The types of techniques and tools they employ, however, depend in large part on each company’s favored innovation strategy (although these distinctions are more pronounced in the ideation stage). A great deal of the work we have done in the annual Global Innovation 1000 studies over the past several years has involved teasing out the different ways companies approach innovation, and the implications of those approaches. Five years ago, our research showed that nearly every company follows one of three fundamental innovation strategies, each of which has its own distinct way of managing the innovation process and its relationship to customers and markets. We thus categorize companies as Need Seekers, Market Readers, or Technology Drivers.
Need Seekers, such as Apple and Procter & Gamble, make a point of engaging customers directly to generate new ideas. They develop new products and services based on superior end-user understanding. Their goal: to seek out both articulated and unarticulated needs, and then to try to get their new products to market first.
Market Readers, such as Hyundai and Caterpillar, use a variety of means to generate ideas by closely monitoring their markets, customers, and competitors, focusing largely on creating value through incremental innovations to their products. This implies a more cautious approach, one that depends on being a “fast follower” in the marketplace.
Technology Drivers, such as Google and Bosch, depend heavily on their internal technological capabilities to develop new products and services. They leverage their R&D investments to drive both breakthrough innovation and incremental change, in hopes of meeting the known and unknown needs of their customers via new technology.
As in the past, our results this year suggest that following a Need Seekers strategy, although difficult, offers the greatest potential for superior performance in the long term. Fifty percent of respondents who defined their companies as Need Seekers said their companies were effective at both the ideation and conversion stages of innovation, compared with just 12 percent of Market Readers and 20 percent of Technology Drivers. These are the same companies, by and large, that consistently outperform financially.
It is critical to remember, however, that companies can significantly outperform their peers no matter which of the three strategies they follow. A far more critical factor is how well they follow their chosen innovation strategy: Is it tightly aligned with their overall business strategy? Have they put in place the innovation capabilities needed to support their strategy? Do they have the right corporate culture needed to make that strategy work? And are they using the tools and processes that will yield the best new ideas and development projects, consistent with their innovation model? Companies that can coherently align all these aspects of the innovation process, and execute them well, have a distinct advantage in the race for new ideas, products, and services.
The Lightbulb Moment
Where do ideas come from? That seemingly simple question is at the heart of the initial phase of innovation, when companies try to capture the best thinking about how to create breakthrough products and services that might transform their position in the marketplace, as well as the incremental improvements to their current product portfolios that can refresh tired brands. Few companies succeed at innovation without ensuring that adequate processes are in place to generate new ideas, and that those processes are followed in a disciplined fashion. Yes, serendipity will always play some part in the effort, and we’ve heard plenty of stories over the years about great ideas evolving out of chance meetings, sudden flashes of insight, and sheer luck. Large companies, however, simply can’t depend on happenstance, and the most successful ones understand that clearly.