What makes companies ready for successful innovation? We know it’s not the size of their R&D budgets, even relative to their revenues. Since 2005, the annual Strategy& Innovation 1000 studies have examined which companies spend the most on R&D and which firms have the most success with it. The conclusion, year after year, has been the same: There is no correlation between innovation spend and business performance.
If it isn’t spending that leads to success, there must be other qualities that distinguish truly innovative companies. Successful business projects often start with someone having a great idea (the proverbial bolt of lightning), but not all great ideas come to fruition. Companies need to be set up to encourage, recognize, support, and implement great ideas if they want them to succeed in the market.
Companies need to be set up to encourage, recognize, support, and implement great ideas.
Five factors, in particular, seem to make a difference. They have emerged, over the years, as common to a series of analyses, case studies, and research projects. They are all related to your company’s R&D readiness: its ongoing abilities and disciplines that prepare it for managing innovation well. If you are an R&D leader, or a top executive at a company seeking to be more innovative, these elements may provide you with your highest leverage for improvement:
• Strategic alignment. The most successful innovators can articulate a clear group of R&D priorities that are “fit for purpose”: aligned to the company’s overall business agenda. The ability to do this should not be taken for granted; getting the story right, and tying it to innovation priorities, can take a great deal of thought and iteration.
• Innovative capabilities. These are the everyday activities within your R&D department that you follow along the path from customer engagement, to generating ideas, to commercializing them, to executing the launch. The most successful innovators have developed distinctive R&D processes tailored to their own value proposition, not benchmarked from studying other companies. The best of these innovative capabilities tend to be cross-functional (involving people from marketing, IT, manufacturing, and other disciplines as well as R&D) and creative (prepared to experiment, iterate, and evolve practices as needed).
• External networks and partnerships. Successful innovators are proficient at building and maintaining productive relationships with outside suppliers, distributors, educational institutions, and service providers. They know how to draw ideas and capabilities from outside the enterprise as needed, for use at various points along the innovation value chain.
• Organization and processes. Organizational design is natural to successful innovators. They make sure the right incentives, decision rights, and information flows are in place to drive innovation performance. They also know how to place the right talent in the right place at the right time.
• Cultural alignment. These companies foster thinking and conversation that promotes innovation. Their cultural attributes and behaviors lay a foundation for risk-taking, and they also support the innovation strategy.
Research on innovation often focuses on one or two of these factors at a time, but it doesn’t consider how they overlap and interrelate. To help understand how these factors fit together, and the leverage they can provide, we’ve developed an online profiler called the Innovation Accelerator. We believe that using a profiler like this—and applying the insights it provides—can be the first in a series of steps companies take to increase their innovation readiness.
At the heart of the Innovation Accelerator is an online attitudinal survey. It asks employees questions about what they do, and evaluates the answers accordingly. For example: “How does your company acquire customer insights?” Or, “What do you do to encourage creative thinking?” The way you answer these questions, and others, sheds light on your innovation readiness and how effective your investments will be.
We have tested the innovation accelerator with a variety of companies—for instance, with a group of UK-based railroad firms that wanted to evaluate their current level of innovation capability and focus their future efforts more effectively. The survey is not specific to any industry or geography, and we think it has something to teach all companies that rely on innovation. It can help you see your own innovation-related proficiencies more clearly, and the relative gaps that you might need to fill.
The idea of surveying companies on their innovation prowess isn’t new. But most current surveys are relatively narrow in their focus on process issues. They ask about the percentage of revenue the company allocates to R&D, the number of milestones in its quality-gate process, and the level of IT support their innovation teams are getting. This is important for understanding innovative capabilities, but in itself, data like this does not seem to provide enough insight about the factors that help or hurt a company’s creative efforts.
For instance, suppose a company that produces a complex product is moving into a fast-developing new area that requires a great deal of interdepartmental coordination. One unseen factor might be a lack of cross-functional work on building innovation capabilities, or organizational incentives that subtly discourage work across departmental lines. Having identified those weaknesses, the firm can set a detailed action plan for improvement and then move to implement it.
A tool like the Innovation Accelerator can thus provide the first step in developing innovation readiness. It is designed to be used within companies, for both startups and for mature enterprises. Even corporations that were once great at innovation can lose their touch. For those that feel they may be slipping, or simply want to do better, the tool can show them where they may need improvement.
The tool can be applied across the full company or limited to certain functions, geographies, and business units with perceived problems. It asks enough questions in each of the five dimensions to determine a company’s score for each. In turn, these scores form the basis of a data-informed discussion. A full analysis of the results of the survey is slated to appear in strategy+business after we have collected enough data.
Companies don’t need to be best in class in every area related to innovation. But companies that are struggling with their R&D performance need to start by getting a clear picture of where they might be weak. Innovators don’t always like to look at their strengths and weaknesses. But in this case, what you don’t know, can’t see coming, and haven’t measured, can hurt you.