Activities to foster innovation often focus on the sexy-subject of product innovation (including Anthill’s SMART 100). According to Peter Bryant, innovation strategist and Senior Fellow of the Kellog Innovation Network, Australian businesses might be better off looking inward and using innovation as a tool to enhance operational efficiencies. It’s time to think inside the box!
The increased velocity of business, the disappearance of traditional barriers to entry and the exponential growth of the number of actors in the global ecosystem whose actions can have a consequential impact on a business demand that companies become truly innovative.
Innovation is about generating something that will either result in step change developments or continuous improvement initiatives. Importantly, whatever definition of innovation a company adopts, it has to be anchored in strategy, as this provides context and clarity for employees and for all stakeholders.
Innovation is about so much more than products and technology
Earlier innovation discussions, papers and examples focused heavily on product innovation, including the SMART 100. In particular, the development of new consumer products, such as the iPod, the Razr phone and other new technologies. However, to deliver maximum value, innovation should be focused on the core business areas of the company for which technology is a key enabler. At times, a breakthrough technology can become a driver for business change, but the default should be to focus on empowering the business. A good reference model for these core areas is:
- Business model
- Business processes
- Organisation architecture/methods
How does a company make innovation a sustainable part of the commercial fabric, versus just an other fad?
It is easy to talk about innovation and create impressive marketing statements. But for a company to make innovation a key part of its DNA that can be sustained through changing business cycles, the leadership must be committed to making the appropriate organisational and cultural changes.
This is where many companies become stuck, due to their unwillingness to make the necessary core changes. Innovative change is about leadership. Innovation must be communicated by the CEO as a key strategy, and s/he must become the key champion. IBM research has found that for innovation strategy to succeed, it must be orchestrated from the top. (Global CEO Study – Expanding the Innovation Horizon – March 2006).
The innovation strategy should be then backed up by an organisational design with mechanisms that give people the time, space, recognition and motivation that will drive the appropriate behaviour. Some of the initial change areas required to make a company more innovative are:
- Move from a hierarchical to a networked organisational structure
- Inclusion of innovation in job specifications
- Reward and recognition systems, including bonuses, awards and reviews
- Symbols – e.g. work spaces and branding
- A culture more tolerant to risk and associated costs
- Corporate language
To achieve sustainable innovation, a good practice is to develop an over-arching Working Model / Framework. This captures not only all the aspects of innovation, but also the key change mechanisms that together will drive many of the processes and change initiatives.
What role do external partners play in driving innovation?
Business leaders recognise that external collaboration is a key element in successful innovation. However, this ambition is proving to be difficult to execute in reality. Many companies, from GE to Safeway, are finding that it is a serious challenge to bring in the skills and the culture to deliver effective collaboration. By embracing collaboration and pushing its limits, any business can exponentially increase the resources and brain power focused on finding innovative ideas. For ideas to be fully accepted, a company must develop a culture that accepts ideas from any source and moves away from a ‘not invented here’ mentality.
Extensive collaboration also allows a company to absorb capabilities/ideas from a variety of sources within and beyond its industry’s ecosystem. This may involve collaboration with a wide variety of organisations; such as:
- University Research Centres
- Venture Capital firms
- Companies in adjacent industries
- Organisation networks
Two emerging trends in this area are the creation of internal innovation groups, which are specifically responsible for external collaboration (e.g. Procter & Gamble has created the role of Technology Entrepreneurs) and Corporate Venture Capital Funds (A Wharton School paper in Oct 2006 called this the possible Fourth Wave of Corporate Venture Capital).
Approaches to External Collaboration
The capability to successfully identify and leverage external sources of innovation, and introduce them into a business, can be achieved by adopting a five-stage process:
Sense: Where a company has a two-way mechanism/team (e.g. the Discovery Team) that understands key drivers/needs of the company’s strategy and can communicate those to the external world. External parties can then drive innovation towards the company and, likewise, that team can translate otherwise unrelated capabilities into an opportunity for the company. This team is usually on the periphery of a company and one of the tools used is that of a Corporate Venture Fund.
Source: When external organisations are identified and a relationship is engaged to bring that capability to the company. This can result in the formation of partnerships, consortiums or whatever arrangement makes sense for the given situation.
Adapt: This is when the capabilities, generally from different industries, are adapted to provide value to the target company. At this stage, the discovery team, the external party/parties and a target business unit begin to work together on a pilot.
Integrate: Begin to integrate the new capability into the existing platforms and processes, as applicable, so adoption can extend beyond the pilot. This stage is the beginning of the transition phase from the discovery team to the business.
Adopt: The transition is made from pilot to production and the new capability is now adopted within the business as a new solution.
Companies have adopted various approaches for some or all of these stages. For example, P&G’s Technology Entrepreneurs’ covers Sense and Source. BP’s Office of the CTO has a very successful approach for all the stages and a large mining conglomerate has successfully piloted an approach that allowed for the identification, adaption and adoption of a certain capability from the Oil and Gas industry. The latter two approaches highlight an approach to realising an opportunity to Source-Adapt-Integrate-Adopt a new breed of advanced technologies into new platforms and leapfrog entire legacy generations of capabilities. This can be considered as an aggregation of capabilities to deliver a potential game changer.
Corporate Venture Capital as a tool for sense and source
Corporate Venture Capital (CVC) is where a company sets aside risk capital to invest in emerging companies and ideas that have the potential to add value to the business. CVC has different goals depending on corporate circumstances, including:
1. Source of new products (i.e. outsourced R&D). This is most commonly found in the pharmaceutical and IT industries.
2. Identify emerging technologies and capabilities that have a direct impact on the strategic focus areas of the business.
3. Invest as a Limited Partner in an established VC Fund focused on a narrow area of company interest.
4. Monetise internal innovations – an emerging model initially seen in the healthcare field where the fund invests in spin-outs of internally developed products.
In the first three cases, financial return is secondary to the stated goal – it is all about adding value to the business by sensing and sourcing capabilities in the external eco system and by leveraging the most effective model in attracting and filtering a large volume of opportunities (i.e. the Venture Capital model).
The fund goal described in point two is the type that is most commonly emerging, as a tool for Sense and Source, among companies in a wide range of industries from technology, media, transportation, mining and oil and gas. Even Gazprom, the Russian oil giant recently announced a Corporate Venture Fund of $100m to invest in companies that have solutions that would improve Gazprom’s operational performance. Corporate Venture Capital is emerging as a vital tool for leaders in open innovation, enabling companies to see a range of solutions and capabilities that would not have otherwise been exposed to the company for years. Then, with effective internal collaboration, these can be leveraged into the business to create value and competitive advantage.Many critical success factors exist that determine whether a company can develop a sustainable innovation-based organisation and achieve innovation excellence.
It’s imperative for companies to become more innovative, as they face a competitive world that is vastly different from the one in which they have been operating. This challenges existing thinking and frames of reference. Those companies that excel at adapting to the new world and transitioning their organisations will be tomorrow’s winners.
Peter Bryant is founder and President of TransTech USA, and a Senior Fellow of the Kellogg Innovation Network, which is part of the world leading Kellogg School of Management. He has consulted to companies from the US, UK and Asia Pacific, including Rio Tinto, Ricoh, Peabody Energy, Barrick Gold, BHP and BP. www.transtechusa.com