Innovation and commercialisation, 2010: McKinsey Global Survey results

Source: Total Executive


After coping with the global economic crisis, companies are beginning to aim for growth again. But their approach to managing innovation and the challenges they face haven’t changed. The survey results suggest a few ways to improve.

As companies begin to refocus on growth,
 innovation has once again become a priority: in a recent McKinsey Global Survey,1 84 percent of executives say innovation is extremely or very important to their companies’ growth strategy. The results also show that the approach companies use to generate good ideas and turn them into products and services has changed little since before the crisis, and not because executives thought what they were doing worked perfectly. Further, many of the challenges—finding the right talent, encouraging collaboration and risk taking, organizing the innovation process from beginning to end—are remarkably consistent. Indeed, surveys over the past few years suggest that the core barriers to successful innovation haven’t changed, and companies have made little progress in surmounting them.

More positively, the results also suggest some ways that companies can become more successful at innovation. In particular, they can formalize processes for setting priorities and commercializing products and integrate innovation into their strategic-planning efforts.

Growth and innovation

Almost all companies are actively seeking growth again. For the largest group of respondents, 41 percent, the focus is on their existing core businesses (Exhibit 1). Only respondents in the high-tech industry differ. In addition, more executives say their companies are seeking organic growth through new products or services or new customers in existing markets (68 percent and 63 percent, respectively) than are pursuing growth through new markets or M&A.

Innovation is important across growth strategies. However, a slightly smaller share of executives at companies seeking growth in their core business, 80 percent, say innovation is very or extremely important, compared with 91 percent of those at companies still in the early stages of expansion.

 

Managing innovation

Just over half of all respondents, 55 percent, say their companies are better than their peers at innovation, a figure that hasn’t budged since 2008. Another consistent pattern is that far fewer respondents say their companies are good at the specific processes and tactics frequently tied to successful innovation—such as generating breakthrough ideas, selecting the right ideas, prototyping, and developing business cases. Respondents say their companies are best at adapting once they’re in the market, with 58 percent claiming to be successful. As in the past, executives have the most difficulty stopping ideas at the right time, with only 26 percent of respondents to this survey saying they do this well.

Fundamentally, the biggest challenge is organization: 42 percent of respondents say improvement in this area alone would make the most profound difference in innovation performance. This figure falls between the shares of respondents to a 2007 survey who selected allocating resources and aligning talent as their companies’ top challenges to successful innovation.2 For this year’s respondents, organization is closely followed in importance by developing a climate that fosters innovation; commercializing new businesses, products, or services; and selecting the right ideas and managing a portfolio.

Respondents also indicate that their companies don’t make good use of many specific tactics (Exhibit 2). For example, only 27 percent say their companies are very or extremely effective at making business leaders formally accountable for innovation. Notably, even among respondents at early-growth companies, where innovation is likely to be a particularly high priority, only 34 percent say their business leaders are effectively held accountable.3

Nearly a third of the current survey’s respondents say their companies are effective in setting formal priorities for innovation during the strategic-planning process (Exhibit 3). This result is slightly better than related findings from 2007, when roughly a quarter of respondents said their companies included innovation as a formal part of their strategic-planning process, and from 2008, when just under 20 percent said their innovation processes as a whole were very or extremely formalized.4

Respondents at companies that set formal priorities for innovation as part of the planning process are much likelier to say their companies are better at innovation than their peers (63 percent of those who prioritize versus 43 percent of others) and to say their companies are using these tactics effectively. The survey results suggest that simply ensuring innovation is tightly managed can boost performance.

Notes

2 In a 2007 survey that focused on innovation management and governance, 34 percent of respondents said one of their leadership team’s greatest challenges was allocating internal resources, and 50 percent said it was aligning and making available top talent for innovation initiatives. See “How companies approach innovation: A McKinsey Global Survey,” mckinseyquarterly.com, October 2007.

3 In a survey earlier this year that focused specifically on research and development, just over a third of respondents said their organizations had improved accountability for R&D performance and spending. Even so, these results suggest accountability isn’t high. See “R&D after the crisis: McKinsey Global Survey results,” mckinseyquarterly.com, April 2010.

4 See “How companies approach innovation: A McKinsey Global Survey,” mckinseyquarterly.com, October 2007.

Going to market

Only 39 percent of respondents say their companies are good at commercializing new products or services. This overall assessment seems to have a few different sources (Exhibit 4). Commercialization was a serious concern in 2007 as well; in that year’s survey, nearly a third of senior leaders selected making handoffs from ideas to commercialization as one of their biggest challenges, and 43 percent said the top challenges included choosing which ideas to move forward.

A big part of the problem may be the absence of a formal decision-making process: 40 percent of respondents say their companies make commercialization decisions in an ad hoc manner; only 23 percent say such decisions are a regular agenda topic at corporate-leadership meetings. Thirty-three percent say these decisions are made at the business unit or functional level. Not surprisingly, the aspects of decision making that executives personally find most difficult are the lack of a fact base and the level of uncertainty—the same as in 2007.

The responses indicate that a lack of formal organization is a common problem: more executives chose the absence of a formal process to align the necessary internal resources as the top commercialization challenge, although those at companies with a formal process for commercialization—23 percent of all respondents—say execution is the biggest challenge (Exhibit 5).

Further, whether they say their companies are good or poor at commercialization, respondents highlight two of the same reasons for their performance, and both relate to organization: the relationship between R&D and marketing and the process for translating an idea into a prototype. Those at companies that are poor at commercialization also frequently blame ineffective processes for manufacturing or rolling out innovations. And among all respondents, aligning human and financial resources is the most frequently cited leadership or organizational challenge to successful commercialization (Exhibit 6).

Formality clearly makes a difference: the share of executives saying their companies are good at commercialization rises to 45 percent among those that set formal strategic priorities for innovation, and to 56 percent among the respondents at companies with a very or extremely formalized process for commercializing innovations.

Making organizational changes can be difficult,5 however, and most companies have focused on other areas to improve their performance. Forty-four percent of respondents, for example, say their companies have tried partnering more successfully with suppliers and technology firms, with 39 percent having integrated customer insights into the process.

Looking ahead
  • Executives at companies that set formal priorities for innovation rate their overall success higher than others and are more likely to say they’re good at a number of tactics tied to success. These results suggest that other companies would benefit from the simple step of setting formal strategic-innovation priorities.
  • Organizational factors, including innovation-specific processes and links to support functions, remain a challenge. As hard as it is for companies to implement organizational changes in increasingly complex environments, the results suggest that when companies make the effort, they will experience more success with innovation.
  • To improve commercialization, it seems to be crucial to build good relationships among all the functions involved directly (such as R&D) or in support roles (such as IT). Nevertheless, most companies still haven’t tried doing so.
About the Authors

The contributors to the development and analysis of this survey include Marla M. Capozzi, a senior expert in McKinsey’s Boston office; Brian Gregg, an associate principal in the San Francisco office; and Amy Howe, a principal in the Los Angeles office.

 

Source:

McKinsey

How Collaboration and Commercialisation works can support a Responsible Business

Today, I met up with Rowan Gilmore - CEO of the Australian Institute of Commercialisation (AIC)

We discussed what responsible and effective leadership means to Rowan and the AIC and he had a few very good points as below.

Before we ventured into what makes a leader responsible and effective, I discussed with Rowan when he had seen responsible leadership at its worst.

Rowan cited the international banking organisations who were seen as responsible in the main for the recent GFC.

The breakdown of many financial institutions was created - often because the right questions were not asked and followed through.

Banks should have long term values over and above the needs to maximise profits and prior to the GFC many people became greedy, self-centred even - not believing or behaving within the core values of their institutions.

Rowan believes leadership should be in line with stated organisational values which then are publicly expressed through desired behaviour of the business / organisation.

Values typically contain expressions relating to ethics (although increasingly these are assumed rather than stated). Often these include ethical values like openness, honesty, caring.

Responsible leadership is aligned with these types of ethical values.

Though many people’s actions - like the bankers referred to above - prove they don't follow ethical values and behaviours.

Rowan went on to discuss how he sees leadership work... This works equally for responsible and effective leadership.

Leadership in business has 3 core areas in the process as Rowan sees it...

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1) Leaders set the vision of where the business wants to head

This is usually presented through scenarios, goals and pictures through carefully chosen words that explain where they see themselves in the future.

This first step in setting the vision will be referred back to and read by staff as what is meaningful to them and creates value.

In the area of commercialisation - vision of the future starts from where the IP all began

Responsible leaders will ensure ethical values are congruent with the vision from the start

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2) Leaders align stakeholders with the vision

All the processes are enunciated, noses are pointed in the right direction so everyone can work in a unified manner.

Responsible leaders will ensure they align with stakeholders who share their ethical values.

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3) Leaders obtain commitment of staff and stakeholders

A promise is a few words until it is delivered.

Leaders ensure tactics are covered and understood

Metrics cover what everyone is doing and when they are all working together...

The visions of the leaders from 1) and 2) above cascade throughout the business or organisation as everyone follows the tactics and strategy that have become their vision.

 

Responsible Leaders take #3 very seriously with their business to ensure it is communicated across all staff and stakeholders so that the ethical values that they have incorporated in their vision are followed.

Responsible leadership ensures everything is measured accordingly and teams are recognised for their achievements.

With these three processes in place, success in business and competitive advantage as a responsible business is defined as everyone puts their best foot forward in replication of their leaders.

Rowan recognises that in theory, this style of responsible leadership is much easier than in practice. 

Often - as with the bankers noted above there are breakdowns because the right questions were not asked and followed through.

He relates this to how leadership within his business in the AIC works...

The Australian Institute for Commercialisation recognises they do not have all the answers for their clients who are looking for how to commercialise their IP in the process of innovation of ideas.

Internally they set up their ideas forum where all staff can share ideas and threads of discussion to enable everyone to put forward ideas.

Every month Rowan works with the management team to evaluate, move forward and discuss how they can commercialise these ideas.

Rowan understands that communication with all leaders and future leaders within an organisation requires support through this communication and decision making.

Collaboration is also very important to help them evaluate IP and proceed with commercialisation.

Working collaboratively with patent attorneys and other specialist firms enables the AIC to work together on many more projects than they would have been able to do alone.

In the field of responsible leadership, collaboration is also key to the future as those who share similar values work together on solutions to major projects facing our society from many different locations.

Many solutions to global concerns can only be treated internationally - through collaboration.

There will also be many more ways to commercialise these solutions moving forward as new generations start to take over more and more leadership positions across business, education, enterprise, government and community focused organisations.

This process will develop opportunity for many people into the future as jobs that currently exist are replaced.

The Metric Behind the Slogan

Michael Schrage, has recently had this story published by Booz and Company Inc in their Strategy+Business Magazine.

The Metric Behind the Slogan provides an interesting insight into the history of metrics and the impacts they have made on business. We recommend the read...

Download the article here

Could there be a metric to lead the way out of the current international financial turmoil?

WHAT INNOVATION MEANS TO INTELLECTUAL PROPERTY

Ls3_ian_heath

There are many steps along many pathways to capitalising on innovation and achieving success in the marketplace. In IP Australia we have a key part to play as one of the steps many innovators will choose to take - the step of formally protecting their intellectual property. But this can also be a dangerous step for some innovators.

Let me illustrate this. Start up innovators commonly include intellectual property protection in their "to do" list to get their idea to market. Frequently, however, we see innovators who just want to tick this item off their list. They lodge their patent, trade mark or design application, but they have not always done their homework. The application is often ill-conceived either from a business point of view or from an IP protection point of view or sometimes both.

The IP system can be unforgiving and recovery from such errors is not always possible. Many innovators, unprepared for the process and not clear about how IP protection works in conjunction with their business strategy, get stopped in their tracks at this point. They become frustrated with the IP system and fixate on securing IP protection with a loss of focus on their business goals - good ideas that could have or should have succeeded never get to the market place. The energy of the innovator is consumed securing the goal of patent protection or trade mark registration. The goal of getting the idea into the marketplace is forgotten or fatally delayed.

When understood and used in a strategic way, IP rights can become valuable business assets. The Australian innovation environment has spawned thousands of businesses which have used the IP system to great effect. The message they received from my office is not "Protect your IP or perish", but rather "Think about whether protecting your IP makes good business sense". We want the right people using the IP system, at the right time, for the right reasons.

Dr Ian Heath, director general,
IP Australia

WHAT INNOVATION MEANS TO VENTURE CAPITAL

Ls2_vanda_gould

After 20 years in the venture capital industry I can confidently confirm what King Solomon writes in the Book of Ecclesiastes: "There is nothing new under the sun."

Certainly this statement is true in respect of human conduct. Sometimes I think it is true in relation to technology and I certainly think it is true to say that overall inventors fail to understand the world in which we live where simply to have a better product does not guarantee market success.

It is also very sobering to realise that many technologies, while representing a significant improvement over their predecessors, have nevertheless taken a generation to gain broad market acceptance. It is hard to appreciate that sometimes the product diffusion cycle can be 30 years.

In addition, in some industries such as medical innovation, there are very substantial legislative barriers to entry, apart from the usual market considerations. In short, it requires an appreciation of the realities of our world and the substantial imperfections that exist within the various markets that create obstacles beyond the appreciation of an inventor who can usually only see the technical merit in an innovation.

The skill of a venture capitalist is in understanding the technical excellence of any proposal while at the same time being able to both discern market obstacles and potentially also to provide solutions. Thus a competent venture capitalist provides far more than money as they can be the essential ingredient in the commercialisation of an innovation.

Vanda Gould, chairman,
CVC Ltd