Category Archives: Consultants

Getting the Right Talent for Innovation

TeamPerhaps the most important role of the innovation leader is creating a competent team. For that reason alone, it’s one of the most challenging. It’s a constant fight for talent. You may have the best products and services in the market, but without a strong, talented marketing team behind them, you’ll start losing ground to the competition.

Building a competent team begins with recruiting and hiring the right people. But it takes much more than just telling your human resources department to go fill open slots. Top innovation leaders get actively involved. When is the best time to recruit marketing people? All the time! What I mean by that is you should think of recruiting as an ongoing activity. You need a pipeline of potential marketers ready to step in when a position opens up.

When I hire innovation team member, I always look for certain characteristics beyond just job experience and track record. I look for people who are competitive by nature, who have a high tolerance for ambiguity, who are great at networking, and who have a good head for numbers. Creating new products and services is a cash generating activity, so you’ve got to have solid financial skills.

Notice I didn’t mention specific commercial skills like branding or marketing research. That’s because innovation can be learned like any skill. You, as the marketing leader, need to establish a strong, well-defined training and development program for your entire organization. Be sure to make it an annual, on-going activity, not just a one time event. Training is an investment. For some examples, check out my other fundamentals courses on marketing, innovation, and branding. They’ll give you a good head start.

Innovators like to perform at high levels, but they have to be motivated. You, as the innovation leader, play the key role in doing that. Innovators are at their best when they feel a sense of purpose. They have to feel good that the products and services they put into the marketplace are valued by their customers. Innovators need to feel appreciated for the work they do and the risks they take. And they need to be rewarded and recognized for their accomplishments.

Be sure to use a mix of both intrinsic and extrinsic rewards, and do it throughout the year, not just at the annual meeting. Now here’s a tip. A great way to recognize innovators is to have one of your key customers present an award in front of their peers. That really ties it all together - a sense of purpose, a sense of appreciation, and a sense of recognition.

Creating a competent teams means getting the right talent, but also dealing with under performers. The mistake you can make is thinking that just hiring a few superstars will make up for the weaker talent. Just the opposite will occur. The superstars will get frustrated, demotivated, and they’ll eventually leave if they don’t think you’re dealing with the poor performers.

Your under performers either lack the skill to do the job or the will to do it. You have to have clear conversations with them to understand why they’re not performing, then set clear expectations and deadlines when they need to turn things around. If they don’t improve, they’re a liability to you and your team. You’ll lose credibility inside and outside the department if you don’t take action.

So take a look at your talent pool. Understand your team’s strengths and weakness, then put the right hiring, training, and motivational programs in place to keep upgrading your team year after year. That way, you’ll keep winning the fight for talent.

Getting the Right Talent for Innovation

TeamPerhaps the most important role of the innovation leader is creating a competent team. For that reason alone, it’s one of the most challenging. It’s a constant fight for talent. You may have the best products and services in the market, but without a strong, talented marketing team behind them, you’ll start losing ground to the competition.

Building a competent team begins with recruiting and hiring the right people. But it takes much more than just telling your human resources department to go fill open slots. Top innovation leaders get actively involved. When is the best time to recruit marketing people? All the time! What I mean by that is you should think of recruiting as an ongoing activity. You need a pipeline of potential marketers ready to step in when a position opens up.

When I hire innovation team member, I always look for certain characteristics beyond just job experience and track record. I look for people who are competitive by nature, who have a high tolerance for ambiguity, who are great at networking, and who have a good head for numbers. Creating new products and services is a cash generating activity, so you’ve got to have solid financial skills.

Notice I didn’t mention specific commercial skills like branding or marketing research. That’s because innovation can be learned like any skill. You, as the marketing leader, need to establish a strong, well-defined training and development program for your entire organization. Be sure to make it an annual, on-going activity, not just a one time event. Training is an investment. For some examples, check out my other fundamentals courses on marketing, innovation, and branding. They’ll give you a good head start.

Innovators like to perform at high levels, but they have to be motivated. You, as the innovation leader, play the key role in doing that. Innovators are at their best when they feel a sense of purpose. They have to feel good that the products and services they put into the marketplace are valued by their customers. Innovators need to feel appreciated for the work they do and the risks they take. And they need to be rewarded and recognized for their accomplishments.

Be sure to use a mix of both intrinsic and extrinsic rewards, and do it throughout the year, not just at the annual meeting. Now here’s a tip. A great way to recognize innovators is to have one of your key customers present an award in front of their peers. That really ties it all together - a sense of purpose, a sense of appreciation, and a sense of recognition.

Creating a competent teams means getting the right talent, but also dealing with under performers. The mistake you can make is thinking that just hiring a few superstars will make up for the weaker talent. Just the opposite will occur. The superstars will get frustrated, demotivated, and they’ll eventually leave if they don’t think you’re dealing with the poor performers.

Your under performers either lack the skill to do the job or the will to do it. You have to have clear conversations with them to understand why they’re not performing, then set clear expectations and deadlines when they need to turn things around. If they don’t improve, they’re a liability to you and your team. You’ll lose credibility inside and outside the department if you don’t take action.

So take a look at your talent pool. Understand your team’s strengths and weakness, then put the right hiring, training, and motivational programs in place to keep upgrading your team year after year. That way, you’ll keep winning the fight for talent.

Innovation: The Ultimate Team Sport

Team-innovationA fast way to boost your creativity is to harness the brainpower of others. Creativity is a team sport, and you’ll generate better ideas if you surround yourself with people to help you.

When you invite colleagues to be part of a creativity session, be sure to create a diverse team. Diversity helps people see more possibilities. It creates a stronger sense of group accountability. Diverse groups cause people to bring their best thinking, to behave properly, and to maintain their status in the group as a positive contributor.

You want diversity in three ways: functional, gender, and cultural.

Functional diversity means that team members come from different parts of the company. Now it depends a lot on the topic you’re generating ideas for. Generally speaking, I try to include co-workers from marketing, from my technical team, and from my sales or customer support team. But at times, it makes sense to include colleagues with financial skills or regulatory knowledge.

Taken together, you want the right people in the room who can help you not only generate ideas, but also help you decide which ideas are the best and most feasible. That takes a team of people with different skills and knowledge.

You also need a team with good gender diversity. Research suggests men tend to create more aggressive ideas while women are more pragmatic. Working together averages out these tendencies to produce novel and practical solutions. Without gender diversity, your team may end up producing a larger share of uninteresting or unsupportable concepts.

Finally is cultural diversity. The best teams have members with different ethnic backgrounds. They broaden the team's perspective on how best to commercialize new inventions on a global scale. Without this, teams produce a larger share of niche ideas that may satisfy only one regional market.

Now here are some tips.

  • Be sure to keep the group size at twelve or less. Any larger than that becomes hard to facilitate.
  • Be sure participants are fully committed to participation in the workshop. Avoid letting people drop in and out as it suits their schedule. Otherwise, it interrupts the flow of the workshop. And be sure participants have right level of knowledge about the topic. They’ll have trouble contributing if they know nothing about the subject matter.
  • Finally, make sure you reward the participants for being a part of your session. You do that by practicing the Golden Rule of Creativity - give back your time and expertise to those who gave it to you. The most creative people practice the principle of reciprocity by helping others and asking their help when needed.

Practical Points on Critical Thinking

CtWhat exactly is critical thinking? Do we know how to define it, or better yet, to foster it in those we are teaching? In her article, “Teaching Critical Thinking: Some Practical Points,” Dr. Linda B. Nilson aptly describes how critical thinking can be encouraged and successfully practiced in the classroom.

Nilson recognizes there is much confusion in scholastics when it comes to delineating what precisely makes thinking “critical.” However, she also sees commonality of thought in the literature surrounding the topic. Dr. Nilson draws from these unified principles to outline a number of practical, open-ended questions to ask when attempting to foster critical thinking. Such questions include:

  • What is your interpretation/analysis of this passage/data/argument?
  • What are your reasons for favoring that interpretation/analysis? What is your evidence?
  • How well does your interpretation/analysis handle the complexities of the passage/data/argument?
  • What is another interpretation/analysis of the passage/data/argument? Any others?
  • What are the implications of each interpretation/analysis?
  • Let’s look at all the interpretations/analyses and evaluate them. How strong is the evidence for each one?
  • How honestly and impartially are you representing the other interpretations/analyses? Do you have a vested interest in one interpretation/analysis over another?
  • What additional information would help us to narrow down our interpretations/analyses?

Dr. Nilson insightfully points out that in addition to providing students with such thought-provoking questions, an educator also needs to facilitate a venue where such processing can happen. Such opportunities might include classroom discussion times, debriefing of complex cases, simulations, or role plays. And Nilson is quick to recognize that this learning space is only as effective as the educator’s willingness to also engage and model critical thinking to the students:

“Students need to see us showing the courage to question our own opinions and values, the fair-mindedness to represent multiple perspectives accurately, and the open-mindedness to entertain viewpoints opposed to our own. When we do this, we should let students know that we are practicing critical thinking.”

The application of Linda Nilson’s rich insight reaches far beyond the four walls of the classroom and into the world of innovation. Just as Systematic Inventive Thinking is critical to innovation, critical thinking is the platform on which SIT stands. Critical thinkers can be the best innovators when they create thoughtful, template-based products that stand the test of time.

 

Reinvention: Accelerating Results in the Age of Disruption

A SIMPLE FORMULA AND SET OF TOOLS FOR FACING AND EMBRACING DISRUPTION AND RADICAL CHANGE

    Technology, globalization, economic shifts, geopolitical shocks, and, yes, management thought leaders over the past 30 years have set in motion a continuous onslaught of radical, discontinuous change in the global business environment that will not abate anytime soon. In fact, worldwide economic turmoil will most likely only increase in the future. Is it possible for existing businesses to survive, let alone thrive, in this turbulence? Authors Shane Cragun and Kate Sweetman say “yes” – if you as a leader are prepared to look more inquisitively, even positively, at the global shockwaves that might impact you, and prepare your organizations and the people in them to remove self-imposed blindfolds and proactively seize the opportunity to improve performance in these revolutionary times.     

    Reinvention In Cragun and Sweetman's upcoming book, Reinvention: Accelerating Results in the Age of Disruption [Greenleaf Book Group Press, July 2016], the authors propose a simple formula, common principles, and set of tools for individuals and organizations facing disruptive and radical change. Reinvention is supported by the authors’ combined 50 years of experience working with executives, organizations, and teams around the globe. Cragun and Sweetman are the leading global experts on the new competency of Reinvention — the ability to create ‘quantum individual and organizational change accelerated.’

    “The ability to pivot quickly, profoundly, and effectively might be the most important core competency for individuals and organizations to acquire who hope to prosper in the new economy,” says Cragun. “It’s no longer enough to change when you have to. Leaders must change before they have to, and they must enable their organization to surf the incoming global shockwaves with intelligence, agility, strength, and command.”

    “When they do, leaders and organizations can actually accelerate performance,” adds Sweetman. “When they don’t, they will no doubt begin down the path of irrelevance that ultimately leads to failure. It’s vital that leaders understand that success in the age of disruption requires significant shifts in world views, approaches, skills and behaviors.”

    Reinvention uses compelling and eclectic stories and cases from around the globe over the past 100 years to reinforce key learnings: from polar explorations, village microcredit innovations, defiance in the war on terror, all the way to global politics and big business. Each chapter ends with practical insights from an assortment of global experts from the six corners of the world.     

    Reinvention also thoroughly examines: •

  • The opportunity to proactively leverage disruptive events in an effort to leapfrog the competition and actually accelerate results.
  • 20 Global Shockwaves* that have impacted global business since 1981, and how new global shockwaves will only continue to do so.
  • The danger and threat of the Six Deadly Blindfolds* that leaders and organizations often wear that result in vision loss when dealing with incoming change (and how to successful remove these blindfolds using the Reinvention Agility Matrix*).
  • A simple Reinvention Formula* and Reinvention Roadmap* (for both individuals and organizations), and assorted tools that can create breakthrough results, overcome resistance and inertia, and ensure that every change made reinforces and aligns to the end goal.
  • Exciting new management concepts such as The Law of the 21st Century Business Jungle*, Age of Disruption Principles*, and the 21st Century Competitiveness Cycle*.
  • How five Reinvention Accelerators* promote the strength necessary to outpace the speed of change.
  • How the same overall Reinvention solution can effectively apply at the individual, team, organization, and societal levels when disruption must be faced.

* trademark of SweetmanCragun

    Shane Cragun is a founding partner at SweetmanCragun, a global management consulting, training, and coaching firm. His passion is creating high performance excellence at the individual, team, organizational, and societal levels around the globe. Cragun has worked as an internal change agent within a Fortune 500 High Tech Firm, a line executive at FranklinCovey, and a global external management consultant. His projects have received prizes in the areas of leadership and change. He recently co-authored the Employee Engagement Mindset published by McGraw-Hill, has presented a TEDx talk in Silicon Valley, spoken at business conferences worldwide, and was featured in Open Computing magazine.

    Kate Sweetman is a founding partner at SweetmanCragun. Sweetman was listed as an Emerging Guru with Thinkers50, and is co-author of the bestselling business book, The Leadership Code published by Harvard Business Press. Her first-hand experience with world leaders, Fortune 100 organizations, and Asian multi-nationals provides a substantial foundation for insights that extend beyond borders. A former editor at Harvard Business Review, she has been published in HBR, Sloan Management Review, Boston Globe, and the Times of India, and has appeared on CNBC in the U.S. and India. She is also a coach and visiting lecturer at MIT’s Legatum Center for Entrepreneurship. For more information, please visit www.sweetmancragun.com and connect with the authors on LinkedIn and Twitter.

Innovation Clusters: Why companies are better together

  • Innovation clusters require six key ingredients: skills, accommodating policy framework, infrastructure, low cost structures (in early stages), a good lifestyle offering and serendipity.
  • Clusters are like the companies they host: they change over time, and their long term success depends on how well they adapt to the challenges of success, like congestion and increased rents
  • Clusters are strongly reliant on an open immigration policy at the national level – tightening borders reduces a cluster’s access to global talent

Innovation is often associated with triumphant lone inventors. The likes of Thomas Edison, Louis Pasteur or Bill Gates are the central characters in this narrative. But all innovators spring out of a specific context. The environments that foster their individual and collective success are very often ‘innovation clusters’: ecosystems that stimulate and nurture the best ideas and attract the brightest talents.

Clusters emerge when a network of companies co­exists within a geographic location, allowing each of them to collaborate – and compete – in a way which delivers greater productivity gains than they would achieve in isolation. Silicon Valley is the most famous, but there are countless others across every continent.

Clusters attract innovative people. They network, leading to the cross­-pollination of ideas. Companies benefit from each other’s success: What one invents, rivals can access – think of a productivity­boosting tool like Dropbox. And what one firm invents, others can build on. Think of the ‘sharing economy’, led by trailblazers Uber and Airbnb, in turn giving rise to an army of start­ups taking the same idea to new applications. The sharing of knowledge, the spill­over effects of innovation and the networking that densely populated spaces enable are all key ingredients for start­up success.

Yet for all their benefits, innovation clusters are not straightforward to build – and many do not last, even with the ‘magic ingredients’ seemingly there. To prosper, clusters need six key success factors: skills and talent, accommodating policy frameworks, infrastructure, low costs (especially in the early stages), a good lifestyle offering to draw talent, and finally ­ good luck, whether geography (proximity to key markets), historical accidents or even good fortune.

The ‘big 6’ success factors

EUI-BriefingPaper-Dubai-v2-r2_graphic-1

These six factors are necessary conditions, although they are not always sufficient. Many places in the world lay claim to these six, but never give rise to a successful cluster. These factors are best seen as the necessary conditions for clusters, but not – on their own – the silver bullet. Cluster success depends both on individual factors, but also the interplay between them. Good universities are little use if there is no connectivity with industry. A high standard of living is not helpful if immigration policies prevent global talent from moving to the cluster.

There are clearly many that have done it well, are still doing it well, and some that have tried and struggled.

- See more at: http://destinationinnovation.economist.com/part-1/#sthash.iRIxQ9vD.dpuf

 

 

WRITTEN BY THE ECONOMIST INTELLIGENCE UNIT (with permission)

 

 

 

Grow By Creating New Categories

TabascoA clever way to find new growth is to change your market category or create a new one. When you create or change your category, you’re redefining the boundaries of your market space, and that opens your eyes to new targets of opportunity. Let’s look at how to do it.

One way to do this is by zooming up from your current category. That means you dial the category definition up a bit to create a bigger market space.

Here’s an example. Take the McIlhenny Company. It was founded in 1868 on Avery Island, Louisiana, and it makes one of my favorite products - Tabasco Sauce. Today, the company competes in its traditional category definition: hot sauce. But if it zoomed up that definition, it would imagine itself competing in the condiments category, putting it up against companies that make ketchup, mustard, and so on. That simple change in perspective might lead to new ways to communicate their brand or perhaps find new shelves to occupy at the grocery store.

But it doesn’t have to stop there. Let’s imagine the company zoomed up even more to a very broad level of food and beverages. Sound crazy? Well, not really. Viewed this way, the company might imagine creating new food items with its secret hot ingredients inside. Perhaps foods like pizza, or spicy tasting snacks. How about Tabasco chocolate bars. Imagine a new Tabasco carbonated beverage - cold, spicy, and very refreshing. The growth opportunities can seem endless when you zoom up.

Another way to redefine a category is to do just the opposite - zoom down. By doing this, you’re creating a subcategory that helps you focus your sales efforts more effectively to create growth. Let’s go back to our Tabasco example. To zoom down, you start with your current definition - hot sauce - then imagine dialing it down to a more precise definition. In this case, imagine a category called pepper sauce, or perhaps Louisiana pepper sauce. The trick here is to take a unique ingredient in Tabasco, like pepper, and create a new category definition with it. Be careful not to get so narrow that you limit sales. You have to promote this new category definition so consumers see it as a better choice over the hundreds of products out there.

A final way to find new categories is do what I call plotting the market. I sometimes need to see my market as a two dimensional space where I can plot my position versus my competition. This may help me see empty spaces that I can move into. Let’s do an example.

Imagine you compete in the personal computing market. First, I create a x-y plot where the x axis is the main, category benefit. In this case it would be computing power. On the y axis, I use another important benefit that consumers seek. Let’s use mobility.

In the lower right, you find desktop computers - powerful but not mobile. At the top left of the plot, you find smartphones - very mobile, but not so powerful. And in between, we plot laptops and tablets. Now notice the spaces in between these computing solutions. Today, we see companies trying to fill these voids with more powerful tablets, net books, and so on. All of these become potential new category definitions.

So take a look at your current products and services. Then, zoom up, zoom down, and plot your markets to find those new sales growth opportunities.

Grow By Creating New Categories

TabascoA clever way to find new growth is to change your market category or create a new one. When you create or change your category, you’re redefining the boundaries of your market space, and that opens your eyes to new targets of opportunity. Let’s look at how to do it.

One way to do this is by zooming up from your current category. That means you dial the category definition up a bit to create a bigger market space.

Here’s an example. Take the McIlhenny Company. It was founded in 1868 on Avery Island, Louisiana, and it makes one of my favorite products - Tabasco Sauce. Today, the company competes in its traditional category definition: hot sauce. But if it zoomed up that definition, it would imagine itself competing in the condiments category, putting it up against companies that make ketchup, mustard, and so on. That simple change in perspective might lead to new ways to communicate their brand or perhaps find new shelves to occupy at the grocery store.

But it doesn’t have to stop there. Let’s imagine the company zoomed up even more to a very broad level of food and beverages. Sound crazy? Well, not really. Viewed this way, the company might imagine creating new food items with its secret hot ingredients inside. Perhaps foods like pizza, or spicy tasting snacks. How about Tabasco chocolate bars. Imagine a new Tabasco carbonated beverage - cold, spicy, and very refreshing. The growth opportunities can seem endless when you zoom up.

Another way to redefine a category is to do just the opposite - zoom down. By doing this, you’re creating a subcategory that helps you focus your sales efforts more effectively to create growth. Let’s go back to our Tabasco example. To zoom down, you start with your current definition - hot sauce - then imagine dialing it down to a more precise definition. In this case, imagine a category called pepper sauce, or perhaps Louisiana pepper sauce. The trick here is to take a unique ingredient in Tabasco, like pepper, and create a new category definition with it. Be careful not to get so narrow that you limit sales. You have to promote this new category definition so consumers see it as a better choice over the hundreds of products out there.

A final way to find new categories is do what I call plotting the market. I sometimes need to see my market as a two dimensional space where I can plot my position versus my competition. This may help me see empty spaces that I can move into. Let’s do an example.

Imagine you compete in the personal computing market. First, I create a x-y plot where the x axis is the main, category benefit. In this case it would be computing power. On the y axis, I use another important benefit that consumers seek. Let’s use mobility.

In the lower right, you find desktop computers - powerful but not mobile. At the top left of the plot, you find smartphones - very mobile, but not so powerful. And in between, we plot laptops and tablets. Now notice the spaces in between these computing solutions. Today, we see companies trying to fill these voids with more powerful tablets, net books, and so on. All of these become potential new category definitions.

So take a look at your current products and services. Then, zoom up, zoom down, and plot your markets to find those new sales growth opportunities.

Building ROI and data into your innovation process

Rachel (1)Delivery via drones, real-time data insight into your operations, transformation of your business models— what will 2016 bring for your innovation practice?

For innovators working within the confines of large enterprises, the possibilities for transformation, especially with mobile and digital products, are endless. Lean, digital disruptors threaten their larger, more rigid corporate counterparts. Many in the C-suite view these innovations as not only a way to maintain market share with consumers, but also usher in new eras of productivity, efficiency and customer engagement.

And yet, many of these investments will fail to meet those lofty goals, and not because the ideas themselves are rife with fundamental flaws. It’s the execution and refinement of the initial idea that dooms the project. Many innovators take on a project without a plan to measure and revise the return on investment projection (and course-correct) as the product evolves.

For example, a large enterprise wants to digitize its sales operations to shorten the length of the sales cycle, from initial contact to closed deal. Inexperienced sales reps often show or send the wrong collateral for the prospective customer’s needs, and lack the ability to quickly access the collateral and tools out in the field. Leadership wants to digitize the collateral into a web-based desktop app. Here’s the problem: the team missed the insight that a bulky laptop is just as bad as a stack of papers out in the field, along with their need to access documents offline. After the release, these conditions resulted in the app making no foreseeable dent in the length of the sales cycle because about 90 percent of the users abandoned the app.

When our group was brought in to rescue the project, our research revealed that the mobile sales force needs quick interactions and more guidance as to when different collateral should be shown to prospective customers. A mobile application that works offline and has a sophisticated tagging system, with tags for the type of customer and stage in the sales cycle, significantly reduced the length of the sales cycle for that team. As new features were added, the return on investment for those additions, such as allowing users to create personal “sets” of collateral, was calculated.

A Strategy Framework to Drive Innovation-- and ROI-- at Large Enterprises

It is possible to drive a creative and thoughtful process without losing sight of the return on investment. Really.

The key is to prioritize the end-users’ needs. About 70 percent of software projects fail because of user adoption. If an innovation fails to make an impact for an end-user, they will develop a workaround to not use it on their way to abandoning it completely. Every innovator will eventually hear user feedback-- the difference is getting that feedback in the beginning significantly lowers the cost of changes. For each phase of a mobile app, researchers at NASA found a ten-fold increase in cost to make changes to the requirements.

Just ask Ford: When they debuted a new system to merge 30 disparate systems to serve their suppliers, it was a multi-year $400 million project that promised big payoffs for their relationships with their suppliers. The only problem was that once it was released to the suppliers, they were taken through as many as five screens to see only a portion of the data they needed, according to reports. This additional frustration and effort led users to abandon the system, later followed by the entire company.

As the design wireframes and prototypes bring the product to life, measuring and testing the efficiency and effectiveness of the user interactions, as well as interviewing users about their decision-making process when testing the product, make the return on investment projection and performance targets increasingly realistic.

For example, our team worked with a large utility company, who sought to improve the customer service experience of their call line. Unless the customer is calling to set up or turn off the service, customers are reaching out because of frustration, i.e. a service outage or a bill dispute. What made that experience worse was the multiple screens, random shut-downs, and different program jumps it took for the call center representative they were speaking with to solve their issue. A simple bill dispute took 53 clicks to resolve.

After understanding the common call issues and the call center operators’ needs, it was clear how to roll out a simplified user interface that increased time-on-task for operators. The result: increases of time-on-task by 79 percent and operator efficiency by 400 percent. A simple bill dispute was concentrated in one screen with 9 clicks. Training for new hires, which mainly focused on navigating the system, was cut in half.

This provides crucial proof of concept for IT and innovation managers as they push the company to invest more in transformative innovation.

As you look to 2016, make ethnographic research of your end-users your highest priority to see the ROI and real business impact of innovation-- and your innovation budget in 2017 will thank you. Check out our free guide to innovation strategy for a comprehensive overview of our field-tested strategy framework.

 

Bio: Rachel Nitschke is the Content Marketing Specialist at ChaiOne. After graduating with a degree in journalism, she worked in nonprofit communications before landing at ChaiOne to focus on demand generation and content marketing.

Innovation’s New World Order

The shifting map of global innovation In the 2015 Global Innovation 1000 study, Strategy&, PwC's strategy consulting group, provides new insights into the ways corporate innovation spending—which totaled $680 billion last year—has been changing in recent years, and examines the implications both for the future course of global economies and for corporate performance. How and where innovation is performed matters: As Harvard Business School professor Michael Porter, author of classic texts on corporate strategy and the competitive advantage of nations, has noted, “Innovation is the central issue in economic prosperity.”

If you look at global innovation spending in terms of where companies are headquartered, it’s not obvious that much has changed over the years: It always looks like North America is number one, Europe is number two, and Asia is number three. But that conceals what has actually been happening. If you instead focus on where the world’s largest companies actually do the work of innovation, the story is very different.

We’ve done that analysis in this year’s study, comparing today’s data with the situation in 2007, when we first examined the globalization of corporate innovation spending. Just eight years ago, the top region for R&D activity was Europe, which accounted for 35 percent of the global total, followed by North America with 34 percent, and Asia, with 27 percent. Today, the order has reversed: Asia is now number one, with 35 percent, North America is still second, with 33 percent, and Europe is last with 28 percent. A complete reversal in just eight years.

Asia’s rise and Europe’s decline

The fact that innovation spending is rising in Asia is not a surprise, but our study details the magnitude and rapid pace of the growth: Total corporate R&D activity grew 120 percent in China, for example, between 2007 and 2015, and by 115 percent in India. Most of this spending is being conducted by companies from Europe and the U.S., and they are not primarily seeking lower labor costs. According to R&D executives, their chief motivations are to be closer to their customers and suppliers in these fast-growing economies, and to gain access to the right technical talent.

The relative weakness of R&D spending in Europe, however, is a surprise. Innovation spending in Europe grew by only 9 percent from 2007 to 2015, while the amount of R&D spending European companies did in other regions increased 46%. The decline of particular counties has been even sharper. In Germany, for example, inflows of R&D spending from other countries fell by 7 percent from 2007 to 2015, while R&D “exports” to other countries rose 76 percent. In France, inflows fell 21 percent, while exports rose 46 percent. Overall, the data suggest that Europe is seeing a relative “hollowing out” of its innovation capabilities.

The U.S., in contrast, has maintained its #1 relative position in corporate R&D activity, despite the fact that U.S. companies still exported quite a bit of R&D to Asia and Europe. One reason is that U.S. companies continued to increase their R&D spending in the U.S. at healthy levels; the other is that the U.S. benefitted from significant imports of R&D activity from other regions—including from European companies who have been attracted by the U.S.’s stable economy, its flexible and innovation-oriented business culture, and the depth of R&D talent available—especially in software and digital businesses.

Global innovators outperform

Our study also shows that globalizing innovation pays: Companies that overweight their R&D spending outside their headquarters country outperform their less globalized competitors. Our study found that companies that deployed 60 percent or more of their R&D spending abroad in 2015 earned a premium of 30 percent on operating margin and return on assets, and 20 percent on growth in operating income.

I’ve guided the Global innovation 1000 study since its inception 11 years ago, and our analyses of R&D spending by corporations have provided many important insights. We’ve demonstrated conclusively, for example, that the amount of money a company spends on R&D does not correlate with its success as an innovator, or with its financial success. Instead, we’ve shown that what matters is a company’s ability to translate its innovation spending into superior products and services via superior end customer insight and R&D portfolio management. This, in turn, flows from an innovation strategy that’s tightly aligned with the company’s business strategy, a well-tuned capabilities system, and a corporate culture that supports innovation. (All previous Global Innovation 1000 studies are available online.)

This year’s study suggests that that the globalization of R&D spending will continue to yield benefits. As companies further develop and optimize their global innovation networks, they will continue to tap into more diverse talent pools and gain deeper insights into growing markets. The net result will be more innovative and profitable companies, and further increases in global economic prosperity.

 

AUTHOR BIO: Barry Jaruzelski is a thought leader on innovation for Strategy&, PwC’s strategy consulting business. Based in Florham Park, N.J., he is a principal with PwC US. He works with high-tech and industrial clients on corporate and product strategy and the transformation of core innovation processes. He created the Global Innovation 1000 study in 2005, and in 2013 was named one of the “Top 25 Consultants” by Consulting magazine.