Companies that mobilize their entire workforce to develop new ideas and that measure the performance of innovative initiatives tend to see better returns on their “innovation investment,” a recent Arthur D. Little report found.
Getting a Better Return on Your Innovation Investment, the 8th Arthur D. Little Global Innovation Excellence Study, cited a number of practices that stand out as “innovation success” drivers across industries.
“We find that top innovators are better at identifying unmet needs, fostering an entrepreneurial culture and leveraging existing key competencies. Interestingly, they have overcome important internal challenges that are keeping back others such as getting top-management support, enabling fast decision-making and establishing productive cross-functional relationships,” according to the report, released in February 2013.
Based on an in-depth statistical analysis, researchers found that the four most significant contributors to innovation success are:
Understanding how each technology will contribute to corporate goals. This forces the company to be clear about corporate strategy, report co-author Ben Thuriaux-Alemán said in an interview. He is a London-based principal with Arthur D. Little’s Technology and Innovation Management and Energy practices.
Such an understanding requires companies to review their current capabilities, and the ones they’ll need in the future, which “identifies the strong and the weak areas for the company, and typically triggers identification of new opportunities and synergies,” the report authors said.
Using multiple sources of external business intelligence, such as academics, consultants, suppliers and competitors’ customers, to capture valuable data. External sources, however, must be tested against “internal know-how” before they can be used, according to the report authors. Companies need to position themselves as key players in certain fields in order to attract good intelligence.
Reviewing the portfolio of products or services under development in a structured way to respond to changes in targeted segments. This allows companies to remove “waste” from the portfolio.
“The best companies review and manage their product and service portfolio throughout the lifecycle, i.e. in product planning mode, in product development mode and in maintenance mode,” the authors wrote.
Mobilizing the whole organization to develop new ideas. “You will have much better results” if you move beyond the innovation or research and development departments, Thuriaux-Alemán said. “Try to hit everyone, try to get feedback from everyone,” he added.
Measure for Success
Among other findings, the researchers cited a strong correlation between innovation success and the ability to measure innovation performance—even though fewer than 20 percent of companies surveyed considered themselves good at measuring innovation performance.
“One of the most striking things in our survey is that those who measure innovation performance tend to do so much better than others,” Thuriaux-Alemán said. “Unless you measure, you have no idea how to improve these things.”
While the most successful practices work across multiple industries, the researchers found that practices vary by industry.
“We actually think that different things matter in different industries,” Thuriaux-Alemán said. It’s hard to use Apple’s innovation practices for oil and gas, food and beverage, automotive manufacturing, or chemicals, he said.
Among the cases cited in the Arthur D. Little report was that of a global glass company that realized only one in 10 employees were engaged in innovation. The company started a program to engage 15,000 mostly blue-collar workers at more than 100 sites; the program generates several hundred ideas per year, with about 10 percent of them being implemented and adding significantly to the bottom line.
In another case, a commercial vehicle maker adopted a product portfolio strategy that “enabled clear translation of the strategic ambitions of the company into product and service portfolio choices at a suitable level of detail.” The company discovered “misalignments” in its product portfolio priorities, the report authors wrote.
The strategy enabled the auto company “to build capabilities at both top and middle management layers to ensure that the product and service portfolio investments responded to ongoing changes in the marketplace whilst remaining aligned with strategic ambitions,” the study found.
Thuriaux-Alemán named a few companies he considers to be strong industry innovators, including Royal Dutch Shell plc and Statoil, which he called “very competent in terms of their approach,” and the H.J. Heinz Co. food business.
Understand Your Industry
In addition to measuring performance and doing things “a little more radically,” Thuriaux-Alemán suggests that a business leader who wants to move a company from an average to a top-performing innovator focus on the industry.
“I would try and understand what really matters in your industry,” he said, “what’s considered to have the biggest impact on innovation performance.”
Overall, the study found that while innovation performance is significantly worse now than it was three years ago—possibly because of tough market conditions—top innovators regularly achieve 13 percent better profitability than average performers. The range between best and worst performers narrowed in the past three years, suggesting that underperformers can catch up, the firm says.Dinah Wisenberg Brin is a freelance journalist based in Philadelphia.