an innovation approach that combines talent management, organizational design and cultural tweaking.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Making Open Innovation work: the case of 3M

Open Innovation is a proven paradigm for generating higher levels of innovation in products, processes and capabilities.  As opposed to the “closed” nature of many company’s R&D efforts, OI looks to open up a firm’s innovation process to outside ideas, collaboration and partners.  Because technical knowledge is widely distributed and dynamic, organizations will not be as innovative when they rely entirely on their own research.  Instead, managers should actively search out and buy or license technology, patents or inventions from other companies, individuals or research institutes. At the same time, technology not being used in a firm’s business can be offered outside the company.  OI is not only about big science projects.  One of the most common applications is problem solving for challenging technical issues. 

Many market leaders like GE, Cisco, Adobe and P&G have successfully used OI to improve their products, reduce R&D costs, solve difficult technical problems and accelerate time to market.  One of the best exploiters of OI is the manufacturer, 3M.

In 2010, 3M was voted the World’s third most innovative company in a survey by consultant Booz & Co.  How does 3M use a paradigm like OI to regularly create successful new products and capabilities?  Fred Palensky, 3M’s Chief Technology Officer, shared some insights in a recent edition of strategy+business magazine:

  • 3M stresses internal sharing of new innovations.  New technologies and capabilities that are developed in one R&D centre must be shared – cross pollinated – across product lines, markets and technology platforms;
  • Cross pollination is enabled by a cultural trait known as “dual citizenship.” Employees are responsible both to their market and department as well as the global 3M technical community. Key people are often moved around to different sectors, roles and geographies enabling them to share ideas and skills while bringing them a holistic view of the business. 
  • 3M encourages regular collaboration with outsiders. For example, 3M’s R&D labs are presently collaborating with universities and business partners in over 300 projects.   To better address user needs, 3M has developed 30 customer technical centers that bring users directly into the product development process.

Palensky attributes 3M’s innovation success to culture, not structure or process.  OI has been practiced for years and is part of the firm’s DNA. According to Palensky, OI works because “everyone has skin in the game.” In particular, employees must spend 15% of their time outside of their area of responsibility, collaborating, visiting customers or brainstorming.

In our experience helping firm’s germinate innovation, strategizing on OI is a lot easier than making it work.  The following are some of our best practices:

Cultural considerations are paramount

Within closed R&D organizations, the “not invented here” phenomena is very strong.  Overcoming this requires managers to regularly reinforce a culture of external collaboration, information sharing and trust and back it up with reward schemes.

Management systems must align

Key elements like structure, information rights, roles & responsibilities and measurement systems must be congruent with an external-facing, sharing-based philosophy.

Seek and ye shall find

Serendipity is most likely to occur when a range of technical problems is exposed to a large number of diverse participants. Sufficient resources, time and mandate must be designed into the OI process: innovation discovery & synthesis, partner identification and relationship management.

Governance is critical

OI programs must be carefully designed to protect intellectual property, designate decision rights and reward distribution in advance.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

The ten commandments of germinating innovation

Increasing innovation is now the mantra of many executives as they seek to address key developments like sustainability and regulatory change or boost performance in areas like cost reduction or service levels. Considerable attention and resources is now being paid to identifying and implementing organizational strategies that cultivate product, operations and workflow innovation.  

My experience over the past 20 years – which is now buttressed by ample scholarship – is that it is easy to make innovation a corporate priority but it’s a lot harder to germinate it within the organization.  Typical barriers include an inhospitable culture, lack of leadership and sub-optimal management practices. 

Fortunately there are now best practices to fostering innovation in organizations regardless of industry.  Some of these include:

1.         Enable the employee

Innovative enterprises like 3M and Google require employees to spend a specific amount of time on “creative” projects even at the expense of their daily responsibilities.  These firms also design performance measurement and reward systems that reinforce innovation goals. 

2.         Break down organizational silos

Innovation flourishes when there is a rich exchange of data, learnings and technologies between business units, people and functions.  A variety of approaches including knowledge management tools and departmental transfers can help facilitate this cross-pollination.   

3.         Encourage diversity

To avoid groupthink and shared bias, innovative firms focus on hiring and cultivating diversity within their staff, project and management groups.  Diversity, in terms of intellectual approach, is also encouraged in critical areas like analytics and problem solving.  

5.         Create shared values

To take root within a company, innovation must become embedded within the cultural norms and practices.  This requires strong and consistent, top-down executive support as well as a solid business case and company-wide alignment.   

6.         Use stretch goals

Management can trigger innovation by setting aggressive stretch goals around revenue and profit.  When properly used, stretch goals harness a team or individual’s stress and anxiety to look beyond existing strategies towards breakthrough thinking.

6.         Evaluate realistically

Not surprisingly, typical short-term financial measures like payback and ROI are not suitable to evaluate unique innovations, particularly when key information like market size is unavailable.  At an early stage in the innovation project, other metrics like consumer appeal should carry more weight.  To avoid expensive failures, companies also need a gating process that quickly kills off poor innovations. 

7.         Aim for home runs but welcome the small wins

Home run innovation like Apple’s iPad can deliver major rewards but so can a number of smaller improvements, which together, can increase product value, streamline operations or reduce delivered cost.  Small wins also have the benefit of building internal momentum and nurturing organizational learning.  

8.         Engage outsiders

Given the speed of technological change and globalization, virtually no company can innovate by themselves anymore.  Savvy innovators like P&G engage academics, suppliers and customers around the world for good ideas.   As well, emerging open innovation models like crowdsourcing are bringing the ideas and thinking of the masses into the firm.  

9.         Focus on Commercialization

For many firms, innovation is only about R&D.  Insufficient attention is paid to getting the innovation to market in a timely, effective and cost-efficient manner. Truly successful innovators like Apple and GE fully leverage their ideas by being expert at commercialization including marketing, sales and product management.  

10.       Be patient

Innovation usually does not happen overnight.  The innovation process is often unpredictable and false starts are inevitable.   Furthermore, it often takes a long time to refine the idea and commercialize the innovation.    

Getting these elements right will create the right conditions for innovation to flourish.  However, some firms could still under-perform because of a variety of institutional biases and strategic misconceptions.  These will be discussed in an article next week.

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Accelerating Corporate Innovation

Corporate discussions around innovation often come in two parts. “We need to develop innovative products to beat competition,” followed by “true innovation is so costly and difficult to achieve.’  Is there a way to become more effective and efficient? 

One increasingly popular way is to open up your innovation process to external input and collaboration.  An Open Innovation model integrates a firm’s corporate R&D process with universities, start-ups, inventors, government and suppliers, creating a federated model of research, testing and collaboration.  In essence, corporations solicit and scour the work of scientists and organizations, both inside and outside their industry, for clever intellectual property (IP) they can use and reapply.   Once focused exclusively on cultivating homegrown IP, many corporate labs have now become surveyors, coordinators and integrators within an innovation ecosystem they created.

Many global developments have propelled this change including falling communication costs and the emergence of new collaboration technologies and networks.  As well, the pace of technological change in R&D intensive industries has quickened, driving up the costs, risks and difficulties of centralized and large-scale R&D.  Today, many firms (especially medium-size ones) have little choice but to collaborate if they want to stay in the forefront of product and process innovation. 

Some of America’s largest corporations have embraced open innovation including GE, Eli Lilly, HP and IBM.  One of the pioneers, P&G, launched its Connect & Develop initiative to improve the efficiency and effectiveness of its corporate R&D spending.  So far, results have been impressive.

The benefits of this strategy are considerable including lower R&D costs, reduced project risk, tighter integration with suppliers and quicker adoption of better technology.  However, there are some drawbacks to an open approach.  Coordinating and integrating IP is often messy.  Many scientists and managers are often reluctant to share their ideas, especially when they fear losing resources and control.  Finally, potential cost savings often evaporate when the firm has to pay high licensing and royalty fees to the inventor.

While the notion of collaboration is not new, the mandate, scope and transparency of the effort has increased. Open innovators have found a myriad of ways to link externally including: sponsoring scientific or granting contests; creating joint ventures with complementary non-profit labs;  participating in IP exchanges and; subsidizing university research.  Mundane but effective, P&G sends its product developers to trade shows and venture capital fairs as well as combing through patent filings.

The jury is still our about whether this innovation strategy is better than the alternative for most companies.  However, no organization, team or country can monopolise  innovation so an open approach is likely to be more productive and efficient.

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