A Bright Future Requires Bright Ideas

Despite the collective gloom currently emanating from the world’s economic commentators, senior managers at firms across the globe are still pushing their teams to think big ideas, and spend money doing so.  As chart 1 shows, 2010 has seen a large spike in the number of heads of R&D that are being asked to drive innovation-led growth initiatives at their firms.  On top of that, data from our Research & Technology Executive Council (RTEC) shows that almost twice as many companies increased their 2010 R&D budgets than cut them. As one head of innovation at a large consumer products firm told us:

“In the past, we have taken a defensive stance on innovation but we now see it as the key to benefiting from the economic recovery. We have made significant budget and resource commitments to harness our innovation potential.“

Chart 1: Percentage of executives citing innovation-led growth as on of their top three strategic priorities 2007-2010

It All Starts at the Front End

So, if R&D executives need to find growth, where should they look? Well, as we’ve covered in previous posts, senior executives have recently been spending time and money on trying to drive corporate growth from adjacencies and business model innovation. Heads of R&D like to tell us that this highfalutin strategic activity is all well and good but strategists and their teams aren’t quite as forthcoming in their advice on how to feed innovation pipelines with big (or, in the jargon, transformative) growth ideas.

The best way for R&D to help their companies is to focus on the beginning of the innovation process – the ‘front end’. This is the part of the process where concepts for new products and services are sourced or created. RTEC researchers found that firms that were best at sourcing big new commercially viable ideas were good at two things:

• Securing organizational buy-in for funding big growth bets.
• Ensuring that growth ideas are differentiated and connected to pressing market needs.

The firms that were able to do this doubled their percentage of sales from new products relative to peer firms (those of similar size), and ran product development cycles (the process moving from initial concept to market launch) that were 10% faster than peers’. Because these firms seed their innovation pipeline with promising ideas closely aligned to customer needs, they generate better sales and a faster time-to-market.

Three Capabilities for Developing Transformational Growth

After identifying the point at which R&D teams can best influence transformative growth ideas, the RTEC research team then sought out the most important capabilities those R&D teams need to make the changes to the front end of their R&D processes.

Most interestingly, although many firms require their R&D teams to work hard on aligning their priorities with corporate strategy and on building up effective cross-functional relationships, our latest research found both of these to be relatively unimportant to driving transformational growth. The three most important capabilities for R&D to focus on are:

• Strategy validation: These capabilities enable R&D to challenge entrenched strategic assumptions and help validate a future strategic vision. Teams that are good at this monitor long-term strategic assumptions and evaluate the opportunity cost of different actions. RTEC clients should see how Ericsson’s R&D team challenges and helps shape the strategic thinking in the firm.
• Evaluation of new opportunities: These capabilities help R&D teams be more alive to new business opportunities. Successful teams are able to quickly identify those opportunities that will drive enterprise-wide growth. RTEC clients should see how GE Healthcare uses workshops to ensure that market and product insights are applied as broadly across the organization as possible.
• Early learning: These capabilities enable R&D teams to remove roadblocks that unnecessarily lengthen the front-end innovation process. They make it easier to source idea from customers and business partners. RTEC clients should see how one consumer products company speeds up early explorations of new business opportunities.

Focusing on skills in these three areas should give R&D a good start on shifting from recessionary thinking to responding to the demands for growth ideas.