The timing was well chosen since innovation activity in German companies is increasing now that the financial crisis is almost over. The symposium included speakers from ZEW, who provided insights into what makes innovation successful, and the impact of innovation management. Other speakers came from innovative companies in Germany.
Dr Georg Licht from ZEW opened the event. His presentation focused on two issues: the scientifically measurable factors of success in innovation management; and the measurable effects of good innovation management.
The methodology used by ZEW is a good basis for short- and long-term studies on innovation management in Germany. Since 1993, 12,000 companies annually, from all industry sectors, are surveyed about their innovation management. Thus, ZEW has access to a huge body of data on innovation management in Germany.
Based on its research and these statistical data, ZEW has identified three key factors for successful innovation management:
Over the years ZEW has compiled some interesting statistics on how much of the average profit margin of a particular industry is generated by product innovation, by process innovation and by other factors such as sales and marketing. One example: ZEW shows that in the German machine building industry, product innovation accounts for just over 30% of the operating margin and process innovation for 20%. For innovation managers who want to benchmark the innovation performance these are key figures.
Dr Thomas Weber, CEO of BASF Future Business, was the next speaker. In his presentation he explained why BASF has chosen to set up an organisation outside the lines of business for leap-frog innovations and how the Future Business unit is operating.
BASF Future Business (http://www.basf-fb.com/) was set up for two reasons: BASF recognized that getting leap-frog innovations to market fast would be very different from the lines of business whose innovation management systems are focussed on near- / mid-term evolutionary innovations. At the same time a central co-ordination was needed for the big ideas otherwise “the centrifugal forces would have been too strong” as Dr Weber said.
BASF Future Business search fields for breakthrough innovations are defined by four BASF identified megatrends:
Within these search fields, eight full-time ‘technology scouts’ work with key customers, universities and scouts from other industries, to identify technological opportunities for BASF. After identification of opportunities, BASF’s Future Business acts very much as a venture capitalist would do. In fact, the yardstick for success is the revenue generated by exiting which is done by selling to the business lines or to external parties.
The key to the success of Future Business, said Dr Weber, is to actively work the roles in-between Technical Management, Business Development, Launch Management and Senior Management – within the company and within its various business lines.
Bernhard Schweizer is CEO of InnovationLab, an open innovation cluster owned jointly by the Universities of Heidelberg and Mannheim, and BASF, Merck, Freudenberg, Heidelberg Printing Machines (Heidelberger Drucksmaschinen), Roche Diagnostics and SAP.
As a “cluster of excellence”, InnovationLab currently builds infrastructures and processes for fostering cross-disciplinary research and translating scientific discoveries into marketable products, along the value chain of Organic LEDs (OLEDs).
Hans-Heinrich Siemers heads SAP’s Global Business Incubator. Its business mission is to test potential new lines of business for SAP, which is in agreement with BASF that leap-frog innovations require a special set-up since the existing lines of business are unlikely to be comfortable with the risk.
Siemers’ team works on a global scale with SAP’s Think Tanks in Europe, Asia and the US, to identify new opportunities. Before receiving six months seed phase funding, a project must demonstrate its viability in terms of achieving additional annual revenue of at least EUR 200 million. In the seed phase, the team working on the opportunity develops a solid concept and challenges it. If the decision gate at the end of the Seed Phase is successfully negotiated, the opportunity goes on to be fully developed and tested, in a one year funding phase.
There are two interesting aspects to SAP’s approach: Firstly, its Global Business Incubator combines a venture capitalist approach with aspects of Agile Project Management, i.e. frequent concept ‘builds’ tested by internal and external customers, followed by improvements and further testing. Secondly, if an opportunity is identified outside SAP’s headquarters in Walldorf, its champion is required to move into the Global Business Incubator to work on the project. This approach ensures a tightly-coupled working style within the seed and funding phases.
Looking back on the day, I think that there is one key take-away.
Large companies have recognized that there are actually two innovation streams that need to be managed: one for regular, evolutionary innovations such as product line extensions, relaunches or minor launches. The management of this stream is well-defined and uses portfolio techniques, stage gates and master plans to manage projects efficiently in the back-end of the funnel. There is however a second innovation stream of leap-frog/breakthrough innovations. It seems that these need a separate organisational set-up as BASF and SAP have illustrated.
I see Open Innovation right in the middle of these two innovation streams, providing infrastructure and processes for cross-industry leap-frog innovation (e.g. in the style of InnovationLab), and more choices and an extra booster for the established “Old School” innovation management.
Frank Mattes, guest editor, Germany
About the author
Frank Mattes, contributing editor, Germany. Frank is the founder and CEO of innovation-3, a leading Open Innovation catalyst. Frank has collected more than 15 years of experience in managing projects and innovation. He worked for specialized medium-sized national consulting companies as well as for The Boston Consulting Group. Additionally he was working at C-level for an eBusiness firm, an IT firm and a Professional services firm. He wrote several books, numerous articles and is a sought after speaker. More information about innovation-3 and Frank can be found at www.innovation-3.com