Four hundred R&D and innovation leaders recently gathered at the Industrial Research Institute’s (IRI) Annual Meeting in Indian Wells, California, for a conversation on global innovation strategy and execution. With a cross-section of every industry present, the meeting’s themes—front end innovation and innovation execution in a global ecosystem—captivated attendees’ attention. Energizing the first day of the meeting, David Edwards, CTO of Avery Dennison, talked about “beyond-the-core” business activities. His ideas instantly struck a chord. As he explained, most businesses understand where their core competencies lie, but experiments run beyond the core are what make the difference between real success and failure in the global marketplace. After all, foreign ventures are always “beyond-the-core” activities. What became crucial to Avery Dennison’s success in several of their international ventures, he argued, was the instillation of a learning culture aimed at identifying the skill sets needed to run new projects abroad.
…many of the capabilities we were seeking in the people that we would need to deliver this initiative just weren’t available, they didn’t exist, and we would have to go out and find them.”
“One mistake that we kept making,” Edwards said, “is that when you start an initiative, there’s a real temptation… to start saying ‘well, who’s available?’ And that’s absolutely the wrong way to think about this. As you start to look at these complex initiatives, the first place to start is, ‘What capabilities do we need to succeed?’ and to really thoughtfully map that out. Then you can start to ask, ‘Who has those capabilities?’ And of course, invariably what we would find as we did this is that many of the capabilities we were seeking in the people that we would need to deliver this initiative just weren’t available, they didn’t exist, and we would have to go out and find them.”
Grabbing hold of this notion of “beyond-the-core” activities and the development of an on-the-ground learning culture, Ashish Chaterjee of Procter & Gamble spoke about his company’s Connect+Develop initiative. A 10-year program under Chaterjee’s directorship, Connect+Develop was started as a way to identify consumer needs in emerging markets. His team would visit areas where new facilities were being established. They would speak with the people on the ground, learn their culture, their ideas, their capabilities, and then look for gaps in their available goods and services which P&G could potentially fill. For instance, in discussing Naturella™, a brand of sanitary napkins originating in Brazil, Chaterjee remarked that there was “a complete change in the way we manufacture the product simply because of local insight. And, the different value curve forced us into a new manufacturing platform that has enabled us to [successfully enter] 30+ markets [with this product].”
Dr. Vijay Govindarajan of Dartmouth College advanced the concept of beyond-the-core activities in his keynote by dividing business activities into three boxes. Box 1 activities are about managing the present; Box 2 activities are aimed at selectively forgetting the past; and, Box 3 activities involve creating the future. His formulaic explanation argues that strategy and innovation are inextricably linked.
“Strategy is not about celebrating the past,” says Govindarajan, “it’s not about celebrating the present. It’s really about leadership in the future… Earning that leadership is what strategy is all about. One thing we know: ‘future’ is full of unknown; ‘future’ constantly changes. Therefore, if you want to be a leader in the future, you have to adapt to change. Adapting to change is also known as innovation. Therefore, strategy equals innovation. If there is no innovation in a company, there is no strategy in that company either.”
…in order to create the future, organizations must selectively forget past success so as not to get stuck in a routine way of solving problems.
Govindarajan explained that some of the organizations he worked with would place the bulk of their activities in Box 1 (i.e. managing the present) and then declare it as strategy. What they failed to grasp, he said, is that strategy has nothing to do with Box 1 activities; it resides entirely in Box 3 (i.e. creating the future). Moreover, in order to create the future, organizations must selectively forget past success so as not to get stuck in a routine way of solving problems. Therefore, he notes, Box 2 and Box 3 activities are central to innovation. Without such planning and foresight, an organization cannot survive in the long-run.
Govindarajan also briefly referred to his new book, “Reverse Innovation,” a New York Times and Amazon best-seller, and a concept which was named one of the ten big ideas of the decade by the Harvard Business Review. He touched on how companies are beginning to understand the value of producing low-cost/low-value products for emerging markets. This comes in opposition to the traditional avenue of innovating high-cost/high-value products for developed markets and then scaling those products down over time to meet the needs of the lower end. His concept of reverse innovation lined up well with the overall meeting theme by highlighting how local insight in developing markets have begun to generate sizeable returns for industry. The fear many industries have of cannibalizing high-end brands, he says, is being put to rest as success stories in reverse innovation gradually emerge.
To place these ideas in context, though, several discussions at the meeting centered on the rising status of China in technology patent filings and high-end manufacturing. Langdon Morris, Director of Innovation at PwC, argued that knowledge of Chinese philosophy and history has helped his firm create better relationships with Chinese companies. One of the highest complaints to stem from doing business in China is the lack of protection surrounding patents. Morris argues that Chinese culture handles every business interaction on a case-by-case basis; i.e. getting a feel for the organization’s luster before deciding how to proceed with a venture. He argues that firms who approach China with a more solid grasp of Chinese customs and philosophy receive a more accommodating welcome.
Jeff Lindsay, Head of Intellectual Property at Asia Pulp & Paper, in explaining the stereotypes of China as a copier, or thief, and not an innovator, offered a few observations that show that China’s business laws are in fact changing. A 2011 study by Thompson Reuters listed the top 100 global innovators and not one of them came from China. Lindsay therefore began to research the subject and found that Foxconn/Honhai Precision, a silent innovation partner of Apple, actually holds three times as many U.S. patents as Apple. It also has 50 times more U.S. patents as some of the other companies on Reuter’s top 100 list. He found similar patent holdings by Lenovo and Huawei; both Chinese organizations. He contacted Reuters to make the necessary corrections and found them accommodating. Some he spoke with made comments that China could not be considered a fair subject of innovation expertise because of the predominant stereotypes surrounding its business culture.
In fairness, he states, China did not have any patent laws on the books until 1984. Since then, however, China has become the world’s number one patent filer globally. But many organizations stick to this stereotype that IP is unsafe in China and refuse to deal with its products or services. What Lindsay argues is that the world of industry, as a result, is largely unprepared for the opportunities China’s patent filings will herald. He fears that many opportunities may pass us by if we do not adjust to this reality.
…the days of building an organization vertically and then outsourcing external competencies is fading.
The focus on global strategy and execution brought a new catch-phrase heard throughout the duration of the meeting. “Beyond-the-core innovation,” coined by David Edwards early on, was integrated into almost every presentation and conversation which took place thereafter. As many attendees agreed, the days of building an organization vertically and then outsourcing external competencies is fading. Companies are integrating and building horizontal linkages around the world. The 2012 IRI Annual Meeting, “Driving Growth: Here, There, and Everywhere,” was part of an ongoing dialogue about how industry advances given these global shifts. It is clear that a new understanding of strategy is required, on-the-ground expertise is invaluable, and brand cannibalization for reverse innovation ventures are becoming part of a new normal. It is also becoming apparent that China’s rise is not a fluke event, but rather a gradual acceleration of the inherent momentum that its society is capable of building given the right conditions.
By Greg Holden
Greg Holden is a Business Writer for the Industrial Research Institute (IRI) in Arlington, VA. He formerly worked as Chief Editor of an international trading brokerage in Tel Aviv, Israel. He is in charge of producing content based on IRI-generated research and assists with writing articles for IRI’s journal, Research-Technology Management (RTM).
The Industrial Research Institute (IRI) is an organization of 200+ industrial and service companies having a common interest in the effective management of technological innovation. IRI member companies span diverse industries and represent a substantial portion of our nation’s gross domestic product. IRI is the only cross-industry organization creating innovation leadership solutions and best practices in innovation management developed through collaborative knowledge creation. For more information, call 703-647-2580 or visit www.iriweb.org.