Although there is no single formula for innovation success, each of these high-leverage innovators has devised an R&D strategy that provides it with competitive advantage, and we found several common themes among their strategies.
Consider the innovation process as a kind of value chain. (See Exhibit 8.) Each stage of the process becomes a platform on which the next stage can be built. Such a value chain would have four interdependent elements: the ideation process (basic research and conception), project selection (the decision to invest), product development (in tune with the rest of the organization), and commercialization (bringing the product or service to market and adapting it to customer demands). Based on press coverage and interviews with executives, we conclude that each of the 94 high-leverage innovators has built sufficiently strong capabilities in all four links of the value chain, and has seamlessly integrated them, to provide a high level of performance over time.
High-leverage companies are often famous for their skill in one particular stage, but a closer look shows that they reinforce that skill with competence at all stages of the value chain. Google, for example, excels at ideation. The search engine leader generates new ideas with blistering speed, in part because of what Google calls its “70-20-10 Rule”: Staff, especially engineers, are encouraged to spend 70 percent of their time on core business, 20 percent on related business, and 10 percent on areas entirely of their own choosing. Some ideas — such as Froogle (the shopping search engine), Orkut (the social network), and Google Finance — have moved more slowly at the development or commercialization stages than other ideas, but the integrated nature of the whole Google portfolio carries the momentum of ideation forward. Dentsply International, a manufacturer of dental products that generates $1.7 billion of revenue, also excels at ideation speed as a driving force for its innovation value chain. One of its goals is to introduce at least 20 products per year. But Dentsply also excels at bringing those ideas to market: In 2005, 43 percent of its revenues were derived from products introduced in the preceding five years.
Some high-leverage innovators are better known for their success on the latter part of the innovation value chain. Apple has well-honed capabilities in project selection and commercialization, backed by keen understanding of its customers. Caterpillar develops promising technologies through joint development projects and advanced technology consortiums with other businesses and the U.S. Department of Energy. Toyota has created competitive advantage by developing its products and processes faster and more efficiently than most other corporations do.
And on closer look, these three companies have systematic ideation processes, including the involvement of senior management (most famously in the case of Apple CEO Steve Jobs), in the conception and definition of new ideas.
Many high-leverage companies apply distinctive approaches to innovation at all four stages. For example, from the ideation stage through project selection and product development, high-leverage innovators tend to prize end-user input. The Stryker Corporation, a $4.9 billion medical technology company headquartered in Kalamazoo, Mich., works closely in R&D with the surgeons and other medical professionals who use its products.
The Black & Decker Corporation’s innovation strategy is also heavily determined by end-users. “We’ve spent a lot of time focusing on where they work, where they play, where they buy, and where they learn,” says CFO Michael Mangan. “Understanding and developing those relationships really increases the efficiency of our new product introductions.”
At Illinois Tool Works Inc. (ITW) — a $3.7 billion maker of industrial fasteners and components based in Glenview, Ill. — many of the best product innovations “come from simple observation coupled with a keen understanding of our customers’ needs,” notes a company representative. This observation begins with an established program in which ITW engineers operate at customers’ plants or work sites.