Innovation Management in Transition

Friday, 07. June 2013

Innovation is still considered to be the core driver of competitiveness. The traditional innovation management approach of Western companies, characterized by high resource input, long development cycles, and lack of involvement of customers and other internal and external stakeholders, however, is becoming obsolete. Globalization, increased competition and cost pressures, and the triumph of the social web are forcing companies to fundamentally rethink their approach to innovation management. This article discusses three ongoing trends in innovation management which R&D managers and executives should bear in mind.

Frugal Innovation

Frugal Innovation is the predominant innovation approach in emerging economies like India, China, and Brazil. The idea behind it is simple: Developing sustainable, affordable, and high-quality products that meet the needs of resource-constrained consumers. Products are stripped down to their bare essentials, which is in marked contrast to the innovation strategies of Western companies that typically consist of adding advanced features at premium prices. Frugal innovations seek to minimize the use of material and financial resources in the entire value chain (development, manufacturing, distribution, consumption, and disposal) which reduces production costs as well as the environmental impact.

Experts predict that frugal innovation will continue to grow in importance in global competition. On the one hand, Western companies will have to start offering value-for-money products in order to succeed in emerging market. On the other hand, there will be rising demand among financially strained and environmentally conscious consumers in Europe and North America for simple, sustainable solutions. Some multinational corporations, such as General Electric, Philips, Siemens, or Renault, have already started to engage in frugal innovation. A nice example is the hand-held electrocardiogram (ECG) machine Mac 400 developed at General Electric's healthcare laboratory in Bangalore. It is portable, battery- or mains-operated, easy to use, and 40% cheaper than a conventional ECG. While first launched in India and China, the machine is now also available in the U.S. market. Simplicity and the responsible use of resources will be some of the key guiding principles of product development in the future.

Collective Innovation

Collective innovation is basically a logical continuation of the open innovation paradigm (Chesbrough, 2003), which gained great popularity during the Web 2.0 boom. The main idea was to tap into the collective knowledge of external stakeholders, such as suppliers, universities, and customers, to accelerate internal innovation. Proponents of this approach argue that harnessing the "swarm intelligence" can help businesses to generate radical new ideas, increase the quality and productivity of the innovation process, and reduce the risks of innovation flops, as consumer needs and wants get to be considered more thoroughly from the very beginning.

However, researchers and practitioners are increasingly realizing that one-off crowdsourcing projects for generating innovative ideas are not sufficient to solve challenging, complex problems. What is needed is long-term cooperation between the players build on mutual trust, knowledge integration, and the involvement of stakeholders at all stages of the innovation process – from idea generation and selection to implementation and launch. This is precisely the aim of the collective innovation approach which tries to combine openness and collaboration. Important prerequisites for making this work are effective coordination, robust tools and platforms, and sophisticated incentive systems (Hagel et al., 2010). Ideally, the interaction between the different players leads not only to mere knowledge exchange, but to the creation of new knowledge which may ultimately result in the development of truly innovative products.


Integrated Innovation

Another on-going trend is the integration of innovation management and strategic planning. In today’s fast paced environment, it is no longer sufficient for companies to manage single innovation projects effectively. Proactive management of the whole innovation project portfolio and its alignment with the overall corporate strategy has become imperative for sustaining long-term success and competitive advantage. Opportunities for innovations must be identified early on and exploited strategically (Heising, 2012).  

A recent survey conducted by McKinsey (2012) found that companies which adopt an integrated innovation approach are significantly more likely to be satisfied with their performance than those without an integrated strategy. Yet the full integration of innovation and strategy remains challenging for many companies. Only one third of the executives indicated that this had actually been achieved in their companies. There seems to be no single blueprint that works for everyone. One key success factor, however, according to McKinsey is that C-level managers support and engage with innovation efforts.

In summary, it is save to say that innovation management is currently undergoing change. Central aspects that will continue to gain in significance over the coming years are sustainability, a stronger focus on actual customer needs, an open and collaborative innovation process, and a more structured, strategic approach to innovation portfolio management. Some companies have already adopted these principles successfully. Follow their example to make your business fit for the future as well!

 



Literature

Chesbrough, H. W. (2003): Open innovation. The new imperative for creating and profiting from technology. Boston: Harvard Business School Press.

Eagar, R., v. Oene, F., Boulton,C, Roo, D., & Dekeyser, C. (2011). The future of innovation management: Then 10 years. http://www.adl.com/uploads/tx_extprism/Prism_01-11_Innovation_Management_01.pdf

Hagel, J., Brown, J.S., & Davison, L. (2010). Open innovation's next challenge: Itself. HBR Blog Network. http://blogs.hbr.org/bigshift/2010/02/open-innovations-next-challeng.html

Heising, W. (2012). The integration of ideation and project portfolio management: A key factor for sustainable success. International Journal of Project Management, 30(5), 582-595.
http://web.nchu.edu.tw/pweb/users/arborfish/lesson/10330.pdf

McKinsey (2012). Making innovation structures work: McKinsey global survey results.
http://www.mckinsey.com/insights/innovation/making_innovation_structures_work_mckinsey_global_survey_results