Long-standing policies towards research and development no longer support manufacturers’ success, as mergers and globalization continue, due to:
- Demands for bigger profits from investors who are distant from the business reality
- Bigger investment in innovation needed to give future success
- Shortening timescales as globalization introduces pressures from BRIC economies
How is this affecting the innovation options for businesses? How can you make sure that you are ready to grasp opportunities that only lay within completely new development?
In this article I look at examples of innovation driven by urgent need to compete rather than long-term thinking, and how this affects innovation paths. In addition, I offer some take-aways on how to do innovation even better next time.
Shown in my three points above, we can see from the dynamics of the industry that there are two distinct factors coming into play:
- The performance levels needed are rising faster/sooner
- The gap between performance and survival is getting narrower
Let’s take a closer look at how the organizational setup affects how these points are played out in practice.
How organizational setup affects short-term vs. long term innovation
In principle, the larger the organisation:
- the more likely the Executive decision makers are to be divorced from the reality of product development and engineering
- the greater the scale of investment
- the greater the dissonance between having to invest early in innovation and keeping stockholders satisfied
An earlier blog post described Strategy 3 - do the minimum innovation to survive while giving the best returns possible to the stockholders in the short- to medium-term. This is becoming more difficult because survival in 5 years’ time is starting to demand the greatest possible innovation investment now i.e. Strategy 4 – do the maximum innovation you can sustain (Figure 1).
Figure 1. Accelerating change undermines strategy 3
As an example, China manufactures the majority of the world’s shipping containers. Water-based paint is now being required due to incentives and taxation, so innovation to deliver suitable water-based paint for such a demanding application (abrasion resistance, corrosion protection, UV stability etc) must deliver very quickly.
Fast delivery of innovation means either:
- Fast innovation
- Timely strategic investment
Paint companies that have already invested in water-based paint systems for containers have a major head-start in the market.
Since thinking is a long lead-time activity, applying innovative technology takes time, undermining the “fast follower” policy of many manufacturers; only timely strategic investment in innovation is consistently viable.
Research into new materials, even if they are not exploited immediately, means that their potential, value and challenges are understood, and they can be applied quickly when their benefits are needed. Innovative materials can introduce their own challenges. For example, Exilva microfibrillated cellulose is a fibrous material, not water-soluble, so this can require significant investment in different materials handling. Using innovative ingredients in new products that perform significantly better can require not just manufacturing changes but changing the behavior of users. For example, the use of concentrated laundry liquid detergents is a classic case of this – adding more detergent than is necessary is even more common with concentrated liquids than with normal liquids. Boeing’s recent experiences echo Airbus’ earlier - sustained innovation pays off strategically; pushing innovation too quickly leads to fatal accidents when pilots don’t understand the automation.
These experiences are reflected more generally in McKinsey’s “The Eight Essentials of innovation performance”:
- Aspire: Do you accept innovation-led growth as absolutely critical, and do you have cascaded targets that reflect this?
- Choose: Do you invest in a coherent, time-risk balanced portfolio of initiatives that are resourced to win?
- Discover: Do you have actionable and differentiated business, market, and technology insights that translate into winning value propositions?
- Evolve: Do you create new business models that provide defensible, robust, and scalable profit sources?
- Accelerate: Do you beat the competition with fast and effective development and launch of innovations?
- Scale: Do you launch innovations in the relevant markets and segments at the right magnitude?
- Extend: Do you win by creating and capitalizing on external networks?
- Mobilize: Are your people motivated, rewarded, and organized to repeatedly innovate?
Strategic investment in innovation is necessarily becoming the primary driver for manufacturers – the pace of change is accelerating to levels where doing the “same-old same-old” will rapidly consign non-innovative companies to history.