Innovation is "change that creates a new dimension of performance", according to management guru Peter Drucker.
Innovation, therefore, must be focused on delivering a competitive advantage and creating increased value for businesses and customers. Innovation covers: Business model, Business processes, Technology, Organisation architecture and methods, and Products. This can be tracked using the Innovation Radar developed by the Kellogg School of Management and available from Clareo Partners.
Innovative change is about leadership and must be communicated as a key strategy by the chief executive who must become its champion. An IBM study in 2006, Global CEO Study – Expanding the Innovation Horizon, found innovation strategy must be orchestrated from the top to succeed.
The innovation strategy is then backed up by an organisational design, with mechanisms giving people the time, space, recognition and motivation to encourage appropriate behaviour.
Some of the initial change areas required to make a company become more innovative are: Move from a hierarchical to a networked organisational structurel; Inclusion of innovation in job specification; Reward and recognition systems, including bonuses, awards and reviews; Symbols – for example, work spaces and branding; A culture more tolerant to risk and associated costs; and Corporate language.
To achieve sustainable innovation, a good practice is to develop an overarching framework. This captures not only all the aspects of innovation but also the other change mechanisms.
The role of external partners
External collaboration is an important element in successful innovation but is proving to be difficult to execute. Many companies, from industrial group General Electric to retailer Safeway, are finding it a challenge to bring in the skills and the culture to deliver effective collaboration.
By embracing collaboration and pushing its limits, we increase the resources 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 the "not invented here" syndrome.
Extensive collaboration also allows a company’s capabilities and ideas to come from a variety of sources within, and external to, your industry’s ecosystem. This may involve collaboration with a wide variety of organisations, such as: University research centres; Venture capital firms and start-up; Companies in adjacent industries; and Organisation networks.
Two emerging trends in this area are the creation of internal innovation groups, which are specificallyresponsible for external collaboration (for example, consumer goods company Procter & Gamble has created the role of technology entrepreneur), and corporate venturing funds (a Wharton School paper in October 2006 claimed this was now the possible fourth wave of corporate venturing).
Approaches to external collaboration
The ability to 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 or team (for example, the discovery team) that understands key drivers and needs of the corporate strategy and can communicate those to the external world. External parties can then drive innovation towards the company and likewise the 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 a corporate venturing fund.
Source: When external organisations are identified by the discovery team and a relationship is engaged, it brings that capability to the company. This could 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 so as to provide value to the target company. At this stage, the discovery team, the external party or parties, and a target business unit begin working 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 capability is now adopted within the business.
Companies have adopted various approaches for some or all of these stages, such as Procter & Gamble’s technology entrepreneurs, which covers sense and source, oil major BP’s office of the chief technology officer that has a successful approach for all the stages, and a large mining conglomerate for successfully piloting an approach allowing for the identification,adaptation and adoption of a certain capability from the oil and gas industry.
The last two 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 venturing as a tool
Corporate venturing 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.It has different goals depending on corporate circumstances, including: Source of new products or outsourced research and development – this is most commonly found in the pharmaceutical and information technology industries; Identify emerging technologies and capabilities that directly affect the strategic focus areas of the business; Invest as a limited partner in an established venture capital fund focused on a narrow area of company interest; and Monetise internal innovations – an emerging model initially seen in the healthcare fieldwhere 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 ecosystem and by leveraging the most effective model in attracting and filtering a large volume of opportunities – the venture capital model.
The fund goal described in the second point is the type most commonly emerging as a tool for sense and source among companies in a wide range of industries – technology, media, transportation, mining and oil and gas. Even Gazprom, the Russian oil giant, in 2008 formed a corporate venturing fund of $100m to invest in companies with solutions that would improve Gazprom’s operational performance.
This year we are seeing a resurgence of corporate venturing, and time will determine if the design and goal of these funds allows them to become a sustainable part of corporate growth, as it has for oil major Chevron or semiconductor maker Intel, rather than a passing fad.
Corporate venturing will emerge as a vital tool of leaders in open innovation, enabling companies to identify a range of solutions and capabilities that would not otherwise have been exposed to the company for years.
Then, with effective internal collaboration, these will be leveraged into the business to create value and competitive advantage.