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Arthur D. Little's approach to innovation and innovation management.
Arthur D. Little's approach to innovation and innovation management.

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Learning To Innovate

The 1998 European Conference on Innovation and T echnology


“No company ever shrank to greatness.”
The message has finally hit home, and companies all over Europe are looking for ways to grow fast enough to satisfy their shareholders and reassure their customers and employees.


rowth by acquisition continues to attract, with ever-larger deals being struck—but more and more companies are realising that the costs of finding and securing the right partner are often not matched after the deal is done. The “synergies” that were supposed to justify the whole exercisearemuchharderandtakelongertorealise than anyone imagined. Meanwhile, good staff leave and customer loyalty can be shaken. Geographic expansion, another option, poses its own challenges as companies struggle to deal with unfamiliar cultures,legislativeregimesandapproachestobusiness.

exist to make it happen. The case studies included here show how some of the world’s most outstandingly innovative companies are putting best practices to work. Also included are many useful insights which readers can adapt and implement in their own companies immediately. The conference’s consensus from a range of different perspectives—including those of industry, academic and consulting organisations—demonstrates three underlying “success factors” for strategic innovation. It is based on managed, effective learning (including performance measurement). It is driven by the strategic leadership of the organisation. And it pervades the entire organisation. With all three of these factors in place, European companies can look forward to fully exploiting their technology as a strategic asset, optimising their resources and organisation, launching winning products on time, and generating the growth and profit they seek. Arthur D. Little sponsored the 1998 European Conference on Innovation and T echnology, in association with The Conference Board, to help companies get closer to these goals. Our sponsorship epitomises our continuing drive to help organisations expand their knowledge capital, enhance their capacity for learning and change, and discover new paths to sustained high performance. On behalf of my colleagues, I welcome you to our summary of the presentations at the 1998 European Conference on Innovation and T echnology. We look forward to discussing them with you in the context of your own business in the near future.

Organic growth, the third option, is most obviously achieved through innovation. However, the type of innovation commonly exhibited in European companies—incremental innovation—is not enough to create the kind of growth needed in today’s accelerating markets. The challenge for today’s company in Europe is to achieve strategic breakthrough innovation, systematically and routinely. The 1998 European Conference on Innovation and T echnology focused on three of the most important issues in systematic breakthrough innovation: • The link between innovation and company strategy • Innovation as a process • Creating an innovation culture and climate within companies The conference discussions make clear the grave need for European businesses to rethink their approach to innovation. European companies have focused too much on organising incremental innovation into systematic processes. In so doing, they have stifled the strategic innovation that will separate winners from runners-up in the next millennium. The good news from this conference is that recovery is possible, and that step-by-step approaches do

Richard Granger Vice President, T echnology and Innovation Management, Arthur D. Little

© 1998 Arthur D. Little, Inc. All Rights Reserved. Printed in the U.S.A.

Learning To Innovate
The 1998 European Conference on Innovation and T echnology

Speakers Learning to Build an Innovation Vision and Strategy
Dr. Ing. Tom Sommerlatte, Chairman, Management Consulting Worldwide, Arthur D. Little: How to Link Innovation and Corporate Strategy . . . . . . . . . . . . . . . . . . . . . . 2 Charles Backof, Vice President and Director of Research Radio Products Group, Motorola: Practical Steps to Build Innovation Into Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . 4 Ronald S. Jonash, Vice President and Director of Technology and Innovation Management, Arthur D. Little: Moving From Continuous Improvement to Sustainable Innovation— Strategic Implications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Prof. Dr. Alexander Gerybadze, Centre for International Management and Innovation, University of Hohenheim: International Technology Strategy—Learning to Innovate in the Global Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Learning to Manage the Innovation Process
Professor Jean-Philippe Deschamps, IMD: Setting Up Mechanisms to Manage the Innovation Process. . . . . . . . . . . . . . . . . . . . . . . 10 Bo Wirsén, Vice President, Strategic Business Development, Tetra Pak Group: Launching a Process for Managing Innovation at Tetra Pak . . . . . . . . . . . . . . . . . . . . . . . 12 Dr. Hans-Georg Junginger, Executive Vice President, Sony Europe: How Sony Manages the Processes of Forming and Implementing Vision . . . . . . . . . . . 14 Detlef Schacht, Vice President, Manufacturing & Distribution, The Gillette Company: How to Make the “Concept-to-Launch” Process Succeed . . . . . . . . . . . . . . . . . . . . . . . . 16

Learning to Develop an Innovation Culture
Charles F. Kiefer, Founder and President, Innovation Associates: The Learning Organisation and Creating a Culture of Innovation . . . . . . . . . . . . . . . . . . . 18 Jacques van Nieuwland, Director, R&D, Philips Consumer Electronics: Leveraging an Entrepreneurial Culture to Create New Business . . . . . . . . . . . . . . . . . . . 20 Dr. Hans Juergen Rosenkranz, Head of Central Research, Bayer AG: The Role of Corporate Research in the Innovation Process. . . . . . . . . . . . . . . . . . . . . . . . 22 Richard J. Granger, Vice President, Technology and Innovation Management, Arthur D. Little: Using Innovation Performance Measures to Drive Learning and Improvement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Learning to Build an Innovation Vision and Strategy

How to Link


and Corporate Strategy

Dr. Ing. Tom Summerlatte Chairman, Management Consulting Worldwide, Arthur D. Little


he days are gone when strategies based on history, and/or good ideas coming out of R&D, might give a company sustained competitive advantage. T oday’s most successful companies deploy strategies driven by ambition, by a vision of the future the company as a whole wants to create. They excel at managing highrisk, high-potential opportunities. They employ sophisticated techniques to optimise the value chain, and ambitious measures to improve performance. These developments have led to the rise of organisational learning over the last 10 years, as companies recognise that knowledge is one of their most important assets and must be strategically used. Innovation is one of the biggest beneficiaries of well-managed organisational learning—but too many companies still leave innovation in the hands of their R&D department. They do not realise that only the company’s strategic leaders can really drive strategic innovation, i.e. innovation that delivers strategic advantage in the company’s target markets rather than simply incremental improvements in performance. For many people, managing innovation equates to “managing the unmanageable”. However, success in strategic innovation is based on only four elements: idea management, opportunity screening, top management commitment, and innovation process

redesign. Here, idea management goes far beyond the “suggestion boxes” beloved of so many companies to involve both qualitative and quantitative approaches to creating and refining ideas with strategic potential. Effective opportunity screening draws on the knowledge hidden in the corporation, and a multitude of sources outside it, to distinguish between what will fly and what will sink the company, and all the grey areas in between. T manageop ment commitment does not mean lip service in the annual report, but demands top management’s active involvement in innovation teams. And innovation process redesign can turn an anarchic, unproductive function into an enterprise-wide, aspiration- and knowledge-driven force for business success. Even if a company recognises the potential value of strategic innovation, it can be difficult to know how to go about it. The following four-step approach has proved valuable in several European companies: 1. Develop the company’s Knowledge portfolio (i.e. its understanding of different areas, and the potential of each area to differentiate the company) 2. Look at the company’s Applications portfolio, and assess each application for the company’s knowledge in this area, and the application’s benefit potential


The 1998 European Conference on Innovation and Technology


Redesigning the Innovation Process for Top Management Commitment



Identification and preliminary evaluation of business areas CORPORATE BASE STRATEGY

Portfolio of attractive business opportunities Selection of strategic innovation opportunities Portfolio of innovative solutions/ product ideas

Knowledge portfolio


Identification and preliminary evaluation of applications/ solutions

In-depth evaluation and screening

Development planning




Idea Management and Opportunity Screening Gain in Importance

Knowledge Portfolio
Knowledge position high Strategic Knowledge

Example: New Product/Business Fields

low Realisation position low high Differentiation potential high

Solution Portfolio
Strategic Opportunity Implementation strength high

Business Portfolio
Strategic Innovation

Applications Portfolio
Knowledge position high Strategic Search Field

low low high Customer demand

low low high Business attractiveness

low low high Benefit potential

3. Combine these two assessments to generate a Solution portfolio; assess the realisation potential of each solution against customer demand to arrive at:

4. A Business portfolio, each element of which should be assessed for its business attractiveness versus the company’s implementation strength to identify areas for strategic innovation

Learning To Innovate


Learning to Build an Innovation Vision and Strategy Practical Steps to

Build Innovation
Into Business Strategy
Charles Backof Vice President and Director of Research Radio Products Group, Motorola


he key to success in the next 10 years is becoming an integral part of your customer’s business, because you understand it and can meet its needs so well. Recognising this, Motorola spans the spectrum from condition-driven incremental innovation to strategic innovation.

In the Product Innovation Model at Motorola, each division or business in the company has a strategic plan, often based on anticipated advances in technology. Here “technology” is used in the broadest context, to include markets, competitive environments, and more. In the firm belief that business renewal and growth follow where innovation leads, Motorola consciously works to be part of a learning culture to continuously renew and refresh its ideas and its businesses. High-powered project teams are established as and when required, to create new products. The people in these teams have high expectations of quality and leadership; they see learning as a lifelong process of renewal, and they know how to find and use information to keep pace with customer needs, for problem solving, and to develop team skills. The reward system at Motorola is highly developed. It has two aims: to reward people who drive the company forward, and to provide role models for others. Different kinds of achievement are recognised, e.g.

through the Patent of the Y Award, ear Gold Badges for those with 10 or more patents, Dan Noble Fellowships, and more. Motorola’s patent portfolio is becoming increasingly important in the company’s technology roadmapping, especially in deciding between areas of Motorola leadership and competitor leadership for investment purposes. A phased “T echnology Shelf” approach enables the company to ensure a constant flow of ideas, and work to test and prove those ideas at each stage in the product development process from concept to delivery. For example, Motorola partners with universities for developments that may hit the market five years or more from now, because the “time cost” of money makes this the most effective way to develop products (e.g. $1 spent today requires a return of $2 in five years’ time, just to break even). This phased approach lets Motorola link its product development with its strategy, keeping work on different products linked to the pace of technology development and to the needs of the business. At the same time, the technology roadmap helps the company keep the right balance of technologies and competences in its portfolio for current and future needs.


The 1998 European Conference on Innovation and Technology


Product Innovation Model

Long-Range Business Plan

Technology Roadmap

Multi-Generation Product Roadmap

Research Projects

Tech Shelf Projects

Product Development

Hire, Continuously Develop, Recognise, and Reward Good People

Technology Shelf

3 to 5 year Horizon, 5 years and Beyond
Research, Corporate and Sector

1 to 3 year Horizon
Technology Centres, Sector-Group

Months to 1 year Horizon
Applied Engineering, Group, Division, Business Unit


Learning To Innovate


Learning to Build an Innovation Vision and Strategy Moving From Continuous Improvement to

Sustainable Innovation—
Strategic Implications
Ronald S. Jonash Vice President and Director of Technology and Innovation Management, Arthur D. Little


rthur D. Little has identified a striking phenomenon on Wall Street: analysts are placing significant share price premiums on companies perceived to excel at innovation. Previously notorious for their apparent short-term perspective on business success, these major influencers of corporate behaviour are now causing companies to view innovation—with all its connotations of time scales and investment—as the major imperative. But what is innovation? Many people regard it as “the act or process of renewal and introduction of new methods, devices, etc.” However, business innovation has many aspects, the most important of which is probably the creation and capture of new value in new ways. T oday, more and more companies are seeing innovation as the engine for growth and performance beyond “continuous improvement” and “reengineering”. Many North American companies went too far down the road of cost reduction and efficiency in the 1990s, and now Wall Street is pushing them back into more strategic and sustainable innovation by asking “Where’s the growth? Where’s the beef?”. Y while innovation may be one of the et, best pathways to stakeholder satisfaction, it is one of the routes least effectively exploited by companies all over the world. This is set to change, as Wall Street and other financial markets around the globe increase their application of measures of

innovation leadership, e.g. customer loyalty and brand equity, product and technology leadership, operational excellence, value of technology and product pipelines, or accelerated time to market and time to profit. By adopting an overarching strategy of sustainable innovation, companies are creating breakthrough leadership opportunities. In the past, companies generally chose one of three leadership strategies: product leadership, operational efficiency, or customer intimacy. Leadership in the chosen dimension was achieved through continuous improvement. Now companies are starting to realise that they can lead in all three dimensions by focusing their strategy at a higher level: on leading in their sector or industry through sustainable innovation. There are six critical pathways to sustainable innovation: 1. Changing the mindset from productive and effective R&D to sustainable innovation and product/technology leadership—across the extended enterprise and value chain Moving to high-performance technology and innovation across the extended enterprise, via: 2. An integrated strategic portfolio beyond projects and programmes to include innovation platforms and partners 3. Seamless innovation from concept to customer beyond “stage-gate product development”


The 1998 European Conference on Innovation and Technology


What is Innovation, and Why is it so Important Now?
A Driver for creating top-line and bottom-line value across the extended enterprise An Engine for enhanced growth and high performance, and an Energy Source for speed, acceleration, and timing A Vehicle for managing a lot of imponderable “I’s” (eg., ideation, inutition, invention) in a sea of “C’s” (e.g., change, complexity, contradiction) WHAT IS INNOVATION? The Act or Process of renewal and introduction of new methods, devices, etc. A Culture supporting entrepreneurship, intrapreneurship, and nonstop cross-fertilization The Best Pathway today to stakeholder satisfaction and shareholder premiums

A Structure for taking and managing risks in a changing world

The Art and Discipline of business creativity and the Courage and Willingness to reinvent ourselves

What is High Performance Innovation?




nu nti

Innovation Vision and Strategy




Accelerated Rollout

Accelerated Seamless Transfer Innovation Processes Concept to Innovation Customer Innovation Resources Organisation and Networks and Culture Enterprise-Wide Top to Bottom

Companies increasingly look to innovation to power the next level of performance enhancement.

Accelerated Learning

Sust ainable Innovation

4. Extended enterprise resources and leveraging beyond conventional budgeting 5. Fluid networks, high-performance teams, and partnership organisation beyond R, D&E 6. Creating motivators and metrics for high-value sustainable innovation and high returns on both financial investments and intellectual capital Success along these pathways depends crucially on moving away from the concept

of “cost-effective, operationally efficient R&D and Engineering” to that of “highvalue innovation”, and away from the association with “cost” to the recognition of “investment”. Innovation is not an operational issue, it is a strategic one; and the quicker companies can break out of the straitjacket of stage-gate benchmarked innovation processes into aspirational, enterprise-wide innovation, the better it will be: for Wall Street, shareholders, customers, and employees.

Learning To Innovate


Learning to Build an Innovation Vision and Strategy International T echnology Strategy—

Learning to Innovate
in the Global Context
Prof. Dr. Alexander Gerybadze Centre for International Management and Innovation, University of Hohenheim


esearch by the University of Hohenheim has investigated three issues: 1. Globalisation of R&D—where do we stand? 2. New patterns of innovation in the global context 3. Management of competence centres across borders

The research was conducted in two phases, involving 61 firms in the electronics, IT, chemicals, pharmaceuticals, machinery, energy, automotive and aerospace industries in Europe, Japan and the United States. The findings demonstrate a sharp reversal of the trend to globalise R&D operations in support of globalised businesses. More companies are currently recentralising their R&D, maintaining a few dedicated R&D centres overseas and keeping their core competences very close to the centre of control in the home market. Globalisation of R&D has much to do with learning within the company, not just from outside. However, learning in a multinational is not about knowledge exchange: it is about power and conflict. Hence the importance of competence centres, where the people who need to know are stationed together as part of the same team. The survey shows that companies are managing across boundaries in a totally different way from five years ago. For example,

companies increasingly view innovation in terms of a “corporate innovation value chain” rather an R&D function. The traditional pipeline is being superseded by system-focused innovation. R&D and innovation are both moving closer to the point of sale. The formation of dominant design and standardisation process is seen to be key to successful innovation. Internationalisation of R&D is increasing, in the sense that more R&D centres are being built overseas, but these overseas R&D centres are dedicated to specific areas of business and located in the most dynamic, forward-driving markets for those areas (e.g. a centre in Scandinavia focusing on mobile communications, or one in California specialising in zero emissions). Thus companies are establishing multiple centres of learning but with a single dominant centre (in the home market). The new paradigm of learning for global innovation means synchronising two cycles of development: the need cycle and the technology cycle. In the past, companies worried mainly about the latter. Now, with innovation and R&D moving closer to the customer, both cycles need to be understood and linked together. The difficulties arise when the two cycles are scattered across different countries, e.g. such that the most advanced technology is in Switzerland when the greatest need is in Japan. The survey found few countries strong in both technology leadership and demand leadership strategies.


The 1998 European Conference on Innovation and Technology


Dynamic Interaction Between Need Cycle and Technology Cycle
Technology Cycle (”Back-end”) Need Cycle (”Front-end”)

U.S.A. 1968 Japan 1998 Japan 1998 Japan 1980 CH 1971 CH 1985 Japan (1985) Japan 1985 Japan 1980

U.S.A. 1968 CH De facto 1975

CH Plan 1975

Where is R&D and technology generation most advanced/basis for comparative advantage?

Where are needs articulated and where can firms generate value by learning from most sophisticated users?

Four Generic Strategies of International Innovation and Learning
Type A Leading R&D in Home Country Large Country/ Critical Assets in Home Country
• U.S. Biotech Firms • German Polymer Chemistry

Type C Lead Marketing and Innovation in Home Country
• LCD in Japan • Internet Business U.S.A. • High-end Automobiles Germany

Type B Distributed R&D Centers
• Swiss Pharmaceutical Firms • German Electronics/IT Firms

Type D Globally-Distributed Lead Markets and Competence Centers
• European LCD Suppliers • Mobile Communication Firms from Small Countries

Small Country/ Critical Assets in Foreign Country

Science and Research Based Innovation

Lead Market Driven Innovation

Emerging from the study are four generic strategies for international innovation and learning, which relate to the speed of innovation in the industry, the drivers for that

innovation (e.g. technology versus market need), and the relative sizes of the home market versus overseas markets.

Learning To Innovate


Learning to Manage the Innovation Process Setting Up Mechanisms to Manage the

Innovation Process

Professor Jean-Philippe Deschamps IMD


he traditional perspective on innovation is “bottom-up”: how to unleash and leverage the creativity of our staff and teams. Becoming an innovation powerhouse, however, requires something more: a top-down, ambition-driven and management-led impetus. It starts with a vision of where and how the company wants to innovate. It continues with the setting up of innovation-specific processes. There are two very different types of process. Upstream, processes are needed to generate, evaluate, and select the most attractive ideas to address unarticulated customer needs/wants or problems. This is often referred to as the “fuzzy front-end” part of innovation. Downstream, programme management processes are needed that deliver the best possible and most timely solutions to these customer needs or wants. Excellence in both yields a stream of winning products.

Whereas innovation programme management is getting better, most companies need to do a much better job of managing the “fuzzy front end” than they currently do. Fuzzy front-end processes include: • Collecting and interpreting market, competitor and technology intelligence • Generating, enriching, evaluating and selecting ideas • Developing technology resources and competences in anticipation of future needs • Formulating product and technology strategies and plans

Companies waste vast sums of money working on the wrong projects, often because they lack market insight and intelligence. They will approve multimilliondollar budgets for advanced technology development without much hesitation, yet will argue about much smaller amounts to be spent on the advanced marketing they need to help steer the overall direction(s) of R&D. Advanced marketing involves three elements—advanced (i.e. long-term) marketing research and scenario planning, expeditionary and experimental marketing, and the business support and validation of new ideas. Intelligence activities are best carried out by horizontal networks of people: “market sniffers”, “competitor scouts”, and “technology gatekeepers”, working in symbiosis. By managing intelligence through these cross-boundary networks within the company, it is easier to identify the best opportunities (which often occur at boundaries between divisions or functions), avoid wastage, enhance learning, and innovate faster, better, and more profitably. The intelligence process feeds into the ideation process, where innovation visions are built and scoped, ideas are managed in a structured way and opportunities are validated to deliver the best solutions for priority customer problems and needs. T o leverage and balance marketing and R&D perspectives in their ideation process, many innovative companies have allocated the management of ideation to a crossfunctional mechanism, an Innovation


The 1998 European Conference on Innovation and Technology


Recognise the Various Processes in Innovation—Intelligence
Do we have a process to manage/support products throughout?
Market Intelligence Idea and Innovation Management

Competitor Intelligence Prod. strategy Prod. planning Tech. strategy R&D planning A to Z program management Development Technical support Product life-cycle management

Technology Intelligence

Technology Resource Development

Council or Board. Ideas selected for investigation and exploitation are then entrusted to venture teams—the champions that will commit to making them happen. T support the output of the ideation o process, the company needs to be sure it has the critical competences in place. Identifying what those will be and building them up to the right level, acquiring them, or accessing them through partnering is the process of technology resource development, involving activities such as technology/competence mapping, technology outsourcing and transfer, technology resource building and management, and technology asset protection and management. These processes are typically entrusted to Chief Technology Officers (CTOs). Not all good technology and product ideas can be implemented. It is, therefore, important to focus and get the most attractive project portfolio together, making sure the

company is thinking far enough ahead to meet the evolving needs of its customers. This is the role of product and technology strategy and planning, another process requiring close co-operation between Marketing and R&D. Then, and only then, comes the management of specific innovation projects. Programme management involves agreeing on and freezing the product concept, developing the product, developing the process, and—often the most critical part, if the concept is totally new—building demand and launching the product. Greatest success is achieved where product development, process development and product launch are run as an integrated process, by the same programme management team, and where time has been spent planning product support throughout the life cycle.

Learning To Innovate


Learning to Manage the Innovation Process Launching a Process for Managing

Innovation at Tetra Pak
Bo Wirsén Vice President, Strategic Business Development, Tetra Pak Group


eeling uncomfortable about its dependence on a small number of very successful products, e.g. the T etra “brick”, packaging market leader T etra Pak decided to improve its competitiveness through a radical performance improvement in two key processes: • The Innovation Process • The Operational Excellence Process

T etra Pak carried out a wide-ranging exercise to benchmark its own innovation performance against other, best-in-class organisations. So, for example, it looked at the innovation culture in 3M, and the innovation process in DuPont. In the past, T Pak had suffered from the etra phenomenon of “acoustic planning”, where the part of the marketing organisation that shouted loudest got its changes made to new products just before launch. The results of this approach were generally negative: delayed launches, dilution of product identity, and deviation from functionality specifications appropriate to other markets. A new, more objective approach was adopted. This involved two tools: a computer-based tool, Animated Idea Management (AIM) to see how one might network between different product ideas; and Arthur D. Little’s proprietary Structured Idea Management methodology (SIM), to identify, screen and develop potential product ideas. T etra Pak also revised its approach to segmentation. The new four-dimensional approach—incorporating packages, products, people, and consumption usage—is very complex and sophisticated, but necessary for a realistic projection of what the market might need, and how to satisfy that.

Both processes were targeted for action, to ensure that T etra Pak would not—if it lost its product advantage—be competing solely through the excellence of its organisation, which is a difficult position to sustain. The Operational Excellence Process team set very tough targets for improvement, based on best performance levels in the T etra Pak group (e.g. lead times, errors, total costs). The inspiration for the Innovation Process improvement was the spirit of the Ford Motor Company President, who said: “If we aren’t customer driven, our cars won’t be either.” T key activities formed wo the basis of the improvement programme: conducting workshops to listen to the markets that were far down the current priority list in innovation; and establishing an Innovation Process Board involving six or seven people from across the company.


The 1998 European Conference on Innovation and Technology


Innovation Performance Improvement at Tetra Pak

Establish High-Level Innovation Process Board


Conduct Market Priority Workshops

Benchmark Innovation Performance

Idea Management • AIM • SIM Segmentation Management Focus • Packages • Portfolio • Products • Administration, • People Operations, Sales • Consumption

The Innovation Process Board realised that T etra Pak’s top management spent little time on issues relating to the company’s portfolio. Most of the attention at senior levels was focused on administration, operations and sales. This situation did not put T etra Pak in a favourable position compared with other companies, whose top management devote about half their time to discussing and developing their portfolio. So the Innovation Process Board was redesigned to include the heads of the three parts of the T etra Pak Group, and the Chief T echnology Officer, meeting five or six times a year.

Given the number of radical changes involved in the new Innovation Process, its launch was bound to encounter barriers. In fact, the biggest barrier was due to the fact that people in any organisation tend to feel more comfortable in functions than in processes: they know their competences better in a functional environment. T etra Pak’s Innovation Process Board overcame this barrier by showing the new processes were not defining a new organisation, but a new way of working that makes it easier to identify where improvements can be made, and assign “owners” to make them happen.

Learning To Innovate


Learning to Manage the Innovation Process How Sony Manages the Processes of Forming and

Implementing Vision
Dr. Hans-Georg Junginger Executive Vice President, Sony Europe


n the past, consumer electronics was a “box” business. In the future, Sony will compete in a networked audio/video digital world, where the focus is less on the box, and more on the service to the consumer. This creates pressure to know which innovation processes will be really important to the consumer, and focus on them. It also provides Sony (and others) with a huge opportunity for expansion if they can spread their business across the digital value chain, from content to delivery.

only started if a product has been envisaged. Often, the “product dream” comes from top management, who spend 50 per cent of their discussions on new products and technologies. They then consider who the potential customers for the product might be. This develops a strong will to create the product which, combined with Sony’s 50 years of expertise and instinct, indicates the key technologies that need to be developed. Sony keeps the development of key technologies in house. This is very important for motivation purposes, as well as competitive reasons. All key projects, like the Trinitron, Walkman, and Mini Disc projects, have a member of top management to lead them. Sony, a real multinational company, has nearly optimal sales distribution around the world: 27 per cent in Japan, 31 per cent in North America, 23 per cent in Europe, and 19 per cent in the rest of the world. The reason for this is the underlying goal to make sales distribution fairly even around the world. T achieve this, Sony has o to look at and exploit the different business opportunities in different countries, taking the view that no company can build its future on expectations of universal singleproduct successes like the Walkman.

In the digital future, Sony is seeking to be synonymous with “fun” (entertainment, infotainment) in the home and for mobile consumers. The target market for such services should be defined and developed by the “Digital Dream Kids” of every generation. T serve these targets better, Sony o is reorganising, restructuring and regenerating itself for less bureaucracy, more networking, and a more “glocal” approach (thinking global, acting local). Sony has both divisional and central R&D operations. The company’s Chief T echnology Officer exercises overall control of R&D, and pushes the company in the direction of new technologies, processes, etc. Clear target-setting is rated highly important in Sony’s R&D philosophy. This means new R&D projects are


The 1998 European Conference on Innovation and Technology


New/Future R&D Area—Digital Value Chain

CONTENT Providers

SERVICE Providers
Edit/ Bundle/ Package Aggregate

DELIVERY Providers
Facillitate/ Transmit Enable

ACCESS Providers

Content Production • Movies/Film • Music • Games • Software • News • Sports • Financial/Business • Education/Learning • Commerce +… Content & Client Management • Content Acquisition • Content Programming • Content Packaging/ Aggregation • Transaction • Advertising • Conditional Access • SMS Delivery Method • SAS • Hosting • Maintenance & Reporting • Verification • Multiplexing/ Uplinking • Transmission Network Access & Recption • TV • Set-Top Box • Personal Computer • Mobile Terminal (GSM, DAB) • SAT Dish • PC Adapter Card • PCI Compatible PC • Modem

On its path to become a globalised multinational company, Sony has so far taken four steps: 1. Exporting products from Japan (to gain entry in overseas markets) 2. Establishing local sales and marketing in other countries (to strengthen the foothold gained) 3. Building local factories to produce products (to establish a local position) 4. Localising engineering, using locally produced components (to shorten lead times) The final step will be the globalisation of R&D, with local R&D organisations in

markets that are most advanced in specific areas (e.g. the U.K. for home systems, Germany for mobile systems) and global R&D centres working on technologies that span several product applications. Throughout this globalisation process, Sony has benefited from its tradition of rewarding staff—in every area, from sales to R&D—for their contribution to progress, and from its focus on having “business creators” as well as all the available technologies and competences to penetrate markets with good products.

Learning To Innovate


Learning to Manage the Innovation Process How to Make the

Process Succeed
Detlef Schacht Vice President, Manufacturing & Distribution, The Gillette Company


he Gillette Company’s mission can be summed up in a sports analogy: “We don’t go to the Olympic Games to participate, we’ll only compete in events where we have a very good chance of winning.” The company is a good example of the innovation premium identified by Arthur D. Little. Innovation enables the company to deliver added value to consumers, for which they will pay a premium price. In a successful concept-to-launch process like Gillette’s, the process is not the driver: the driver is the company’s strategy. Gillette’s five-year strategic business plan defines technology feasibility assessments and an implementation schedule for new products by quarter and year. This approach gives the concept-to-launch process a crispness that does not stifle creativity; rather, it instills a sense of urgency and direction. The process itself has very clear objectives: • Achieve faster speed to market • Maintain product concept integrity while designing for manufacturing • Add value and eliminate waste • Free up resources The successful execution of the process has several components: • Defining the objective of each programme • Maintaining continuous “systems” focus • Defining and documenting the development phases

• Integrating cross-functional teams • Charting the accountability of everyone involved • Carrying out development and engineering concurrently • Involving upstream parts of the business (especially R&D) • Creating the right organisational structure • Educating and training people on an ongoing basis One of the most important components in the process execution is team preparation. In Gillette, the whole team is put together at the outset of the project. Each team has roles for all its members: someone who is accountable for the overall project; someone who is not necessarily active but provides support in one way or another; someone who acts as an internal consultant; and so on. People in Gillette recognise that, if they do not have a role in that team, they should not actually be on it— and so they are freed to deploy their skills and experience more effectively in another team. T oday, Gillette’s success in innovation— with 49 per cent of its 1997 income coming from products launched in the last five years—is largely due to the lessons learned and applied over several years. Innovation no longer means just doing a project, it is a way of doing business. T support an innoo vative environment, management style has


The 1998 European Conference on Innovation and Technology



Team Preparation Technical Response Feasibility Assessment Prototyping Development Eng. & Implementation MAJOR PROGRAMMES • New Products • New Technologies

to shift from “command and control” to one based on shared risk. Recognition and reward systems in a team approach are a major issue to be resolved. Functional management has greater responsibility for communication, to keep cross-functional knowledge transfer rapid and frequent.

Finally, continuous training and renewal are seen as a must, rather than desirable, with three crucial elements: • Basic skills, such as meeting management, team dynamics, and systematic problem solving • Special skills, such as coaching and group facilitation • Specific skills, increasing productspecific expertise

Learning To Innovate


Learning to Develop an Innovation Culture The Learning Organisation and Creating a Culture

of Innovation
Charles F. Kiefer Founder and President, Innovation Associates


wo kinds of thinking are involved in innovation: creative “flow” thinking; and problem-solving, analytic thinking. Though both are essential for innovation, the second kind of thinking often crowds out the first—to the detriment of the business.

Not many firms are innovative at their roots. Being innovative is very challenging, often too challenging. Most organisations, in North America at least, have been designed around stability. T use a biologio cal analogy, these companies do not see themselves in an environment where the fittest survive, but one where longevity goes to the species that has evolved to cope with the widest range of environments. For this reason, most people will sacrifice mobility for stability as often as possible. So the fundamentally destabilising nature of innovation makes it very difficult, though exhilarating and potentially beneficial. More organisations are making the transition from stability to mobility, and espousing innovation, at the senior management, strategic, level. However, the real shift comes when members at every level of the organisation insist on innovation from each other, and of themselves, in every interaction. Until that insistence emerges, and the right processes are in place, the danger remains that innovation will be driven out of the organisation again.

Not everyone has the credibility to insist on innovation. Only those who embody the spirit of innovation can truly take a stand (as the word “insist” implies) for innovation and draw it out of the other parts of the organisation with which they come in contact. This means, for instance, that some companies’ Innovation Boards should not include the CEO. T orientations are possible in companies wo seeking to be innovative. In one, circumstances dominate; in the other, desires and visions dominate. • For the circumstance-driven companies, life is a series of problems to be solved. The situation is like the children’s game “Whack a Mole”, where plastic “moles” pop their heads through holes in a board at random and the child’s job is to whack each mole on the head and thus score as many points as possible. Circumstancedriven companies find their lives organised by their problems or “moles”. No one has to worry where they are going; the sole object is to drive the problems out of existence. • In companies where desires and visions dominate, the object is to bring something into existence. The motivations are desires, people’s love of what they do. People focus on things that really matter to them, and as a result tend to be much more successful at them. The successes


The 1998 European Conference on Innovation and Technology


What is the Primary Driving Force Within Your Organization?

What do they want now? Who/What did this to us?

How did WE create this situation? How can we create what we want?

and achievements in aspiration-driven companies excite and motivate people in those companies, which generates even more success. Pockets of creativity join up across the enterprise. People gain the confidence to “be innovative”, rather that simply “innovating”. When this creativity and confidence permeate the whole organisation, they drive breakthrough innovation. In addition to insisting on innovation, top management has a responsibility to lead aspiration-driven innovation by example. Senior executives cannot afford to be seen to do what they do purely out of obligation to the shareholders. Simply mouthing the

appropriate words will have a less-thanstimulating effect on the people whom they manage. In contrast, people who see their senior executives doing what they love are likely to be infected by the same spirit of enjoyment and enthusiasm, and by a readiness to share ideas and insights, learn in teams, develop new mental models, and think systemically rather than linearly. The learning organisation thus created will have what it needs to achieve seamless innovation and launch winning products on time. It is also more likely to exploit its technology fully as a strategic asset, and optimise its resources and organisation.

Learning To Innovate


Learning to Develop an Innovation Culture Leveraging an Entrepreneurial Culture to

Create New Business
Jacques van Nieuwland Director, R&D, Philips Consumer Electronics


etween 1993 and 1997, Philips Audio went through a revolutionary change—a turnaround in culture, mentality, process, responsibilities and business results. The company is now among the top three players in its sector; it continues to gain market share in a stable market; its people are motivated and its shareholders are happy.

what the Product Creation Process was, or should be, about. In three months, an intensive programme of process mapping, analysis and benchmarking was followed by the definition of new targets, a new product creation process, and a new project called PERT to improve Product quality, Efficiency, Reliability and Throughput time. The planning and implementation phases took a further three years. The company had some serious barriers to innovation. For example, product creation was milestone driven, but the milestones were more of a management tool than a process tool and there were too many of them. Communication was unclear between different parts of the business. Progress was function driven rather than project driven, projects had little or no life of their own. The new product creation process was defined in every detail: project management, risk management, concurrent engineering, market research, technical architectures and standard designs, etc. The PERT project set detailed target standards, such as 2.5 per cent service call rate, 30 per cent improvement in return on resources deployed, 100 per cent of deadlines met, and development time reduction by a factor of 2.

However, in the late 1980s and early 1990s things were very different. Losses, declining sales and threats to the business in an increasingly competitive environment had led to serious demotivation of the workforce. People had lost the will to fight, the will to innovate. In a period of market shake-out, the company had to catch up again, and establish an innovation culture, or give up. Internal scrutiny led people to realise that the current Product Creation Process simply did not meet the business needs. Time to market was too long. Efficiency was low. The quality of products was not high enough. In several cases, the wrong products were put out into the market because not enough input had been received from the market to guide development. Product creation was driven more by technology advances than consumer need. It took too long to improve anything. There was not even a common view of


The 1998 European Conference on Innovation and Technology


Change Process

Improvement Objectives Mapping of Current Processes Improvement Areas Creation of Ownership Change Instruments & Interventions Planning of Implementation Training Internal & External References Measurement System (KPIs) New Product Creation Processes


Evaluation & Measurement of Results

The purpose of PERT was to free attention, money and resources so that Philips Audio could be more innovative. Though no one could argue with these goals, the culture shock that hit the company was huge. PERT succeeded because it had full management support, because of the clarity of its goals, and because management invested time and effort into predicting the resistance to the changes needed and giving their personal attention to softening that resistance. The success of the PERT project is evident today. For example, throughput time has been reduced from 65 to 70 weeks to under 30 weeks, while the field call-back rate has shrunk from 8 per cent to under 2 per cent.

T lessons learned in the course of estabwo lishing the new product creation process and implementing PERT are especially important: the need to concentrate on people, their fears and resistance; and the need to set higher and higher targets. Senior management resolved the culture shock successfully from two sides: on the one hand, being open about the financial situation of Philips Audio and what its competitors were doing; and, on the other, showing people where they had to go and what they needed to do to get there.

Learning To Innovate


Learning to Develop an Innovation Culture The Role of Corporate Research in the

Innovation Process
Dr. Hans Juergen Rosenkranz Head of Central Research, Bayer AG


ayer has always had a strong emphasis on research. Over the last 20 years, spending on research has risen from 4.8 per cent of sales to 7.2 per cent today. Unlike Philips Audio, the company has mainly experienced evolutionary rather than revolutionary change. From its origins in chemicals, Bayer started to become a life sciences company in 1975 with the launch of Adalat as a treatment for coronary disease. T oday health care and agriculture account for over half the business.

action with the divisions in joint research projects, and also the supply of other technical services to the divisions. An interdisciplinary approach is typical of Corporate R&D. Thus basic results in research on cancer diagnostics resulted in the concept of “drug targeting” with a camptothecin derivative. Similarly, a successful concept for attract-and-kill insecticides originated from earlier work on new mosquito repellents for the consumer care division of Bayer. All Bayer’s central research work is organised in projects, even the smallest activities. Strategic research is the main field of activity; strategic projects start at DM 2 million a year minimum, with 8 to 10 full time people. Eight per cent of Corporate R&D’s research is exploratory; such projects are allowed to run for three years, and then are dropped if a division has not stepped in to express interest and no other route to commercialisation has been found (e.g. with a strategic partner). This approach ensures that central R&D delivers value to the company. Essentially, Corporate R&D acts like an internal venture company where success is measured by the number and quality of projects handed to the divisions. Corporate R&D is also a source of skilled scientists for the rest of the company, and hires more post-doctoral researchers than any other part of the organisation.

Given the success of Bayer’s products— including Aspirin in 1899, polyurethane chemistry in 1937, Adalat in 1975, marker vaccines to protect cattle against viral diseases in 1995, and many more—no one questions the value of R&D. However, less than 10 per cent of R&D is done centrally. The remaining 90 per cent takes place in the Bayer business divisions: health care, agriculture, Agfa, polymers, and chemistry. Since the company established divisional R&D units in 1972, their role has been clear: to serve each division’s particular needs. In contrast, Bayer struggled for some time to work out the role of what was left in its central R&D laboratories. Clearly, central R&D had to create value for the company, otherwise it could not be justified. The question was, what could central R&D provide that divisional laboratories could not? In Bayer’s case, the appropriateness of maintaining Corporate R&D is reflected in its high level of inter-


The 1998 European Conference on Innovation and Technology


Activities of Central Research
140 120 100 80 60 40 20 0 million DM




Biotech- Bioactive Materials nology Compounds Science


Research Document/ Pilot Plant Services Information

As well as providing value in these ways, Corporate R&D sees itself as “the technology conscience of the company”. Its aim is to promote an innovative spirit in Bayer. It achieves this mainly by employing young managers with good science and research experience. T ensure they can relate to the o concerns of Bayer’s business divisions and meet their needs, staff are also required to spend five to six years in the business world before being promoted to manager level within Corporate R&D.

Corporate R&D also engages in active cooperation with outside partners to acquire new know-how, speed up development, and benchmark against “best in class” organisations. Occasionally some equity is acquired in smaller partner companies. Bayer spends about 15 per cent of its R&D budget outside the company, and this proportion is rising as technology advances, knowledge expands, and Bayer seeks to accelerate its learning and continuously improve its professional standards.

Learning To Innovate


Learning to Develop an Innovation Culture Using Innovation

Performance Measures to
Drive Learning and Improvement
Richard J. Granger Vice President, Technology and Innovation Management, Arthur D. Little


he view “you can’t improve what you can’t measure” finds few dissidents – but how can companies measure the state of being innovative? The good news is that there are parameters, albeit a large number of them. So companies can confidently look to innovation as a way to achieve sustained excellence and growth on a scale that downsizing and productivity increases will not deliver. Before they can do that, however, companies have to distinguish between “the innovation fallacy” and the innovation reality. In the innovation fallacy, the thinking runs something like this: “We need to spend more money on R&D, because that would enable us to develop more innovative products, which would help us build business because innovative products always build business.” In reality, innovative products do not necessarily build business. Often non-innovative products build business, while innovations bury their originators. What really builds business is innovative companies. World-class innovation starts with a “helicopter” view of what it actually takes to become a world-class innovator. Gaining this view means rising above the day-to-day affairs of the business. Looking down from this height on successful companies, it is possible to identify four common features:

1. Innovation is seen as strategically important. 2. The innovation process is holistic and seamless. 3. Strong cross-functional teams drive the innovation process. 4. Performance measures drive improvement. Arthur D. Little’s most recent global survey of innovation practices and attitudes identifies the most widely used performance measures in each of the three important categories. These three categories are: • Lagging indicators • Real-time indicators • Leading indicators By combining these quantitative and qualitative measures of performance, companies gain a better understanding of their current position and the direction to take for significant improvements in innovation. Three further types of indicator can be used to sense how innovative a company is likely to become. These indicators identify a company’s innovation climate, its attitudes to various aspects of innovation, and its policy on matters that affect innovation. Focusing on the deficiencies these indicators bring to light, a company can then engage in a structured approach to become more innovative and hence more strategically competitive.


The 1998 European Conference on Innovation and Technology


Performance Measures Drive Improvement
Most Widely-Used Indicators:

% using “extensively”

Profit Margin Revenue/Turnover Market Share

REAL-TIME: Project Costs on Target

Performance on Target Launch on Time

Coverage of Strategic Goals Market/Product/Technology Vision Staff Motivation 0% 20% 40% 60% 80%

Source: Arthur D. Little World Wide Survey

Deficiencies Drive Future Improvements
PROCESS MATURITY STAGE Stage 6 Stage 5 Optimised Stage 4 Managed Controlled

DEFICIENCIES Awareness/Motivation Process Understanding Ownership Resources Competences & Tools Attitudes/Cooperation Problem Anticipation Learning/Prevention

Stage 1 Missing $ $ $ $ $ $ $ $

Stage 2 Chaotic

Stage 3 Described

$ $ $ $ $ $ $ $ $ $ $ $ $ ($) $ $ $ $ ($) $ $

* Based on Humphries Software Maturity Model

Learning To Innovate


About Arthur D. Little
Arthur D. Little is one of the world’s premier consulting firms. Through our spectrum of innovation—our integrated expertise in strategy formation, process improvement, change management, and technology and product development—we help leading organisations establish a sustainable innovation premium, creating strong financial performance and accelerated growth. Founded in 1886, we are distinguished from our competitors by the calibre of our people and the breadth and depth of our experience. We are also unique in our commitment to helping our clients reinvent their organisations, enhance their capacity for learning and change, and create lasting value for their customers, employees, and owners. The value we create spans a broad, integrated array of services. In many engagements, we help our clients devise and execute effective strategies, improve their operations, and accelerate their organisations’ learning. We frequently draw on our expertise in technological and product innovation to help our clients gain competitive advantage and strategic benefit. And we always seek opportunities to ensure superb environmental, health, and safety performance. In every engagement we undertake, we integrate our management vision and technological expertise with those of our clients to help them develop practical solutions, achieve improved performance, and obtain long-term business advantage. Our goal, always, is positive change and lasting results. In all this work, we are particularly proud that so many of our clients return to us for guidance year after year and that they continue to rely on us for integrity, insight, and value. For more information, please contact one of our regional offices and we’ll be happy to direct you to the office nearest you: Europe Arthur D. Little International, Inc. Boulevard de la Woluwe 2 B-1150 Brussels Belgium T elephone (32) 2 761 7333 T elefax (32) 2 762 0758 North America Arthur D. Little, Inc. Acorn Park Cambridge, MA 02140-2390 U.S.A. T elephone (1) 617 498 5707 T elefax (1) 617 498 7135 Internet: www.arthurdlittle.com Latin America Arthur D. Little Mexicana, S.A. de C.V. Av. Sinaloa No. 149.10 Piso Col. Roma Norte 06700 Mexico D.F. T elephone (52) 5 208 7564 T elefax (52) 5 207 7592 Asia Pacific Arthur D. Little Southeast Asia, Inc. 8 Shenton Way #37-01 T emasek T ower Singapore 068811 T elephone (65) 297 2300 T elefax (65) 292 7631



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