A FRAMEWORK FOR THE
SUCCESSFUL MANAGEMENT OF
INNOVATION
Seven essential
components
A generic framework based on researching
management practices and policies of highlyinnovative, idea-intensive, companies
1
Input to the framework
White & Partners, with a view to sharing successful policies and management
practices with interested readers, is in the process of developing a generic
framework for the management of innovation.
What are the policies and management practices common to highly-innovative,
idea-intensive companies? We share our results to date.
2
Booz&co. The 2013 Global Innovation Study
3
Booz&co. make an insightful observation about innovation management.
• For the ninth year in a row, we have found no correlation between how much
companies spend on R&D and their financial performance.
• How companies spend their innovation dollars is much more important. Our studies
have consistently shown that innovation investments in select capabilities, tools,
talent, and culture which are tightly aligned with a business’s strategy are what
drive sustained success.
These comments lead directly to the need to develop a framework for the
best practices for the management of innovation.
The framework is not based on any single-factor but on multiple factors.
But which factors are the most important and how should they be deployed
in any one organization? Each organization is different and requires its own
set of solutions. There is no silver bullet!
• Culture
• Financial and human resource
management
• Strategy
• Organization
• Technology development and market
shifts
• Communication
• Performance management
• Delivering reliability
4
Financial performance
• Earnings
• P/E ratio
• Growth
• Profit
Stock price
Effective management
of innovation
Our framework is based on the hypothesis that effective management of
innovation gives rise to better-than-average financial performance over the
long term. In turn, innovation brings results in increased earnings and
ultimately an increase in shareholder value, albeit impacted by the whims and
vagaries of the market as a whole and the overall economy. The simplicity of
the framework belies the difficulty of doing it!
Seven essential components for the
successful management of innovation
We have researched in-depth a small
number of highly-innovative companies
and found that there are specific
characteristics – policies and
management practices common to
most - which lead to innovation.
Our in-depth research includes;
Starbucks, Deere & Co., GE, P&G and
3M.
On the assumption that one learns
from mistakes as well as successes, we
have also researched; RIM (now
Blackberry), Massey-Ferguson, and HP,
amongst others.
•
•
•
•
•
•
•
5
1. Performance management
2. Communication
3. Delivering reliability
4. Technology development and market shifts
5. Culture
6. Strategy
7. Organization
1. Performance management
• Strong financial performance provides stakeholders with a sense
that the financial house is in order and that investment decisions,
while satisfying clearly-stated and broadly-understood criteria,
will be seriously considered for investment.
Best example: Deere’s adoption of SVA
• A system of managing human resources which aligns individuals
with the corporate goals, measures individual and group
performance, and provides fully transparent team-based rewards
throughout the organization.
6
2. Communication
• A focus on regular communication of corporate policies and
management practices, appointments and matters impacting individuals
and groups within the organization. Making people aware of new
developments in the ‘how’ of management.
Best example: Deere’s approach to communication.
• A company which values broadly-based input into decision making and
values speed but not over careful evaluation of opportunities and risks.
• Cohesion and a commonly-held vision of the future is facilitated by
meetings/gatherings of senior managers at key points in their
development and that of the company.
Best example; GE and its use of Crotonville
7
3. Delivering reliability
• Delivering what the company says it will deliver to customers thus
building a sense of trust between company and customer.
Best example: Deere’s customers are both dealers and workers of the land.
• The delivery of reliable products – products which perform under
all likely situations.
8
4. Technology development and market shifts
9
• A consistency in the company’s spending and approach to investment in R&D.
People like to work for an organization which has a reputation for its ideas, its
innovations. Spending on R&D is one indication of this commitment.
• Maintaining a watch on developments at the customer and end-user level and
carefully noting the demographic and economic shifts which eventually impact
product/service demand.
Best example: Starbucks controlled innovation
• Continually monitoring competitor developments and understanding the
competitive situation globally.
Worst example: RIM’s ignorance of Apple’s competitive actions
• Investing in new products/services and less so in ‘legacy’ products.
Best example: 3M and ‘explicit’ calls for innovation
5. Culture
Attributes of culture
10
Of the companies researched in depth, 3M is, when it comes to the
management of innovation, outstanding. Why? Because of the practises
noted below.
Factors of Greatest Importance to 3m's Innovative Culture.
A comparison with Best of Breed
• Tight centralized financial management with
maximum decentralization and looseness
throughout the organization.
3
6
People and their interactions
10
Intra-firm communications formality.
Use of work independent work groups.
Decision making is broadly based.
14
Formality of decision process.
Rewards for innovation.
22
• Avoiding a sense of arrogance (hubris)
Worst examples: Nortel’s and RIM’s last years
Tolerance of mavericks.
Innovative tradition.
23
• A healthy respect for traditions and even
folklore.
-6
Factor #
13 12 11
• A healthy regard for the impact of culture on
acquisition practices – making culture an
element of the criteria for any potential
acquisition.
3M's rating
R&D budget levels.
Best of Breed
-4
-2
0
2
4
6
6. Strategy
11
• A strategy which carefully considers but takes risks in growth
markets
• Invests in new products/services and less so in ‘legacy’
products.
• Organic growth is preferred over growth by acquisition
• A Board and CEO perspective on both the short and long-term;
achieving a balance between the two in major decision making.
• Making acquisitions which are essential to technology or market
growth but where culture is an important part of the
evaluation process.
Best example: Starbucks with its ongoing controlled innovation and organic growth
7. Organization
• Having a CEO whose goal is for the organization to be best in class
(Best of Breed), explicitly calls for innovation and has the support
of the Board.
• Ensuring that industry knowledge and its complexity are well
understood by a good percentage of the Board of directors.
• Suitable succession planning – mainly a Board responsibility.
Worst example; HP’s hiring of outsiders – two in succession
• Continuity and longevity of senior management.
• At ease with adapting ideas from outside the organization
through acquisitions or through mid-career hires.
Best example: P&G’s ‘Connect and Develop’ initiative
12
Companies reviewed most recently
• CIOMAX reports; provide indepth insight into management of
innovation and information for
investors
•
•
•
•
•
Starbucks
P&G
GE
3M
Deere & Co.
• Other research available at
http://www.corporateinnovationonline.com
•
•
•
•
•
•
•
•
•
Glencore (Xstrata)
HP
Koch Industries Ltd.
Blackberry (when RIM)
Apple versus RIM
Nucor
DSM
Google
Massey-Ferguson
13
End
Let us know what you think!
14