There is a persisting notion — including among lot of senior executives — that R&D is the driver factor for companies when it comes to innovation. While technological advances can lead to better and innovative products, R&D as a stand alone practice cannot be called innovation. Without the support and the interaction of the entire value chain: engineering, manufacturing, distribution, sales, design, marketing, and investment/corporate strategy, the innovation process just wouldn’t be possible. In this context, it becomes evident that R&D alone is not innovation.
In an ever competitive world, “Ideas that spread win” said Marketing Guru Seth Godin. He uses the comparison of how the patent of the bread slicer machine didn’t do much until Wonderbread came out into the market and became an overnight sensation. Another good example is the story of the Betamax with superior technology against their rival and ultimate winner VHS. A bit more contemporary examples can be drawn from Apple and Samsung by asking who’s got the best product and who’s got the market lead? We can find countless instances in any industry from B2B to B2C, the technology in itself will not spread, and without the right supporting ecosystem, it will probably die.
However, why do we think R&D is innovation?
Back in the 50s and 60s governmental investments around the world were driven by research done at universities. A lot of these concepts were integrated into organizations as a linear model of innovation, making R&D a key driver for competitive advantage. The very same model was able to save Gillette from being acquired several times over and especially in 1991 right after the introduction of Gillette Sensor. This model, however, didn’t help them anymore when acquired by P&G in 2005. Things have changed a lot in this day and age.
Since the 50s and 60s the modus operandi for most companies, especially those born out of engineering, has been to rely heavily on their R&D department to provide the next significant breakthrough that will help the company get ahead of their competition. Within this model, R&D delivers the latest breakthrough, then is assigned to the Marketing department to give it a name, a face and create a story around it. Eventually is passed on to Sales, Distribution and so it goes to the rest of the value chain. All of this resulting in a successive and repetitive cycle where optimization and improvement products become the primary function. As Stephen Blank pointed out, companies are build to repeat and improve an existing business model over time, not made for innovation, in particular, those where the 50s-60s model still prevails.
Speed is now the name of the game.
It is safe to assert that, the bigger the company, the slower they are in everything they do. R&D is not the exception, and when management concentrates so much effort into one department, it is understandable why it takes about five years on average before something new comes out. Aware of that situation, companies like Intel, for example, tried to accelerate the pace of their R&D by using something called the “process-architecture-optimization” which promises to cut the time-to-market cycle and thus influence a better financial performance of the company. But is it true?
The latest Strategy&/PwC annual report on the top 1000 most innovative companies in the world, has found no statistically significant relationship between R&D spending and sustained financial performance. Most CEOs allocate the R&D budget by comparing their current budget to the budget spend of their competitors. Luckily, the trend seems to be slowing down due to the adoption of Functional Integration by the world’s biggest innovators which usually lead other companies to follow.
The Functional Integration Model is an ecosystem combining products and services
Functional Integration is an ecosystem of value created by combining software that enhances the hardware and vice-versa into products, solutions, and services. Car brands have successfully adopted this model where instead of being “car manufacturers” they’ve become “mobility providers.” They produce the cars, but also the connected services around it. Functional Integration doesn’t contradict Horizontal Integration (adding sub-brands by M&A or expansion to a portfolio) or Vertical Integration (owning/controlling the supply chain).
The days of Patents (resulting from R&D) piling up or getting tucked away in a drawer are numbered. For much of them, their transformation into a business idea is almost inevitable. Sadly the process still slower than anticipated as many traditional industry companies still consider R&D as the holy grail of innovation discarding the views of the actors in the value chain.
Innovation is team effort… or is it?
A lot of departments have simply given up in trying to convince management to concentrate efforts on additional strategies. Innovation is meant to solve both technical and market risk. Most R&D departments focus on solving technical risks only. However, why is the rest of the value chain cut off from product development?
Some people argue that more than anything is a human problem. In large organizations, the social status and social interaction within a group become even more important than the job itself. The 20-80 Pareto law at its best, 20% percent being actual work and 80% dealing with internal politics. The real decision makers aren’t truly working for the company as much as they are working for themselves, their promotion, the bonus, the retirement… etc. Naturally, R&D wants to be left alone, and those running the company see it also as a problem that takes care of itself
Wrapping up
For top management: If you are familiar with the Parmenides Fallacy, you should know that choosing to do nothing, will end up costing a lot more in the long run. NOKIA is a good example. A market leader that thought things were never going to change. Now, struggling to make a comeback; hopefully, they’ve learned their lesson this time.
More and more companies are adopting a functional integration model, where is not about creating products anymore, but an ecosystem of connected services and products. While R&D has a significant role to play in this development, it is clear that is not their job alone. Innovation is a team effort and not a departmental role.
Here is an idea: Create a small task force to come up with product/solution together with R&D
Get at least a representative from each actor of the value chain and let them work on a simple idea for a product or service. The dynamic should allow each of the team members to contribute from their individual perspective and experience. The group should be small, agile and diverse. They should come up with a validated idea(s) in 60 days and 100 days to develop a working prototype. The ideal team should consist of the killer combination of Baby Boomers and Millennials: Bringing together the people about to leave the company with their Noob counterpart.
For everyone else: If there is anything to learn from Millenials is their how they keep an entrepreneurial spirit. They know they will learn more and advance in their careers by taking the initiative and try out things that might upset the status quo. They do have a point.
We encourage you to push internally for this kind of initiative. Use it to advance your career and to learn new things. If you want to stay with the same company forever, good for you, this blogpost is certainly not for you. However, consider this: you are getting older, not younger. If for whatever reason you end up leaving your current company, your work experience might valuable for other employers, but your entrepreneurial will help you more. Whatever you start internally will help you advance your career. Also, you will be looked at with a different light.
About the Author(s)
Juan Tejeda is the Managing Director of digital business design agency Brains & Hearts (www.brainsandhearts.de). A forward-thinking designer and strategist, he specializes in innovation and business development.