McKinsey Survey on Innovation and commercialization 2010

Another survey on innovation with some interesting data (you will find many more here)

As companies begin to refocus on growth, innovation has once again become a priority: in a recent McKinsey Global Survey,1 84 percent of executives say innovation is extremely or very important to their companies’ growth strategy. The results also show that the approach companies use to generate good ideas and turn them into products and services has changed little since before the crisis, and not because executives thought what they were doing worked perfectly.

Further, many of the challenges—finding the right talent, encouraging collaboration and risk taking, organizing the innovation process from beginning to end—are remarkably consistent. Indeed, surveys over the past few years suggest that the core barriers to successful innovation haven’t changed, and companies have made little progress in surmounting them.

So, we all agree that innovation is important and we recognize the challenges in becoming innovative. BUT, we continue to use same old management processes and hoping that we will get new results! Even more importantly, we continue to believe that we are good at innovation, but not really know why we are better than others…

Just over half of all respondents, 55 percent, say their companies are better than their peers at innovation, a figure that hasn’t budged since 2008. Another consistent pattern is that far fewer respondents say their companies are good at the specific processes and tactics frequently tied to successful innovation—such as generating breakthrough ideas, selecting the right ideas, prototyping, and developing business cases. Respondents say their companies are best at adapting once they’re in the market, with 58 percent claiming to be successful. As in the past, executives have the most difficulty stopping ideas at the right time, with only 26 percent of respondents to this survey saying they do this well.

The graph below says a lot:

Only 39 percent of respondents say their companies are good at commercializing new products or services. This overall assessment seems to have a few different sources (Exhibit 4). Commercialization was a serious concern in 2007 as well; in that year’s survey, nearly a third of senior leaders selected making handoffs from ideas to commercialization as one of their biggest challenges, and 43 percent said the top challenges included choosing which ideas to move forward.

Much more good info in the article…

Down with fun

Another great article by Joseph Schumpeter in the Economist: Down with fun.

These days many companies are obsessed with fun. Software firms in Silicon Valley have installed rock-climbing walls in their reception areas and put inflatable animals in their offices. Wal-Mart orders its cashiers to smile at all and sundry. The cult of fun has spread like some disgusting haemorrhagic disease. Acclaris, an American IT company, has a “chief fun officer”. TD Bank, the American arm of Canada’s Toronto Dominion, has a “Wow!” department that dispatches costume-clad teams to “surprise and delight” successful workers. Red Bull, a drinks firm, has installed a slide in its London office.

I am not sure how important FUN is to R&D teams.

This cult of fun is driven by three of the most popular management fads of the moment: empowerment, engagement and creativity. Many companies pride themselves on devolving power to front-line workers. But surveys show that only 20% of workers are “fully engaged with their job”. Even fewer are creative. Managers hope that “fun” will magically make workers more engaged and creative. But the problem is that as soon as fun becomes part of a corporate strategy it ceases to be fun and becomes its opposite—at best an empty shell and at worst a tiresome imposition.

This does feel like an excuse for poor R&D management in my opinion. I do not know what makes my employees more innovative or more effective. I am going to assume that creativity is related to fun. So, I am going to encourage my workers to have more fun at work! As the author rightly points out:

Behind the “fun” façade there often lurks some crude management thinking: a desire to brand the company as better than its rivals, or a plan to boost productivity through team-building. Twitter even boasts that it has “worked hard to create an environment that spawns productivity and happiness”.

And here is the clincher…

The most unpleasant thing about the fashion for fun is that it is mixed with a large dose of coercion. Companies such as Zappos don’t merely celebrate wackiness. They more or less require it. Compulsory fun is nearly always cringe-making.
…
Wal-Mart tried to impose alien rules on its German staff—such as compulsory smiling and a ban on affairs with co-workers…

The innovation machine

The Economist has an interesting article by Joseph Schumpeter The innovation machine:

Hardly a week passes without someone publishing a book on the subject. Most are rubbish.

I tend to agree. There is so much hype around innovation, but no one really defines what they believe is innovation. Even the Oslo Framework definition talks about new products and new methods. What is the difference between invention and innovation? All new product lines automatically become innovation? I am thinking we should focus on R&D effectiveness and not really worry if it is innovation or not. Anyway, back to the article:

Last year Mr Govindarajan and Mr Trimble (hereafter: G&T) published a seminal article, with Jeff Immelt, the head of General Electric, on frugal innovation. In their new book they address two subjects that are usually given short shrift: established companies rather than start-ups and the implementation of new ideas rather than their generation.

I like frugal innovation as a concept because it focuses the R&D team and drives innovation. The two new thrusts are:

The fashion these days is to focus on the supply side of innovation: for example, by encouraging everyone to think big thoughts. 3M, the maker of Post-it notes, expects its workers to spend 15% of their time on their own projects. Google expects them to spend 20%. This approach is attractively democratic: by giving everyone a chance to innovate, it makes everyone feel special. Or so the theory goes. G&T are ready with the cold water. The let-them-loose approach spreads resources thinly and indiscriminately. Companies dissolve into a thousand small initiatives rather than focusing on a few big problems. It also produces far too many ideas: managers have to spend weeks sorting through the chaff to find a few grains of wheat.

That is give people time to think of new things and innovation will happen. I agree that is a good idea. However, it is important to remember that R&D management becomes even more important when you are letting technologists roam free. One needs to guide and nurture right ideas and to do so requires a good evaluation scheme to identify those ideas that are worthwhile.

A second approach focuses on closing the loop between ideas and results. Nucor Corporation, a steelmaker, gives its workers bonuses if they can produce steel more efficiently. Deere & Company, a maker of farm machinery, has produced a detailed playbook on how to design new tractors. G&T concede that this approach is an excellent way of making incremental improvements to existing products and processes, but suggest that it has little chance of producing a big breakthrough.

Interesting debate! More on it below. However, the authors insist that the only way (or the primary way) to drive innovation is to break out a group that can innovate.

G&T argue that companies need to build dedicated innovation machines. These machines need to be free to recruit people from outside (since big companies tend to attract company men rather than rule-breakers). They also need to be free from some of the measures that prevail in the rest of the company. But they must avoid becoming skunk works. They need to be integrated with the rest of the company—they must share some staff, for example, and they must tap into the wider company’s resources as they turn ideas into products. And they must be tightly managed according to customised rather than generic rules. For example, they should be held accountable for their ability to learn from mistakes rather than for their ability to hit their budgets.

I have seen many innovative ideas rejected because they were not invented by the team. Setting up a separate organization just brings foreign body rejection a little bit less difficult. More often than not, the innovation organization becomes an outcast and root cause of tremendous organizational conflict. This has happened many times with the original Skunk Works (at Lockheed) it self. Many people do not realize that Skunk Works was successful because they were paid by the government to do work. They were a profit center. Trying to replicate Skunk Works in non government area is going to be quite difficult. More importantly, innovation to invention transition from Skunk Works has been far from effective.
So, what are my recommendations? Effective R&D management, of course! Only managers can provide challenges that help teams innovate, identify bright ideas and fund them so that they can be transitioned into inventions and products and avoid organizational conflict / foreign body rejection. Much more stuff is here.

Boosting R&D productivity

Here is an article from the McKinsey Quartely on a topic of great personal interest to me: how to boost performance of R&D workers. I believe knowledge barriers are increasingly important in increasingly complex and increasingly virtual R&D teams and have written about it quite often. Clearly, the idea of forming focused virtual communities is new to many R&D executives:

Nonetheless, many executives have a hazy understanding of what it takes to bolster productivity for knowledge workers. This lack of clarity is partly because knowledge work involves more diverse and amorphous tasks than do production or clerical positions, where the relatively clear-cut, predictable activities make jobs easier to automate or streamline. Likewise, performance metrics are hard to come by in knowledge work, making it challenging to manage improvement efforts (which often lack a clear owner in the first place).

The article points out five significant barriers to effective R&D community building and what to do about them:

Physical: As I have discussed in the past, even R&D workers separated by just one floor become more or less virtually connected. The article suggest building communities of practice (COP). However, COP need help to overcome barriers 2, 4 and 5 below.
Technical: Much R&D collaboration involves different technical disciplines. Each technology has its own specific jargon. It is quite difficult to have effective communications across different different disciplines. The article suggests role rotation as a possible solution. However, these rotations are expensive and provide mixed results because of 4 and 5 below.
Social / Cultural: Pretty obvious for multi-national teams. However, as I have pointed out, significant cultural differences exist between two different organizations (such as marketing and manufacturing) in the same office. The article again focuses on COP. In my experience, COP are a good start, but not the ultimate answer to addressing social barriers.
Contextual: This to me is the most important barrier. Most R&D communication occurs through documents (reports, papers, etc.). These communications describe the results, but rarely provide the context of why particular decisions were made. Some of it is between different technologies or organizations (2 and 3 above), but the barrier is even more critical to team members in the same discipline… The article focuses on forums and meetings as a possible solution. I do not think you can understand the context of another discipline through meetings.
Time: Given enough time, it is possible to overcome the barriers above. However, there is never enough time. Most people need the right information, at the right level of detail – instantaneously. The article suggests a central database of learnings. I think that is a great idea. However, it is critical to structure the database so that the information is easily accessible. That is easier said than done.

I believe that our solution provides a revolutionary new approach to address all of these barriers…

R&D Executive Leadership

I have always been fascinated by the trend to blame and praise business leaders in the USA. I have often wondered how anyone can justify paying a CEO as much as several hundred engineers. Here is an excellent blog post by Prof. Sutton of Stanford University.

James Meindl’s research on “the romance of leadership” shows that leaders get far more credit—and blame—than they deserve, largely because, cognitively, it is easier and more emotionally satisfying to treat leadership as the primary cause of performance than to consider the convoluted and often subtle mishmash of factors that actually determine performance differences.

And there is some empirical evidence of the impact leaders have:

…many studies show that for more than 75 percent of employees, dealing with their immediate boss is the most stressful part of the job. Lousy bosses can kill you—literally. A 2009 Swedish study tracking 3,122 men for ten years found that those with bad bosses suffered 20 to 40 percent more heart attacks than those with good bosses.

I have slowly realized that organizations take on the culture of their leaders and behave like them. For example, in many service organization such as legal or management consulting, everyone is driven to become a partner. They do whatever it takes to make themselves look good to the partners – all the while complaining that people are not being rewarded for their skills, but on how they “kiss up to” the partners. Even so, when the become partners, they actually repeat the same behavior…

Linda Hudson, CEO of BAE Systems, got this message after becoming the first female president of General Dynamics. After her first day on the job, a dozen women in her office imitated how she tied her scarf. Hudson realized, “It really was now about me and the context of setting the tone for the organization. That was a lesson I have never forgotten—that as a leader, people are looking at you in a way that you could not have imagined in other roles.” Hudson added that such scrutiny and the consequent responsibility is “something that I think about virtually every day.”

So, what is a leader to do? Here are Prof. Sutton’s suggestions:

Take Control

Express confidence even when you don’t feel it
Don’t Dither
Get and Give Credit
Blame Yourself

Bolster Performance

Provide Psychological Saftey
Shield People
Make Small Gestures

In case you want more, here are many more related posts…

Bacteria evolve a way to share electrons

This is just amazing: Bacteria evolve a way to share electrons: “

Life is powered by the shuffling of electrons. When organisms break down a food source like a sugar, they’re really extracting high-energy electrons, which they shuffle down through intermediate proteins before they end up in a final electron acceptor. For most of the life we’re familiar with, that acceptor is oxygen. But for various microbes that thrive in the absence of oxygen, a variety of other chemicals are used.

In the current paper, the authors forced two different species of bacteria to live in an anaerobic environment, and provided them with ethanol as food. Initially, they grew very poorly. After several transfers, however, the rate of growth improved, and small, colored nodules began to appear in the culture, which contained a mix of the two types of bacteria. The authors checked a number of the chemicals that are typically used to transfer electrons in these symbiotic cultures, but saw no evidence of their being used.

To figure out what was going on, they did whole-genome sequencing, and found only one change: a single base missing in the gene for a protein that regulates RNA production. Making a similar mutation in another strain also allowed those bacteria to form quick-growing nodules. The mutation appears to cause proteins involved in electron transfer to be expressed at increased levels. These proteins end up on pilli, arm-like structures that extend out from the bacteria.

Nokia’s Bureaucracy Stifled Innovation

This New York Times article on Nokia’s Bureaucracy Stifled Innovation has several interesting lessons for R&D managers. It appears that Nokia had a smart phone before others, but cancelled it:

A few years before Apple introduced the iPhone in early 2007, the prototype of an Internet-ready, touch-screen handset with a large display made the rounds among upper management at Nokia. The prototype developed by Nokia’s research centers in Finland was seen as a potential breakthrough by its engineers that would have given the world’s biggest maker of mobile phones a powerful advantage in the fast-growing smartphone market.

I am not sure that having a prototype in 2004 and choosing not to bring it to market was such a bad decision. Apple itself had a prototype for a smart phone working with a large consumer electronics company in 2004. They too chose not to bring it to market. I do not think technology existed to actually build successful smart phones in 2004 – that included fast enough processors, low power LED backlit screens and abundant DRAM/FLASH. R&D Managers need to make touch choices at times and they can all not be the right choices. This one example does not directly prove that all decisions made at Nokia were bad – or that even this decision was a bad one.

On the other hand, the article mentions a couple of times that Nokia got complacent because of its own success:

… former employees depicted an organization so swollen by its early success that it grew complacent, slow and removed from consumer desires. As a result, they said, Nokia lost the lead in several crucial areas by failing to fast-track its designs for touch screens, software applications and 3-D interfaces.

“Nokia in a sense is a victim of its own success,” said Jyrki Ali-Yrkko, an economist at the private Research Institute of the Finnish Economy. “It stayed with its playbook too long and didn’t change with the times. Now it’s time to make changes.”

This is clearly a problem. How do R&D mangers keep from falling into this trap? I guess one has a better more formal portfolio balancing process that allows decisions to be based on qualitative and quantitative criteria that can be discussed rationally. This was NOT the case at Nokia:

Juhani Risku, a manager who worked on user interface designs for Symbian from 2001 to 2009, said his team had offered 500 proposals to improve Symbian but could not get even one through.

“It was management by committee,” Mr. Risku said, comparing the company’s design approval processes to a “Soviet-style” bureaucracy. Ideas fell victim to fighting among managers with competing agendas, he said, or were rejected as too costly, risky or insignificant for a global market leader. Mr. Risku said he had left in frustration at its culture; he now designs environmentally sound buildings.

The key phrase in portfolio balancing is BOTH qualitative and quantitative criteria. A strict focus on ROI will kill high-risk high-return innovative projects. Fundamental technology development is also a difficult area to measure ROI because technology has impact on multiple products and ROI is impossible to compute (Symbian could be seen as a fundamental technology with impact on multiple product platforms):

Proposals were often rejected because their payoffs were seen as too small, he said. But “successful innovations often begin small and become very big.”

In fact, R&D managers should set a portion of their budgets for innovation (10-20%). These projects should not have any ROI requirements. Another way to encourage manager risk taking is to reward failure.

Meetings are a waste of time

Here is some data that would make your day First a survey that suggests Businesses Waste 4.8 Hours Per Week Scheduling Meetings:

By the time the year ends, many have spent the cumulative equivalent of six weeks scheduling meetings, and that doesn’t include time spent attending them.

That sounds excessive and not realistic. But what do I know… On the same note, here are some suggestions from HBR to improve reduce waste with my 2 cents added:

Meetings always shorter than 90 minutes
Meeting materials delivered at least day before and everyone comes prepared
One page executive summary for the briefing package that everyone must read
Clearly defined roles and responsibilities for each participant in the meeting (no one attends the meeting unless they have a stake)
Predefined agenda for the meeting (no meeting requests without agenda)
Clear conclusion at the end of the meeting (As per HBR: Where are we going to go from here? What are the to-dos and who is going to do them? When will they be delivered?)

I remember reading and article about how P&G’s strategic reviews took place. The business unit sent out the briefing package at least a week before the review. All obvious questions were discussed over email. The meeting was for making decisions and having real debates. I really like that idea.

Impact of Incentive Bonus Plan

Here is a cool article from Management Science on Empirical Examination of Goals and Performance-to-Goal Following the Introduction of an Incentive Bonus Plan with Participative Goal Setting:

Prior research documents performance improvements following the implementation of pay-for-performance (PFP) bonus plans. However, bonus plans typically pay for performance relative to a goal, and the manager whose performance is to be evaluated often participates in setting the goal. In these settings, PFP affects managers’ incentive to influence goal levels in addition to affecting performance effort. Prior field research is silent on the effect of PFP on goals, the focus of this paper.

The authors studied retails store performance (I believe retail stores have a much better handle on performance bonuses than most R&D organizations I know)

Using sales and sales goal data from 61 stores of a U.S. retail firm over 10 quarters, we find that the introduction of a performance-based bonus plan with participative goal setting is accompanied by lower goals that are more accurate predictors of subsequent sales performance. Statistical tests indicate that increased goal accuracy is attributable to managers ‘meeting but not beating’ goals and to new information being impounded in goals.

So, managers lower the goals and then meet them!

we find that prior period performance has incremental power to explain goal levels in the postplan period. Our results provide field-based evidence that PFP and participative goal setting affect the level and accuracy of goals, effects that are associated with both information exchange and with managers’ incentives to influence goals.

Take home message is to be very careful with setting up an incentive bonus plan. In R&D organizations, it is even more difficult because the results are often not measurable and incentives tend to get disconnected from performance to start with. Please let me know if you would like to discuss this further.

Specification and Design of Embedded Hardware-Software Systems

For last few months, I have been working on developing a new design flow that brings ASIC like reuse and semiconductor like cost curve to all R&D. The idea is that semiconductors have increased in complexity and performance exponentially, while costs has come down continuously. How can we replicate the same for all system R&D?

One of the earliest papers on the topic was Specification and Design of Embedded Hardware-Software Systems. In retrospect, the place where it should have come up first anyway – system where electronics/semiconductor and other technologies interact.

“System specification and design consists of describing a system’s desired functionality, and of mapping that functionality for implementation on a set of system components, such as processors, ASIC’s, memories, and buses. In this article, we describe the key problems of system specification and design, including specification capture, design exploration, hierarchical modeling, software and hardware synthesis, and cosimulation. We highlight existing tools and methods for solving those problems, and we discuss issues that remain to be solved.”

The paper suggests five tasks:

Specification capture: Specify desired system functionality
Exploration: Explore design alternatives
Specification refinement: Refine specifications based on exploration
Software & Hardware design:
Physical design:

Much more on this in the future. But a good paper to start thinking about things.