Transcript
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ExEcutivE GuidancE for 2012
Transormative Innovationregg tems Pesses
Sp Bekhgh ies
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Transormative Innovation Doubles New Product Sales
Current Year Percentage o Sales rom New Products
Transformative Innovators1 Versus Others
Se: cEB, reseh & tehlgy Eee cl.
ohes tsmeis
( = 17.)( = 57.)
1 tsme is e r&d gzs h geee me el eel
mmem ew gwh es h he pees.
14%
30%
Business executives today share the same acute challenge: driving more
growth. This challenge is even more daunting in the ace o stagnation
and economic uncertainty in developed markets, the rise o newand
increasingly competitiveemerging markets, and the rapid evolution oglobal consumer preerences. As the pressure to grow and win in complex
new markets rises, rms are looking or breakthrough ideas that can lead
to transformative innovation in their products and services. Companies
pursuing breakthrough ideas are able to generate up to twice the product
sales o their peers.
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Incremental Innovation Projects Dominate R&D Portolios
R&D Budget Allocation by Project Type
Percentage of Budget, n= 55.
Bekhgh Pjes
iemel ne Gee Pjes
Se: cEB, reseh & tehlgy Eee cl.
2008 2009 2010
86%
14%
84%
16%
81%
19%
Unortunately, reenergizing transormative innovation is an uphill climb or
most companies. The past decade o economic uncertainty made executive
teams risk averseocusing on incremental innovation to improve existing
products and ensure more predictable, near-term revenue. In eect,these rms have been trading larger, higher-impact (and riskier) ideas
or a greater number o smaller, more manageable (and less risky) ideas,
causing incremental and next generation initiatives to dominate most
innovation portolios. While Corporate Executive Board (CEB) research
shows that investment in transormative innovation projects is growing
slowly, incremental innovation still accounts or more than 80% o unded
innovation initiatives.
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Executives Doubt They Have Powerul Ideas to Drive Growth
Concern About Seeding the Pipeline with Transormational Growth Ideas
Percentage of Respondents Citing Area as Top Concern, n = 92.
Transormational Growth Ideas
New-to-market innovation proposals with a high likelihood o achieving
signicant growth or the company by opening up wholly new opportunity
spaces
75%tp ce
25%
n tp ce
Se: cEB, reseh & tehlgy Eee cl.
This modest and slow reinvestment in transormative product innovation is
unlikely to generate the kind o growth required by many corporate plans.
In act, CEBs global business leaders survey shows that three out o our
executives think their rms lack the kind o ideas needed to drive growth.Shiting toward transormative innovation is proving dicult because
the underlying networks needed to generate, rene, and productize
breakthrough ideas have atrophied. Many organizational changes over the
past ve years have resulted in downsized, reorganized, or increasingly
dispersed innovation teamsweakening the structures that support strong
idea development. In many cases, these organizational changes contribute
to reduced ideation capability, more ambiguous innovation management,
and deteriorating working relationships.
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Challenges in Accelerating
Transormative Innovation
While many actors contribute to low innovation output, a predisposition
or incremental innovation coupled with dramatic organizational changes
have damaged the networks necessary or breakthrough ideas. Executives
hoping to rebalance their innovation portolios toward more transormative
projects ace the ollowing broad challenges:
Downsizing and reorganization have weakened ideation networks.
Mid-level delayering has reduced experience in the innovation process.
New globally dispersed research centers lack established, eective
working relationships.
Downsizing and reorganization have weakened ideation networks.
Consistently generating, rening, and prioritizing breakthrough ideas
requires participation and collaboration rom a web o relationships across
the entire organization. Unortunately, recent organizational changes have
altered these networks and relationships substantiallyespecially or
innovators (e.g., employees in R&D, Engineering, and design unctions).
In 2009, almost 80% o innovators had experienced a signicant change
in their organization or role within the previous year. While it has slowed,
change unortunately remains sizeable with nearly 50% o innovators
surveyed in early 2012 experiencing organization or role changes in the
past year. With these persistent and signicant organizational changes,employees and their organizations have diculty maintaining the ormal
and inormal networks required or innovation.
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Se: cEB, Glbl Lb Mke Sey.
Organizational Changes Disrupt Innovation Teams
Percentage o Innovation Employees Experiencing a Signicant
Organizational Change in the Past 12 Months
( = 2,145.) ( = 763.)
2009 2012
77%
47%
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0%
20%
40%
60%
80%
100%
120%
26% 57% 18%
36% 48% 16%
39% 38% 23%
Mid-level delayering has reduced experience in the innovation
process.
In addition to overall employee network disruptions, management delayering
over the past ve years has destabilized innovation networks. This reduction
in mid-level innovators has depleted a critical store o organizational,
customer, and market knowledge essential to driving ideation. Mid-level
innovators are seemingly being squeezed out o large global organizations,
with the number o mid-level innovators alling rom 57 to 38% between Q4
2010 and Q1 2012. As mid-level innovators leave, so too does their experience.
Between 2010 and early 2012, the average tenure o mid-level innovators
ell rom 12 to 10 years, and their average age ell rom 39 to 36. With less
experience and management acumen, innovation networks and processes
are naturally weaker. The number and quality o ideas suers with ewer
experienced mid-level innovators to drive connections, source and rene
ideas, and manage the process.
Innovation Networks Are Weakened with Fewer Mid-Level Innovators
to Drive Ideation
Share o Innovators by Level in United States and Europe
Q4 2010 to Q1 2012
Se: cEB, Glbl Lb Mke Sey.
Se Leel
is
Ey fs
Leel is
M-Leel
is
Q4 2010
( = 97.)
2011
( = 561.)
Q1 2012
( = 176.)
2011 2012 (Ytd)
tee 12 10
age 39 36
ne: tls my eql 100% e g.
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2 as mese by r&d ees vly ie; he hee-ye vly ie emegg
mke r&d ees meses he peege e ye glbl sles bble ew
ps gg emegg mke r&d ees.
New globally dispersed research centers lack established, efective
working relationships.
Finally, innovation teams are more geographically dispersed then ever
beore, complicating the negative eects o organizational restructuring.
Firms are shiting unding and resources to emerging markets to get
closer to new customers in these regions and take advantage o local
(oten inexpensive) skilled labor. Quickly reestablishing critical networks
is extremely dicult when newly established teams in global markets are
leading innovation.
Unortunately, simply shiting and investing in new sta and R&D acilities
is not generating the expected results. Firms continuously struggle to
transition their new emerging market innovation centers away rom
incremental development work and toward transormative new product
development. In act, these innovation centers are on average only one-third
as productive as developed market centers at generating revenue rom new
products.2 The lack o productivity is not due to capability or skill gaps but
ineective collaboration between the established and the new innovation
teams. Innovators have not created enough trust in their counterparts toenable eective collaborationespecially trust between emerging market
and developed market teams.
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17%
5%
To realize the signicant
sales contribution expected
rom emerging markets, R&D
organizations would have to more
than double their current vitality
rom emerging market R&D
centers.4
InnovationGap
A Sizeable Innovation Gap Remains or Emerging Market R&D Centers
Comparison o Median Three-Year Vitality Indices3 or Developed
and Emerging Market R&D Centers
n = 72.
3 the hee-ye vly ie emegg mke r&d ees meses he peege e ye glbl sles bble ew ps gg emegg mke r&d
ees.
4 ths s bse he ssmp h sml lme llly e ps s eqe
e eee gwh emegg mkes s eelpe mkes.
Se: cEB, reseh & tehlgy Eee cl.
vly ie deelpe Mke
r&d
vly ie Emegg Mke r&d
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Four High-Return Steps or
Reinvigorating Teams and Processes
or Breakthrough Innovation
With weakened ideation networks, stretched management, and ineective
global working relationships, many companies are hard-pressed to restock
their innovation pipeline with breakthrough ideas. Without reestablishing
the necessary organizational capabilities, companies are unlikely to shit
their innovation portolio ast enough to compete and win in new markets.While daunting, the challenges are not insurmountable. Progressive rms
take steps to repair disrupted networks, manage idea quality, and remove
collaboration barriers. CEBs work with companies that are accelerating
transormative innovation shows that innovation leaders should take our
steps to reinvigorate teams and processes:
1. Repair and Reconnect Dispersed Internal Networks to Drive IdeaExchange
2. Manage Social Media and Crowdsourcing to Generate Ideas
3. Enable Sta to Sel-Assess Ideas to Improve Idea Quality
4. Rebuild Eective Global Relationships to Encourage Collaboration
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Repair and Reconnect Dispersed
Internal Networks to Drive Idea
Exchange
1
Reorganization and downsizing have caused too many innovators and their
networks to become insular and disconnected rom broader corporate
eorts. In these situations, teams lack awareness o the best ideas, as well
as access to the perspective, advice, and support o their colleagues and
managers. Without eective networks, ideas and innovation projects will
likely be underdeveloped and stuck in unctional and geographic silos.
To reestablish networks and the fow o ideas across increasingly
decentralized organizations, innovation leaders should take the ollowing
simple, but powerul, steps:
Formalize Idea Sharing Across RegionsCreate regular
multiunctional, cross-team interactions beyond the annual
strategic planning cycle to share product ideas, market insights, and
recent successes across regions.
Tap Innovative Ideas rom Dynamic MarketsEnsure innovation
teams in ast-growing, competitive markets regularly meet
with executives in other regions and with leaders capable o
championing local ideas and moving them into ormal innovation
pipelines.
Build Cross-Function and Cross-Region Awareness in Central
Product TeamsCreate broader perspectives by getting in the
eld. Require central product teams to visit regional oces or
co-locate with other stakeholder unctions (e.g., Sales, Marketing,
R&D), which can be invaluable in building cross-silo awareness
and communication.
Lead by Example and Manage Inormation FlowInnovation
leaders should task themselves with breaking silos. They should
continuously communicate the need or new products that cut
across groups and regions and publicly reward those who pursue
innovation opportunities that span product segments or business
units.
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Manage Social Media and
Crowdsourcing to Generate Ideas2
In addition to reconnecting ormal innovation networks, many rms are
attempting to build broader, more inormal networks to generate ideas.
These eorts use social media technologies to bring more employees
with diverse ideas and perspectives into the beginning o the innovation
process. Crowdsourcing platorms allow broad-based communities
to virtually share, assess, and rene ideas. This low-cost orum or idea
sharing can unlock the rms most powerul innovation asset: its
employees.
Unortunately, many o these platorms are inherently less controllable and
ocused than traditional ideation processes and are proving less productive
than hoped. To be successul, these platorms have to be well managed and
require the ollowing:
Key Employee ParticipationEncourage and provide incentives
to the right employees to use these platorms and participate in
ormal innovation processes.
Clear Branding and a Narrow FocusUltimately, crowdsourcing
needs direction, which includes ocusing the orum on its purposes
(e.g., idea generation, idea renement, and ocused collaboration).
Managers need to ensure the platorm stays business ocused and
avoids slipping into social interaction.
Active Innovation Leader ParticipationKey innovation leaders
should uel and manage discussions, engage participants by
moderating conversations, lter ideas, ensure the best ideas are
ully ormed, and migrate them into ormal innovation processes.
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Enable Staf to Sel-Assess Ideas
to Improve Idea Quality3
Managing the quality o ideas early in the innovation pipeline and purpose-
ully sharpening concepts reduces the overall time to market or new
products by one-ourth. While it is relatively easy to set up crowdsourcing
platorms to generate ideas, it is considerably more dicult to ensure they
are high qualityespecially when ewer tenured innovators are able to help
assess, rene, and steward ideas through the process.
As a result, generating viable, high-potential ideas requires new ways
to assess ideas early in the innovation process. Progressive rms enable
employees to sel-assess idea quality by creating simple tools and templates
to teach employees the most important actors to consider when evaluating
and vetting innovation ideas. The tools can be as simple as idea evaluation
questionnaires that enable sta to quickly assess, modiy, and improve their
concepts. By allowing employees to test their ideas earlier and more otenagainst a shared set o criteria, rms see ewer high-quality ideas rather
than many low-quality ideas coming rom their ideation networks. While
the criteria used to determine a good idea will vary, progressive rms
ocus on major success actors, such as:
Alignment with rm strategy and priorities,
Potential eect o major market trends,
Fit with customer needs and consumer trends,
Support or product dierentiation,
Technological and operational easibility, and
Commercial viability and economic potential.
As an added benet, requent use o broad-based, sel-assessment tools
among sta reinorces a culture o continuous idea assessment and
improvementin eect, ocusing the entire innovation team on quality.
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Transormative Innovators Maintain a More Efective Idea Pipeline
Comparison o Pipelines and Processes
Other Versus Transformative Innovators
Se: cEB, reseh & tehlgy Eee cl.
Others Transormative
Innovators
115 Ideas 56 Ideas
Idea Funding Rate 55% 74%
To Market
Idea
6 Months
Concept
24
Months
To Market
Idea
8.5
Months
Concept
18
Months
On-Time Completion 65% 79%
On Budget 72% 86%
Product Success Rate
Products that are more
successul in the market
and do not cannibalize
existing oferings
47% 75%
( = 45.) ( = 10.)
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Se: cEB, reseh & tehlgy Eee cl.
Rebuild Efective Global
Relationships to Encourage
Collaboration
4
As noted earlier, new and emerging markets are increasingly importantnot
only or growth but also as a source o ideas and innovation. To capitalize
on their expanded global presence, many companies are transorming their
development centers in emerging markets into innovation hubs. This shit
is intended to move emerging market teams away rom merely versioningglobal products or local markets (incremental innovation) to developing
new products or the region or even or the rest o the world (transorma-
tive innovation). Based on a CEB survey o heads o R&D, 30% o companies
were active in emerging markets in 2011, and 57% are expected to be active
by 2015an increase o 27 percentage points.
More Companies Expect to Be in Emerging Markets in the Near Future
Distribution o Companies in Emerging Marketsn = 61.
5 pp = peege ps.
30%
57% = 27 pp5
2011
cely
Emegg Mkes
2015
Epeg Be Emegg Mkes
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6 the hee-ye vly ie emegg mke r&d ees meses he peege
e ye glbl sles bble ew ps gg emegg mke r&d
ees.
Many rms struggle to move challenging work to their emerging market
centers ast enough, which is leading to disengaged local innovation sta
and lower productivity at a time when it can be aorded least. One o the
biggest barriers to innovation and new product development is the lack
o eective collaboration between central innovation teams and theircolleagues in the new innovation hubs. To be successul, companies need
to more eectively encourage collaborationrom sharing knowledge up
ront to jointly bringing new products to the market. CEB research with
more than 75 companies and their innovation sta indicates that making
these hubs successul (and by extension, improving the success rate o
innovation eorts globally) requires something that cannot be bought or
installedcross-team trust.
Unortunately, central innovation teams and their counterparts in the new
regional innovation hubs simply do not trust each other and have not estab-
lished the working relationships that allow shared ownership o ideas and
the innovation process. Increasing trust is a critical prerequisite or team
collaboration and is the primary driver o R&D vitality,6 delivering almost
three times the increase in new product sales than capability building alone.
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ne: alyss ls he mbe yes mpy hs bee emegg mkes,
sy, segy (e.g., mpy s le s llwe),
he glbl r&d gzl se.
Trust Matters More Than Common Approaches to Capability Building
Maximum Impact o Capability-Building Approaches Versus Trust
on Emerging Market Vitality
Based on Regression Analysis, Dependent Variable = Vitality Index
of New Products from Emerging Markets, n = 73.
1%
5%
7%
10%
22%
ieser&d
Speg
Blgnew ope
inewk
impeMke
isghcpbles
iSklls
Blg
Ml tsass
Glbl r&dnewk
Common approaches to
building capabilities do not
signicantly drive vitality.
Mutual trust enables key innovation
through the willingness to exchange
ideas, take risks, and learn rom ailure.
Se: cEB, reseh & tehlgy Eee cl.
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While building trust seems straightorward, it is not easy. Overcoming this
misalignment requires more than investment and skill development; inno-
vation leaders and senior executives must take concrete steps to increase
their prole, engage their sta, communicate clearly and credibly, andensure that work processes require collaboration. Particularly, senior
executives should minimize under-communication and miscommunica-
tion, which can result in negative assumptions and behaviors on the part
o regional innovation sta. To regain mutual, cross-team trust and enable
eective collaboration within the innovation process, executives need to
realign their dispersed sta on the three elements o trust: intent, vision,
and execution.
Mutual Trust Requires Intent, Vision, and Execution
Three Key Elements o Building Trust Across Dispersed Teams
Se: cEB, reseh & tehlgy Eee cl.
Intent VIsIon
executIon
The belie that
were all working
together toward
the companys
innovation goals
The belie that R&D has
a clear, long-term, and
credible plan to win
in emerging markets
and achieve global
innovation goals
Trust in each others decisions
while executing against global
innovation goals
Trust in each others decisions
while executing against global
innovation goals
the hIgh-trust
organIzatIon
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Intent: Surace Unarticulated Global R&D Staf
PerspectivesGlobal sta must eel they are equals in the
organization and see sincerity in the communication and
actions o company leaders. Executives must surace andcounter trust-eroding behaviors, such as lack o openness
to contrarian ideas and lack o transparency in corporate
planning and decision making.
Vision: Demonstrate the Credibility o PlansRegional
teams should hear in-market plans rom a trusted local
source. Companies should quickly establish local leadership,
despite short-term pressures that avor the use o expats. Forexample, the best companies deliberately limit expat tenures
while also using expats to ensure new local leaders are
equipped or success.
Execution: Show Willingness to Share High-Value Work
and IPGenerating more signicant innovation rom global
teams requires executives to speed the migration o high-
value work and IP to these centers. The best companies easeear o sharing too much too ast by showing the opportunity
cost o slow project migration and building objective criteria
to assess the risks o sharing IP.
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In an environment where three out o our executives think their
irms lack breakthrough ideas, the need to generate transormative
innovation has never been greater. Unortunately, this push to innovate
in new markets and or new customers will be ar rom easy. Innovationteams have been reorganized, delayered, downsized, and (increasingly)
dispersed, weakening the underlying structure o many companies
innovation eorts. Business leaders can accelerate innovation globally
by repairing vital internal networks, increasing idea quality, and
reestablishing the cross-team trust necessary to uel collaboration.
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aBout corPoratE ExEcutivE Board (cEB)
coPiES and coPYriGHt StatEMEnt
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