Whether more R&D Investments Brings More Innovation Output – Part 2

To effectively utilise the R&D investments in order to improve the innovation output, an organisation needs to make changes with respect to both the internal organisation as well as the way it manages its ecosystem.

Some of the elements an organisation needs to look at with respect to the internal organisation are:

(a) aligning the process framework (stage-gate process, product launch, downstream sales readiness and Product life cycle management)

(b) adopting a comprehensive communication management framework (both for internal as well as external stakeholders)

(c) implementing a performance and reward mechanism that motivates especially marketing & sales as well as R&D to collaborate for aligned incentives and

(d) implementing an innovation performance management / controlling system to measure what goes in and what comes out.

Aligning the innovation process framework is key to innovation throughput. How steep the innovation funnel is (the throughput efficiency of various gates) and whether the throughput rate can be increased by using rule-based workflow software or other standard software available are the two questions to be looked into.

Sometimes companies tend to loosen up the throughput efficiency (what percentage of product ideas pass through a gate) in initial phases in order to make their innovation funnel look good. This can have short term benefits, however in the long term it negatively impacts the credibility of the organisation with respect to the viability of its R&D projects. Also it is equally important to look at product launch, downstream sales readiness and product life cycle management. Especially in Pharmaceutical industry Product launch process is a standardised process that is critical to a drug’s success. Same is true however for other industries as well!

The time to appropriate premium from the market from a market is limited as the competition starts bringing a lot of ‘me-too’ products as soon as the product is launched (in stringent patent protected products also time is critical anyways). A good launch ensures that the right price point(s) is attained and the market is informed about the value of the product in a right fashion. This preparation by the marketing team has to be upfront and not ‘ad-hoc’.

Similarly sales force needs to realign its negotiation strategy (in consumer product industry for example), in order to push a product; also bringing in relevant inputs for the product to be launched from the field. Finally, product life cycle view helps the organisation bring in inputs to the labs again for a generation next product or feature tweaks when the product is mature and is facing stiff competition.

Communication management is key to innovation output as well. Internal stakeholders need to be informed about a product as a right time with timely content to manage expectations- same goes for the customers. Research shows that if the technology life cycle is longer than 3 years, analysts have difficulties understanding R&D projects (especially with respect to complex products) and often the stock price takes a dive when projects are announced. An organisation needs to manage these expectations and take a methodical approach in deciding what quantum of information should be released when, to whom and in what possible ways.

It is also important to align performance and reward mechanisms in such a way that employees and incentivised to collaborate not just to bring out a product from the labs that has a high potential but also a product that does well in the market. It is key that the R&D teams ‘speak’ to the marketing & sales teams continuously and take joint ownership till the product is successfully stabilising.

Bell labs for instance sends R&D colleagues who work on a product idea on deputation (part)  to Business Units ( which own the product) and coordinate launch, thereby enabling a smooth transition from labs to the market. Here, one workshop or technical or functional specification document (s) are not enough.

Last but not the least of course it is important that organisations ‘measure’ innovation performance and benchmark themselves with respect to themselves as well as with respect to competition. In doing all of this, leadership and culture play a strong role. However I will like to emphasise that ‘culture’ is in the making, it is dynamic- a lot of it evolves with right leadership and incentives set by the organisation. Organisations often tend to use culture as an alibi for their poor innovation performance. There is no straight path to create a culture- no short cuts.

From an ecosystem perspective, an organisation can create open domains, venture funds, ecosystem governance framework that is coupled, outside in or inside out, depending on the requirements or the context an organisation is. This helps from an innovation process perspective in essentially increasing the variety of ideas getting into the funnel (they come from different sources) and also to increase the number of ideas (in new product niches or for companies not having resources to invest in a large number of ideas upfront).

Open domains can be created over web like P&G has done with its connect and develop program, with scientific advisory boards like those of some of the european hi-tech companies or physically like KPN has done in the Netherlands.

Web2.0 based open domains have traditionally served well with software, design and consumer product industries where upfront investments to develop new product ideas or prototypes is not that high. Scientific boards also serve the purpose well wherein members can act as nodes in their larger network(s) in the academia bringing in cutting edge ideas.

Physical open domains like the one created by Philips bring a myriad of potential collaborators physically closer also creating shared facilities for the ecosystem partners. Corporate venture funds can also help organisations share product development costs of ecosystem partner in terms of equity contributions as well as spinning of non core R&D capabilities in separate businesses (potentially with external equity contribution and/or other industry partners as well).Such funds can quickly leverage ecosystem(s) for new businesses and at the same time help monetise sleeping IP inside the organisation.

Lastly organisations need an ecosystem governance framework. Many a times, partnerships and collaborations happen in an ad hoc fashion in large organisations. Different R&D labs collaborate with different research organisations, academic institutes and universities. Absence of a Governance framework around the whole ecosystem makes such collaborations inefficient. Many a times, cross R&D team collaborations, relationships of these ROs or universities is not tapped to their full potential. Also absence of the life cycle view towards the scientific community also does not let an organisation to build long term relationships (with the organisation) as well as create a reputational capital in the same.

However such a governance framework should take into context the culture, business imperative, size, position on the value chain and leadership in order to tailor the way the organisation builds, communicates and collaborates with its ecosystem partners.

About the author

Gunjan Bhardwaj, advisor, senior editor and member of the editorial board. Gunjan is the leader of the Global Business Performance Think-tank of Ernst&Young. He is also the solution champion for Pricing strategy and effectiveness as well as Innovation management in the advisory services of Ernst & Young with a focus on Pharmaceutical and FMCG sector.

Gunjan is also a guest professor for Growth and Innovation management at European Business School (EBS) in Germany and a member of the scientific advisory board of Plexus Institute in the US which researches on complexity in health sciences.

Gunjan has published a number of papers and articles in various Journals and magazines and has been a frequent speaker in conferences on marketing and innovation related topics. He is also the chief editor of the quarterly journal of Ernst & Young’s advisory practice called Performance.
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