Management Of The Process Is At The Heart Of Innovation Success

Innovation is — as they say — like motherhood and apple pie; by general agreement, it is a good thing. And, true to this view, few businesses do not aim to be innovative, even if they do not openly claim to be so. It might seem odd then that companies seem to be so poor in achieving what is, after all, at the root of successful competition. This is largely because innovation is hard. It is also, by its nature, mysterious and uncertain. As is remarked of advertising, people know half of it is wasted; they just do not know which half.

For decades now, the management consultancy Arthur D Little has been examining the issue with clients and academics in order to understand better the dynamics and to help companies improve their success rates. The results of its ninth Global Innovation Excellence Benchmark are out today and will make concerning reading for many executives. One top-line finding is that over the past 10 years, returns on and satisfaction with innovation have been in decline. This is especially worrying, given that innovation has arguably never been more important because of the scale of the challenges facing the world and the fact that it is essential to growth and profitability. Moreover, analysis referred to in the report shows that “over time and on average,” spending on research and development provides better shareholder returns than the other activities organisations tend to favour, such as CAPEX, share buybacks, acquisitions, debt reduction and dividends.

But this is not all. In a call to discuss the report, Ben Thuriaux-Aleman, an Arthur D. Little partner and one of the lead authors, expressed his shock at the contrasting innovation performances between business units within the same company. They were as different as those between companies in their industry as a whole. “It shows best practice is not being shared,” he said. As he added, if this was manufacturing and two factories were not sharing best practices the role of the chief operating officer would be questioned and he or she may even lose their job, but this did not seem to apply to R&D.

As is often the case, there are a lot of intertwined issues here. However, a lot comes down to the management of the process. At the chemicals company Huntsman, Pavneet S Mumick, global vice-president, technology and innovation at the polyurethanes division (who was also on the call), said his business was seeing the benefits of having a strategic marketing team in every region in which it operated. This brought insights and experience from customers and the market as a whole so that, in his words, the R&D teams were not just “talking to themselves.”

Although this seems obvious, there is also a danger here of creating too much of a focus on incremental improvements rather than the breakthrough innovation, which created much greater returns. As Mumick pointed out, customers tended to ask for something that solved a problem in the here and now rather than look five years ahead.

Indeed, Joseph Tidd, a professor specialising in technology and innovation management at the University of Sussex, told the call that the emphasis on incremental innovation was a large part of the reason for the dissatisfaction with innovation outcomes identified by the report. He said there was a tendency for academics and others to follow fads, with the cycle moving from disruptive innovation, through “open innovation” in which it was harder for companies to differentiate themselves to more incremental innovation associated with design thinking. The cycle was now “going full circle” towards greater interest in disruptive or breakthrough innovation, he added.

With many companies rushing to become more digital in the wake of the restrictions imposed by the pandemic, there has clearly been a great deal of attention applied to organizations becoming more agile. However, the report warns that agility is not a silver bullet for everyone. In particular, the authors suggest wariness about trying to apply the innovation methods adopted by successful technology companies to others where the costs of failing are much higher.

In the end, it comes down to quality of management. As the report states, “At the most basic level, innovation leadership is no different than any other form of business leadership, in that it requires a combination of strategic thinking, strong communication skills, problem-solving abilities, emotional intelligence and integrity.” But the changes of recent years — particularly, the increasing complexity of business — mean that innovation leaders need to have a host of special skills. These include having and being able to communicate a grand vision; realising that not all the necessary knowledge will reside within the company, however large it is; having the ability to form relationships across networks in order to gain insights and knowledge; ensuring that innovation teams have a mix of skills so that rather than all being creatives or specialist scientists they include some who will ask “what-if” questions; and embracing digital.