Research, however, finds a lack of sharing when it comes to innovation best practices in many large organisations with multiple business units. This threatens to derail advances and impact competitiveness. Why is this happening and how can it be overcome?
The importance of decentralising R&D
To better meet specific market needs, many organisations adopt a decentralised R&D model, with innovation teams based in individual business units. While they have autonomy, the expectation is that they will follow company-wide best practices when it comes to how they operate to ensure maximum effectiveness and efficiency.
However, data from the Arthur D. Little Global Innovation Excellence Benchmark (GIEB) shows that this is not the case. The benchmark, which has been completed by over 500 companies, finds there is often little common adoption of innovation management practices across companies. Taking medical devices as an example, in one company there was a 300 point spread between different business units. Essentially you wouldn’t even know they were part of the same organisation. This same spread can be seen across all industries, demonstrating the depth of the issue.
Over three-quarters (78 per cent) of senior innovation executives and practitioners said failure to share best practices had a negative impact on innovation performance. We calculate that simply raising the innovation performance of the worst business unit to the level of the company average would lead to a five per cent growth in annual business unit revenues on average, as well as improving margins.
Experience highlights three root causes of these innovation gaps:
1 A focus on business unit goals
Many business unit leaders are strongly incentivised to achieve their own goals and revenue targets. This can make them uncomfortable with the uncertainty associated with incorporating innovation management practices from other parts of the organisation. This is especially a problem if there is no organisation-wide governance strategy or senior management support for best practice sharing.
2 Desire for local control
Business units have their own requirements when it comes to innovation. They may simply feel that organisational best practices don’t help them achieve their goals, especially if there are major differences between the pace of innovation between business units or if they are spread across multiple regions.
3 Rejection of external ‘interference’
Individual business units pride themselves on their independence. They may well have created their own cultures and be wary of anything they see as central interference. Often, there’s no shared corporate language of innovation, meaning they simply don’t understand the relevance of external best practices to their work.
Increasing R&D effectiveness by closing innovation gaps
Overcoming these root causes requires a three-fold, strategic approach.
1 Leadership and incentives
To increase performance, senior leaders must first discover the size of the innovation gaps in their business. They then need to drive change by making best practice sharing an integral part of company culture, emphasising its importance to business (and business unit) success. This push can be supported by incentives, such as awarding additional funding for teams that deploy best practices effectively.
2 Engagement of all stakeholders
There’s a strong risk that trying to change how R&D teams operate will be seen as interference and therefore be rejected. It is therefore vital to listen to and engage business unit stakeholders. You need to create a sense of ownership around ‘new’ best practices and encourage collaboration by breaking down silos between different teams.
3 Focusing on structure
Changing how business units operate requires them to change their cultures. Achieving this requires both top-down and bottom-up approaches. Leaders should start by clearly setting out the overall innovation vision, mission, and objectives, then involve local teams to gain their buy-in. This should include creating a common language to describe innovation and innovation success across the organisation.
Companies understand the importance of R&D to their future success, yet many are not getting full value from their efforts by failing to share best practices between different business units. Closing this gap is vital if they are to drive innovation and competitiveness across their entire organisation.
Ben Thuriaux-Alemán (top) and Habib Hussein (bottom), Arthur D. Little
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