Focus on technology instead of customers if you want breakthroughs

A marketing study performed at University of Illinois at Urbana-Champaign shows that a technology focus is necessary to generate breakthroughs and that a customer focus only brings in incremental improvements.

Groundbreaking ideas spring most from companies that stress technology, rather than customer needs or staying ahead of competitors, according to research that will appear in the Journal of Product Innovation Management.

Firms that focus on their competitors or customers generate more new product suggestions than technology-based companies, the study found. But the ideas typically net only subtle advances, such as the slow evolution of wireless reading devices, rather than breakthroughs similar to the shift from compact discs to music downloads.

These results make sense intuitively. The key point in my mind is that an organization needs both – breakthroughs and incremental improvements. In fact, incremental improvements are critical for day-to-day operations of a business. The need then is to achieve both through a balanced approach to R&D management. A careful set of portfolio balancing tools are needed that allow organizations to fund breakthrough ideas and incremental improvements.

Performance reviews cause too much stress

The New York Times has an interesting article on the impact of performance reviews on supervisors and employees alike.

Annual reviews not only create a high level of stress for workers, he argues, but end up making everybody — bosses and subordinates — less effective at their jobs. He says reviews are so subjective — so dependent on the worker’s relationship with the boss — as to be meaningless. He says he has heard from countless workers who say their work life was ruined by an unfair review.

Some people are recommending doing away with review altogether.

“I say, ‘Throw it out,’ because it becomes a very biased, error-prone and abuse-prone system,” said Dr. Namie, the author of “The Bully at Work” (Sourcebooks, 2000). “It should be replaced by daily ongoing contact with managers who know the work and who can become coaches.”

I see the limitations with current system of performance reviews – especially in larger R&D organizations. Each team member has at least two bosses – a project manager and a functional manager. The functional manager can compare individual’s performance to their peers, while the project manager can actually understand how well they have performed on a team. The two managers communicate infrequently at best and many times speak in completely different jargons. This results in the functional supervisor making somewhat misinformed decisions that she or he is not well prepared to explain.

“Who is the biggest source of stress on the job? It’s your immediate supervisor,” he said. “The pile of evidence coming out shows that if you want to be an effective organization or an effective boss, you’ve got to strike a balance between humanity and performance.”

I think a new system, process and tools are needed to provide continuous feedback in this complex world.

Using rivalry to spur innovation

Mckinsey Quarterly has an interesting article on how to spur innovation. Their suggestion is to use rivalry to drive innovation. As in the case of GE and reverse innovation in India, the underlying thesis is that innovation does not just happen – R&D managers need to actually provide the circumstances to fuel it.

One such approach is to through rivalry as it happened in Renaissance Italy. The author proposes three approaches to get the rivalry going in modern R&D organizations:

Forming teams. Competing teams could come from different divisions, include a diverse array of experts, and take explicitly different approaches to the same problem. After all, there are often many ways (sometimes coming out of different disciplines) to resolve an R&D challenge, and there is often no way of knowing which one is best without trying them out. Moreover, teams can have biases and narrow specializations, making it all the more important to have an explicit diversity of approaches.
Appreciating differences. During the Renaissance, paintings were placed side by side so that viewers could compare and appreciate them and other artists could borrow from them. In the same way, the various solutions that teams develop can be held up next to one another in order to judge them on their relative merits. On many occasions, ideas from one can be integrated into the other. Or a solution that is ultimately passed over can be sent back to the labs for development in new directions.
Conducting “market tests.” Another way to replicate the practice of paragone is to bring designs to an internal jury or group of customers and let them weigh and contrast the different solutions. In some cases, more than one of the products may find customers who appreciate them, just as Renaissance artists each had their own following.

If you have the luxury of setting up competing teams to do the same development, more power to you. Clearly, the other two suggestions are valid however you decide to evaluate innovation. Another interesting approach I remember is through “Theme-Based Innovation” – something I read in an RTEC case study of Coloplast‘s go-to-market strategy. They define launch slots for products and have a primary and an alternate candidate. Whichever makes it goes first. This way, you are not wasting any development resources.

Innovation vs. Group Think

Here is a really cool article from the Knowledge @ Wharton. It deals with one of the major problems with any brainstorming event – Group Think. They propose a new concept called Hybrid Brainstorming:
The key with innovation is not to get as many ideas as possible, but to get some exceptional ideas that can be game changers. Any process that equalizes all the ideas contributed by everyone will be counter to the objectives of the brainstorming. So the goal is to strike this delicate balance between being inclusive and looking for exceptional ideas. Check out the article. It has some interesting thoughts.

Terwiesch, Ulrich and co-author Karan Girotra, a professor of technology and operations management at INSEAD, found that a hybrid process — in which people are given time to brainstorm on their own before discussing ideas with their peers — resulted in more and better quality ideas than a purely team-oriented process. More importantly for companies striving for innovation, however, the trio says the absolute best idea in a hybrid process topped the Number One suggestion in a traditional model.

Necessity is the mother of – Innovation

A couple of articles on driving innovation through Reverse Innovation. One is from Wharton School of Business and another from Forbes. The article suggests that historically innovation happened in the rich countries and moved to poor countries and now it needs to start in the emerging countries.

Vijay Govindarajan, professor of international business at the Tuck School of Business at Dartmouth College, who spent the last two years as a GE professor in residence and chief innovation consultant, calls the company’s strategy “reverse innovation”. “Historically, innovations have always happened in rich countries,” he points out, “But in the future, innovations will have to take place in countries like India and China, because this is where the bulk of the customers are. The needs are more pressing here and the sheer volumes will justify the investments that will be required for developing the appropriate products.”

The reality is that the emerging market is becoming more attractive and the need to drive down costs to meet the economical realities of that market is driving innovation at GE. The reduced costs then have a great positive impact on other markets as well. Similarly, there is a need for products of all sorts – such as cell phones – that need to fit the budgets of a whole new population.

One lesson I am learning from this is that R&D managers need to create situations where the technologists are challenged to generate new solutions. Innovation is not just about people sitting around and free thinking in a cool room filled with new toys. I am wondering if there is a structured way for managers to come up with challenges that get the same result without “Reverse Innovation.”

In any case, we can now safely modify Plato’s quote to say that “Necessity is the mother of Innovation.”

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Great list of innovation management tools

Blogging Innovation blog has a great list of tools to manage innovation and ideas. Tools to manage ideation are important and the author has put in quite a bit of work to generate a pretty comprehensive list. Please also check out his word document on desired functionality.

In my experience, idea management tools are a subset of processes, tools and metrics needed to ensure that innovation pays off. Managers need to find ways to quickly evaluate, develop and monitor innovative ideas. There also needs to be an efficient approach to kill innovation projects that do not pan out.

One of the companies I worked at had a great innovation generation machine. They gave out $20-50k for small projects that looked outlandish enough. However, there existed no way to catch all this innovation and develop it further into delivered products.

What is your experience? How is innovation management working in your organization.

CEOs really want more creativity?

Here is an interesting article in Business Week penned by a Senior Vice President from IBM. The article claims that CEO priorities are changing fundamentally:

There is compelling new evidence that CEOs’ priorities in this area are changing in important ways. According to a new survey of 1,500 chief executives conducted by IBM’s Institute for Business Value (IBM), CEOs identify “creativity” as the most important leadership competency for the successful enterprise of the future.

There are a couple of key take aways in the article.

CEOs have started valuing creativity and continuous innovation.
CEOs want to be disruptive: “Disrupt status quo, disrupt business models and disrupt organizational paralysis.”

Clearly, all these things are very important to do – in any company, in any economy. What the article does not explain is why the CEOs did not value creativity earlier! Did they really believe that it was better to be unoriginal? Did they actually want organizational paralysis?

The take aways are also very difficult to realize. For one to disrupt status quo, one needs to understand what needs to be disrupted and what the desired end state should be. To do that, an organization needs a good evaluation of its processes or a way to get that evaluation in the first place. If you have that capability, then you probably do not have organizational paralysis to start with. Driving innovation has always been a big challenge.

What do you think? What are some examples of organizational paralysis that you have seen? Are then any stories or challenges that you would like to share?

R&D spending does not guarantee profits

In an article that corroborates TI’s findings, here is a 2005 article in Management Issues suggesting that higher R&D spending does not necessarily result in better profits. In some ways the material is still relevant, especially if one wants to find savings in R&D budgets.

Companies which invest heavily in research and development may be wasting their money. According to a new study, there is no direct relationship between R&D investment and significant measures of corporate performance such as growth, profitability, and shareholder return.

The article has some useful data about the R&D spending on the top 1,000 global players:

According to consultants Booz Allen Hamilton, who analyzed the world’s top 1,000 corporate research and development spenders, innovation spending is still a growth business. This 2004 Global Innovation 1,000 spent $384 billion on R&D in 2004, representing 6.5 per cent annual growth since 1999.
And the pace is accelerating. Measured from 2002, the annual growth rate jumps to 11.0 per cent.
While the top 1,000 corporate R&D spenders invested $384 billion in 2004, the second 1,000 spent only $26 billion – only an additional 6.8 per cent beyond the top 1,000 spenders.

This article points out the need for coordinated processes R&D planning, project portfolio management and R&D investment management: “How you spend is more important than how much you spend.”
However, getting coordinated processes in place for planning, portfolio management and investment management is rather difficult. Add to it the complexity of aligning investments with changing market needs and project progress/delays, and the real task of guiding R&D and invention becomes rather difficult.

In other words, the study argues, it is the process, not the pocketbook that counts. For example, Apple’s 2004 R&D-to-sales ratio of 5.9 per cent trails the computer industry average of 7.6 per cent, while its $489 million spend is a fraction of its larger competitors.

What do you think? Do you have any stories to share about success or failure around project portfolio management? Or are there any challenges that you face that you would like to discuss?

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Making Data Work For You

Here is an article from Forbes talking about how to make data work for you. The underlying presumption is that the data necessary to make management decisions is lying around in the company in different forms – the challenge is to mine it effectively and prepare the right kind of report.

The amount of data inside corporations is exploding. In fact, there has never been such a wealth of information available in the history of business, and there has never been the vast array of tools to dissect it.
CIOs are generating reports for business leaders that slice the data horizontally and vertically, project growth, calculate productivity and profitability, and compare all of this historically and competitively. They are even pulling out tidbits of data that may appear randomly and building models based upon recurrences that escaped notice by even the most astute teams of experts. But is all this stuff right?

The key challenge according to the article is to find the right kinds of skills that marry IT and business understanding to generate these reports. And that unfortunately, those skills are hard to come by.

You’re talking about creating a data model, but aren’t models inherently flawed? Look at what happened to Wall Street in 2007.
The problem with models is not so much that they’re difficult to create. It’s whether everyone involved agrees with the same semantics. If you want a revenue report or a profitability report, you need to figure out what should be included. Once you have clarity on that, the other steps are much easier.
Do these skills exist?
They’re not very common. We need a completely new skill set for the CIO and the IT department. They have to speak the language of requirements for the application as well as the business language of reports.

In my experience, getting hold of the right data to make effective R&D management decisions is a big challenge. The problem is not only that the data is fragmented across multiple tools and databases, but also the fact that the tools all use different jargon and structure. It is difficult, if not impossible to aggregate data across these fragments to generate meaningful reports.

For example, if one wants to generate project portfolio status reports automatically, one has to mine across project management, requirements management and financial management systems. Each one of these systems maintain their data at different, disconnected levels of abstraction. Even if it was possible to mine data from each one of them, effort needed to link them across each other would be cost prohibitive.

What do you think? Have you used automated data mining / report generation tools successfully? Are there any lessons learned that you can share?

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R&D spending cuts sharpen vision?

A recent article in the Dallas News mentions that TI has cut its R&D budget by more than 25%. These cuts appear to be permanent.

Texas Instruments Inc., a legendary font of innovation, cut its budget for research and development by almost half a billion dollars in 2009. Those reductions are expected to stay in place this year as well. But the Dallas-based company, producer of landmark technology such as the integrated circuit and the pocket calculator, says the approximately 25 percent drop isn’t a sign of declining innovation. Rather, it’s a mark of a maturing, streamlined product portfolio.

TI believes that the cuts are actually helping it sharpen its vision on more important R&D and eliminate unnecessary efforts.
Instead, the company is focused on embedded processors and analog chips, the devices inside cellphones and other mobile goodies that crunch video and handle other complex tasks.

“We’re looking at markets that were maturing or not developing the way we had anticipated” for cuts, said chief financial officer Kevin March.
One source of savings is that TI stopped doing much research into ways to mass-produce its products, leaving that work to manufacturers in Asia that crank out the chips.
TI has also been extricating itself over the last few years from designing baseband chips that connect mobile phones to cellular networks.

The question here is the impact of sudden large changes in the R&D budgets on the overall health of the R&D project portfolio. An underlying theme is that organizations get complacent in their view of their R&D priorities. Or that unproductive projects are really difficult to kill once they have been funded for a while. A large discontinuity forces the organization to revaluate priorities and see how the R&D pipeline is aligned with the priorities.

A concern may be that a sudden large change may actually get rid of good projects along with the bad. One needs to have a good handle on what is in the project pipeline and what results those projects are targetting. If a good view of the pipeline exists, should there be a need for large changes? What is the need for large R&D direction changes if the organization has effective periodic R&D project portfolio reviews? Should not the weak projects be eliminated because their proejcted results would not meet requirements? If such a view of the pipeline does not exist, would not a large discontinuity be a difficult time to develop such a view?

What do you think? Has your organization successfully made large changes in R&D spending? If your organization has an efficient portfolio management process, do you think large changes such as this would be necessary or effective?

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