6 Internal Sources of Innovation

itonics-innovation.com/blog/6-internal-innovation-sources-you-should-know

August 23,
2018

Spotting efficient sources for different types of innovation is a challenge for innovation
leaders. We took a closer look at the most important sources of innovation in large
companies:

The Leadership
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Corporate Innovation Board, Chief Innovation Officer, or other senior executives

The strategy and the direction of innovation are set by a company’s top management.
Yet, companies around the world are in digital transition and face even larger leadership
gaps. Today’s top management needs a completely different set of skills and expertise
than in previous generations. Many organizations have not moved fast enough to
develop digital leaders, provide a seat for decision making to young leaders, and build
new leadership models. Simply setting up an innovation department, and allocating
money to it, does not create innovation. It is the management’s responsibility to make
sure that innovation is grounded in the reality of the organization. The leadership should
make sure to be a source for overall drive, vision, and ambition of the organization with
regards to innovation.

For example, the Chief Innovation Officer of Evonik Industries launched the global
“Leading Innovation” initiative, which is aimed at managers and the company’s C-level. As
a long-standing member of the management board, he knew first-hand that innovation
at board level had to become a more prominent topic. With this new initiative, Evonik
managers now meet regularly to identify and manage innovation challenges,
opportunities, and threats.

As the C-level executives set the direction for innovation, in a sense, they make the first
step toward successful corporate innovation. The leadership’s attitude towards creating
a safe space for innovation gives an incentive for employees to innovate. A good example
is the case of Toyota, where the leadership encourages innovation by eliminating some
of the pressure for short-run returns. Toyota’s decade-long investment in its brand Prius
eventually resulted in creating a reputation for the company as a respected product
innovator.

Centralized R&D Unit

R&D body that is centrally managed and financed by the company

A central R&D body is an effective source for transformational innovation. Technology-

intensive large corporations such as Microsoft and IBM actively conduct basic research
internally in dedicated research centers. According to the 2014 “Proven Paths to
Innovation Success’” study conducted by PwC’s strategy team, companies are intended
to raise the portion of their R&D budget for innovation from around 40 percent up to 60
percent for the outlook of the next 10 years. This source of innovation is responsible for
adjacent and transformational innovation, while incremental innovation is usually done
by each business unit’s employees as part of their daily jobs.

Wacker Chemie AG, a German-based corporation and one of the most research-
intensive chemical companies in the world, conducts R&D at two levels: centrally at its
own Corporate Research & Development department and locally within different
business divisions. The Corporate R&D unit coordinates activities on a company-wide
basis and keeps all product and process innovations transparent in an overarching
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project management system. Wacker furthermore honors the work of its researches
with different Group-wide R&D awards. The Alexander Wacker Innovation Award
recognizes outstanding work in the areas of product innovation, process innovation, and
basic research.

Decentralized R&D Units

R&D units that are specific to different business levels or areas

Often large corporations that operate in multi-business scenes normally build for each
business line a separate R&D body. As the innovation cycle and requirements for each
business lines differ from each other, having a centralized R&D function does not make
sense. In this case, each business line becomes a source of innovation. For example, in
the consulting and financial services industry these within-unit R&D centers often foster
different business lines that deal with market-specific regulations with a more
individualized approach.

Due to differing customer needs across different markets, the French energy giant
Schneider Electric created within-unit bodies for each line of business to manage its
own R&D. The company tackles the digital transformation of energy management and
automation across data centers and markets. At Wacker Chemie, business divisions
conduct application-driven R&D collaborating with customers, scientific institutions, and
universities. The German corporation furthermore founded several Wacker Academy
locations that provide a platform for sharing industry-specific knowledge between
experts, customers, and partners.

Innovation Labs
A joint platform for knowledge exchange at the interface of research and industry

This innovation source fosters the company to build an independent body with full-time
employees from different business units. Innovation labs can leverage the resources of
the core business such as capital, technology, partnership, channels, or existing markets
with strong leadership support. Among big corporations, there is a sudden rise in
following the trend of creating innovation labs. Companies as diverse as Delta Air Lines,
Volkswagen, Marriott, Autodesk, Fidelity Investments, Vodafone, McKinsey, Wells
Fargo, New York Times, Ikea, Cisco, Panasonic, Ford and Verizon accelerated the
development of new innovation labs and initiatives with the hope to be prepared for
what is coming next in global business disruption and transformation. Note that this
source of innovation can be completely internal (only employees of the company are
engaged) or mixed (both employees and external experts, startups collaborate).

Deutsche Bank has innovation labs in New York, Silicon Valley, London, and Berlin. The
Deutsche Bank Labs link technology startups with the bank’s internal teams, allowing
them to test products and solutions to meet their client’s needs. The labs assess and
implement emerging technologies, and support the digital strategy of the bank.

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Intrapreneurs
Employees that drive their own innovation projects by leveraging the resources of the
company

Another source that triggers innovation in large corporations is intrapreneurship. The

latter is a relatively recent concept and refers to the case when an employee has an
entrepreneurial acumen and starts his/her own innovation project inside the company.

At Intuit, when an employee comes up with a product or business idea, the necessary
resources are provided to create a prototype to test the hypothesis with just one
customer who is a potential user of that product. If the customer likes the product and
recommends it to others, then more prototypes are produced for a larger cohort of
customers in order to collect more data.

In 2015, Lenovo started an intrapreneurship project named “the Dream Lab” to help
business driven employees in their startup projects. A jury of Lenovo executives and
external investors chooses the most promising ideas during a roadshow, then the
winning projects are awarded a four-month acceleration service by the Dream Lab.
Successful projects are later either becoming part of Lenovo’s core business or
functioning as independent ventures.

All employees
All staff members of the company with futuristic ideas

Companies are making innovation everyone’s job, even if they invest to create R&D
centers and innovation labs. For many firms, the innovation agenda is now as much
about human capital investment as delivering new products and services. Innovation has
become an integral part of interview and onboarding processes. Job candidates are often
asked to offer innovation-oriented business concepts that produce growth.

A company’s employees together make up one of the biggest sources for new idea
generation. Due to experience and knowledge within an industry and its related
products, employees are often the most informed innovation source and can deliver
thorough, insightful proposals for new products and services. Employees need to be
encouraged to submit their proposals. Lack of proper technology and upward
communication limit employees to make their voices heard. A specialized software for
idea management helps to combine, expand, rate, and aggregate ideas and
collaboratively make an idea selection.

Cisco ran a company-wide Innovate Everywhere Challenge aiming to capture disruptive

venture ideas from its employees. After the first pilot round, Cisco started the second
and the third challenge aiming to integrate the ideation challenge as part of its
innovation management. As a result, 53% of all employees in 89 countries participated,
nearly 800 ventures were submitted by about 1,600 employees, 62% of the participants

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formed teams, 20 executives are sponsoring ventures with seed funds. The challenge
was a great success and boosted disruptive thinking across all business units, functions,
geographies, and grade levels.

Conclusion
All the sources of innovation mentioned above help companies to analyze and monitor
their innovation portfolio with regard to strategic goals. As a result, adequate resources
must be provided to the most beneficial innovation projects. Transparency is key when it
comes to choosing the right innovation sources for this or that project; people in the
company need to know how internal sources are selected, used, and who does what.

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