When R&D and innovation go beyond labs: Marketing innovations internally
Recently the economist Michael Mandel wrote on his blog ‘We have only two ways out of our current global economic mess: innovation and inflation. And as the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation).’ (Source: Michael Mandel, Innovation and growth, dated 26th Oct 2011. http://innovationandgrowth.wordpress.com/)
Innovation has certainly been a key strategic focus in many corporations, and the current crisis does not alter this reality: Since ‘we should hope for the best (more innovation)’ corporations usually prepare for higher R&D costs because of some underlying trends at work for a decade:
- Increased externalisation of R&D cost in many industries (automotive, pharma, packaging, etc.)
- Shorten product life cycle coupled with greater product complexity (communication goods, FMCG, etc.)
- Longer development cycles in many industries and countries
The pending requirements to higher R&D costs are higher success rate & magnitude of these R&D operations. What does it mean? Let’s have a look at Executives requirements with regards to R&D:
- Increase productivity of R&D spending
- Minimise financial risk of innovation & technology choices
- Adapt to shorter cycles
- Create innovative products that are affordable in emerging countries
- Strengthen pus innovation internal forces
Needless to say that the role of R&D and innovation teams has changed: On top of researching & developing, R&D and innovation teams also have to reconcile discrepant frameworks (low yield & high risk vs. productive and risk-free) and timeline (long R&D cycles vs. short consumption cycles).
In other words, R&D and innovation teams must adopt multidisciplinary skills & codes (in particular, finance, marketing and strategy) i.e. ‘external’ input, since expected outcome have changed. When observing corporations we notice different models (emerging or in place):
|
Model |
Illustrations |
|
External sourcing of non-R&D skills |
Permanent or ad-hoc consulting services provided by external parties |
|
Internal sourcing of non-R&D skills |
Closer collaboration with specific teams (typically, finance, purchasing Dep.) |
|
Internalisation of non-R&D skills & codes |
Within the R&D and innovation creation of dedicated resource (typically, an R&D marketing manager) |
Obviously the choice depends on the industry, corporation size, internal capabilities, internal processes and set-up, and so on.
Whatever the model, R&D and innovation teams are a combination of people, budget and processes in a specific organisation. If now daily work goes beyond labs then this combination of budget, people, and processes is called for change:
|
Area |
Major changes |
|
Budget |
Usually a percentage of revenues, thus changes are irrespective of R&D expected outcome shift. The allocation model however will have to address the principle ’allocate budget to fewer but more impactful project’ |
|
People |
One major impact is the need for multidisciplinary skills, which may require extra headcount, or more likely education in particular with regards to strategic marketing & planning |
|
Process |
The most frequently implemented change is budgeting process. We can also consider purchasing processes, project selection processes, open innovation processes |
|
Organisation |
Depending on the chosen model, set-up is likely to change. This could be from roles, KPIs and RACI definition upto mobility, incentives and career management |
But what about the daily work change? R&D remains about improvement and innovation for sure, but has to comply with higher success rate requirement. This means higher return, better differentiation leveraging competitive advantage. Even better, ensure it on various time scales:
|
Area |
Rationale |
Impact on R&D team |
|
Return on investment |
Whether it is NPV, cash flow or ROCE more and more R&D projects must match a financial justification |
Increasingly needs to incorporate financial approach even at early stage |
|
Differentiation |
Innovation can’t always be ‘breakthrough’ but it must offer new benefits to customers |
Increasingly needs to incorporate competitive a Market Based Value Proposition approach |
|
Competitive advantage |
Corporations focus on core skills & capabilities and must be able to identify missing link and options to fill gaps |
Increasingly needs to incorporate competitive intelligence approach |
|
Long term portfolio |
Ensure innovation pipeline vitality, at all stage of development; adopt a push model |
Increasingly needs to encourage idea generation, incl. external support/ outside-in ideas |
So, when Michael Mandel said ‘we should hope for the best (more innovation)’ we should say ‘for more productive innovation’.
One success factor lies in R&D teams’ ability to adopt Executives language & frameworks in order to promote their innovations, improve their chances of success and their R&D performance.
And this means new practices adoption and new external collaboration to help R&D reaching its new goals.
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