transformative innovation

7/31/2019 Transformative Innovation

1/22

ExEcutivE GuidancE for 2012

Transormative Innovationregg tems Pesses

Sp Bekhgh ies


2/22


3/22

1

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.


4/22

2

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


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.


5/22

3

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


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.


6/22

4

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.


7/22

5

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%


8/22

6

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.


9/22

7

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.


10/22

8

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.


vly ie deelpe Mke

r&d

vly ie Emegg Mke r&d


11/22

9

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


12/22

10

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.


13/22

11

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.


14/22

12

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.


15/22

13

Transormative Innovators Maintain a More Efective Idea Pipeline

Comparison o Pipelines and Processes

Other Versus Transformative Innovators


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.)


16/22

14


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


17/22

15

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.


18/22

16

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.



19/22

17

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


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


20/22

18

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.


21/22

19

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.


22/22

aBout corPoratE ExEcutivE Board (cEB)

coPiES and coPYriGHt StatEMEnt

The pages herein are the property o The Corporate Executive Board

Company. No copyrighted materials o The Corporate Executive Board

Company may be reproduced or resold without prior approval. For additional

copies o this publication, please contact The Corporate Executive BoardCompany at +1-866-913-2632, or visit www.executiveboard.com.

2012 the cpe Eee B cmpy.

all rghs resee. cEB2753312SYn

By identiying and building on the proven best practices o the worlds

best companies, CEB helps senior executives and their teams drive

corporate perormance. CEB oers comprehensive data analysis,

research, and advisory services that align to executive leadership roles

and key recurring decisions. CEB tools, insights, and analysis empower

member companies to ocus eorts, move quickly, and address emerging

and enduring business challenges with condence. CEBs client and

member network includes 85% o the Fortune 500, 50% o the Dow Jones

Asian Titans, and 70% o the FTSE 100. It spans more than 50 countries,

5,700 individual organizations, and 240,000 business proessionals. For

more inormation, visit www.executiveboard.com.

transformative innovation

Documents