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Published: November 27, 2012
 / Winter 2012 / Issue 69

 
 

The Global Innovation 1000: Making Ideas Work

From Ideas to Products

The process of choosing which ideas to convert to full-scale product development is perhaps even more critical to a company’s innovation success than is the ideation stage. The conversion stage is the point at which companies use all the processes and tools at their command to decide whether a given idea in the pipeline is a “go” or a “no go.” In the view of many innovation experts, this is where the most value is added. Says John Evans, corporate vice president for technology and innovation at the Lockheed Martin Corporation: “The conventional financial metrics appear to say that most of the value is created in the last steps of a project: development and commercialization. But those steps are the most expensive and risky. I believe that it’s this middle conversion phase, which we call investigation, where the value of a project can go up by a factor of 10.”

Most companies maintain data on their conversion rates, and on the rate at which products in development ultimately find their way into the marketplace. Overall, 43 percent of survey respondents said their company converted fewer than 20 percent of its ideas to development projects, and just 12 percent reported moving more than 60 percent into development.

These numbers, however, don’t really reflect the attitudes of innovators toward the number of ideas that ought to be generated, and the percentage of projects that should not be further developed. In this regard, company size matters. Our survey results show that the smaller companies in the Global Innovation 1000 (the companies ranked 101 to 1,000) report themselves to be twice as effective at the conversion stage as their largest peers (the companies ranked in the top 100), no doubt because the organizational issues are less complex, and ultimately less bureaucratic.

Compared with the processes and tools used at the ideation stage, those used at the conversion stage do not vary much among the three strategies. Three-quarters of all companies, for instance, depend on internal networks for help in vetting ideas for further development — an unsurprising result given that most companies, even Need Seekers, simply do not go far afield for conversion of their ideas, and some might even see going afield as a risk. The only external mechanism that many companies report using is “leading customer reviews,” in which top customers are given an early glimpse into the development pipeline. This tool is most popular among Market Readers, perhaps because their general cautiousness prompts them to double-check whether their products will succeed in the marketplace given existing alternatives.

Yet the true key to success at the conversion stage isn’t the specific tools and mechanisms used — after all, companies report that, by and large, they all use quite similar processes. The key to success is for companies to have the right people in place to manage the process, using experience and judgment to rigorously make the needed decisions. Says Solomon of Agilent: “Our pipeline is about how much we think a technology can move the needle in creating value for our customers, and usually, that’s not a numbers question when you are assessing a disruptive technology. It’s easy to make anything look good. [What matters is] the judgment of people who are very experienced in leading research, and we are fortunate to have really smart people who have a good combination of technology and business sense.”

That combination is critical when deciding which ideas to carry through to commercialization and which to kill. As ideas and projects move down the pipeline, business considerations become increasingly important. “In managing the research portfolio that is in the labs’ funnel,” says Solomon, “we constantly ask ourselves, ‘What have we learned about the technology that makes it more or less attractive than [it was] six months ago? What have we learned about the market, the competitive technologies — and what’s going on in the world that might help us decide whether the technology is now even more valuable or perhaps becoming a “me-too” technology? What has changed within Agilent in terms of our business priorities?’ All of these perspectives evolve over the course of our longer-range research, and influence our decision whether or not to continue to invest in a particular project.”

 
 
 
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Media

  1. Top 20 R&D Spenders 2004–2011. An interactive look at the 20 publicly traded companies worldwide that spent the most on R&D over the past eight years.
  2. R&D Spending by Regions and Industries. This interactive graphic compares R&D spending by regions and industries from 2004 through 2011.
  3. 2012 Global Innovation 1000 Study. Authors Barry Jaruzelski and John Loehr discuss the results of the Global Innovation 1000 study, focusing on the “fuzzy front end” of the innovation process.

Resources

  1. Click here for the Methodology behind the 2011 Global Innovation 1000 study.
  2. Jon Gertner, The Idea Factory: Bell Labs and the Great Age of American Innovation (Penguin Press, 2012): A history of Bell Labs, a hotbed of innovation in the 20th century.
  3. Barry Jaruzelski, John Loehr, and Richard Holman, “The Global Innovation 1000: Why Culture Is Key,” s+b, Winter 2011: The most successful innovators ensure that their company’s culture not only supports innovation, but actually accelerates its execution.
  4. Barry Jaruzelski and Kevin Dehoff, “The Global Innovation 1000: How the Top Innovators Keep Winning,” s+b, Winter 2010: Highly innovative companies outperform by focusing on critical capabilities aligned with their overall business strategy.
  5. Barry Jaruzelski and Kevin Dehoff, “The Customer Connection: The Global Innovation 1000,” s+b, Winter 2007: This study first identified the three distinct innovation strategies: Need Seekers, Market Readers, and Technology Drivers.
  6. Steven Veldhoen et al., “Innovation: China’s Next Advantage?” (PDF) Benelux Chamber of Commerce, China Europe International Business School, Wenzhou Chamber of Commerce, and Booz & Company, 2012: Chinese companies are growing more innovative — competing with multinationals at home and, increasingly, abroad.
  7. Booz & Company’s Global Innovation 1000 Study microsite.
  8. Booz & Company’s online innovation strategy profiler: Evaluate your company’s R&D strategy and the capabilities it requires.
  9. For more thought leadership on this topic, see the s+b website at: strategy-business.com/innovation.
 
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