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The Innovators

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How successful companies drive business transformation

How successful companies drive business transformation

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  • 1. The innovators How successful companies drive business transformation An Economist Intelligence Unit briefing paper Sponsored by SingTel
  • 2. The innovators: How successful companies drive business transformation Contents Preface 3 Executive summary 4 Introduction 6 Burning platforms 8 Mountains beyond mountains 10 Innovation enablers 13 Culture Tools and technologies Looking outside Conclusion 19 Appendix: Survey results 20 © The Economist Intelligence Unit 2008 1
  • 3. The innovators: How successful companies drive business transformation © 2008 Economist Intelligence Unit. All rights reserved. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Economist Intelligence Unit. 2 © The Economist Intelligence Unit 2008
  • 4. The innovators: How successful companies drive business transformation Preface The innovators: How successful companies drive business transformation is an Economist Intelligence Unit report, sponsored by SingTel. The Economist Intelligence Unit bears sole responsibility for this report. The Economist Intelligence Unit’s editorial team conducted the survey, gathered data, conducted interviews and wrote the report. The findings and views expressed in this report are those of the Economist Intelligence Unit alone. Matthew Shinkman was the author of the report. Claire Beatty was the editor. Our thanks are due to all survey respondents and interviewees for their time and insights. September 2008 © The Economist Intelligence Unit 2008 3
  • 5. The innovators: How successful companies drive business transformation Executive summary I nnovation has become a popular term in identify the business areas on which they would the corporate vocabulary. Innovating, be focusing their innovation efforts, survey in a company setting, is to create or respondents most frequently cite those that change something—be it a product, a directly affect their clients and customers: new route to market, or even a back-office business product development, sales and marketing and process—to generate revenue or provide a cost- customer service. Despite a gloomy outlook for savings opportunity. In a highly globalised and the global economy, executives are maintaining a commoditised world, companies must fiercely focus on growth and innovation. defend their market position, continuously streamline business processes and aggressively • Generating good innovation ideas is hard; pursue new opportunities for growth. Having an getting them to adoption is even harder. Some effective innovation process is vital to remaining 60% of survey respondents report a shortfall competitive. of ideas in their innovation pipeline, but only Browsing corporate websites, it would be easy 14% cite this as the most challenging part of to believe that when it comes to innovation, the innovation process. Most companies see the companies have it cracked. However, as this process of bringing ideas through to adoption as research shows, the real picture is not quite so the highest hurdle. The greatest barriers in this rosy. Innovation success rates are very mixed process include resistance to change, shifting and executives reveal that innovating well is strategic priorities and a lack of project ownership. as challenging as ever. Nonetheless, there are also many success stories of firms that do drive • Survey respondents say that a culture of innovation throughout their organisation and innovation is critical, yet they disagree over have been able to overcome the barriers to what exactly it means. There are significant bringing about change. differences of opinion across the survey sample This report, sponsored by SingTel, analyses the over what are the most important elements of an main challenges that companies face with regard innovation culture. Innovation leaders place more to innovation; assesses where they are focusing importance on cross-functional collaboration their efforts over the next two years; and asks than other respondents. Respondents based in what executives consider to be the most crucial Asia prioritise appetite for risk as an important factors necessary to support their innovation element of a culture of innovation, while those in initiatives. The research, based on a survey of Europe and North America emphasise learning and 261 senior executives globally, also compares the cross-functional collaboration. responses of those companies that report the most success at innovating—“the leaders”—against • Technology investments are being directed those respondents that acknowledge less success. towards tools that will increase information The research reveals the following key findings: sharing and boost productivity. Executives report that they will be looking to deploy content • Customer-facing business processes are management and business intelligence tools the main targets for innovation. When asked to over the next two years. Workflow automation 4 © The Economist Intelligence Unit 2008
  • 6. The innovators: How successful companies drive business transformation technologies are also in demand for enabling the greatest barrier is that senior executives employees to concentrate on core business are unsure about the benefits of technologies. processes. From their investments, executives Innovation leaders (as well as executives in Asia) are mostly hoping to reduce business process are more concerned about security implications of complexity and achieve scale in processes. Survey deploying technologies than the rest of the survey respondents are more interested in maximising sample. productivity than they are in reducing upfront investment costs or lowering headcount. • Companies are looking to increase their level of collaboration with research bodies and • Inability to prove return on investment universities, while scaling back their consulting (ROI) continues to prevent wider deployment expenditure. Companies will continue to partner of innovation tools. Survey data shows that with customers, competitors, consultants and executives based in Asia find proving ROI on suppliers for innovation projects, although technology investments to be a far greater several trends are emerging. Joining forces with challenge than those in other regions. However, universities is a far more established practice Asia respondents say that their workforces are in Europe than in North America or Asia, but more technology savvy and they report fewer companies will be more active in this area in difficulties in encouraging the use of new the future. With the exception of those based technologies. In North America, executives were in Asia, survey respondents plan to scale back twice as likely to find employees resisting newly their involvement with consulting firms, most introduced tools and technologies. In Europe, noticeably in North America. Who took the survey? In March 2008, the Economist Intelligence Unit America, 27% in Europe, 36% in Asia-Pacific, conducted an online survey of 261 executives and 14% in Latin America, the Middle East and worldwide to understand better how they drive Africa. Approximately 60% of respondents worked innovation in their organisations and the chal- at organisations with annual revenue of more lenges they face in this process. Of the respond- than US$500m, while the other 40% came from ents to our survey, 45% were senior executives companies with revenue below that amount. In (board-level or C-level), and 55% were directors, addition to the survey, qualitative interviews were business unit heads and other managers. World- conducted with senior executives in Europe, North wide, 23% of respondents were based in North America and Asia. © The Economist Intelligence Unit 2008 5
  • 7. The innovators: How successful companies drive business transformation Introduction W ith storm clouds gathering over slowdown in the US, six out of ten still believe the global economy in 2008, and that increasing top-line growth and sales is more the world’s blue-chip companies important to them than cutting costs—and three signalling profit warnings in out of four say that innovation is crucial to the increasing numbers, it would be understandable competitiveness of their businesses. if senior executives were becoming more wary Having an effective internal innovation of making investments into projects with engine can generate both substantial cost speculative returns—as required in all aspects savings and lucrative customer opportunities. of innovation. However, the opposite appears The term “innovation” tends to conjure up to be the case; forced into a corner by the images of iPods, Xboxes and other technological combination of a tougher trading environment gadgets. Indeed, 70% of survey respondents say and rising competition in both developed and product innovation is critical or very important emerging markets, executives today increasingly to maintaining corporate competitiveness. see innovation as the only way to protect profit However, an even higher proportion (74%) margins. Rather than adopting a defensive stance, suggest that business process innovation— market leaders like Google and Amazon are vocal rethinking the internal systems and processes about plans to increase investment in their firms’ for how their firms operate and deliver goods innovation capabilities in the current downturn. and services to customers—is a crucial driver of Respondents to a survey conducted by the success. Ram Charan, a strategy consultant and Economist Intelligence Unit on this subject in author of several management books, including March 2008 agree. Despite the fact that almost The Game Changer, says that “companies simply 80% of the senior executives who took part in the aren’t going to be able to protect their margins survey expect their firms to be either severely in the current environment without being able to or moderately affected by the current economic innovate effectively.” How successful are the following areas of your company in driving innovation? Percentage of respondents selecting successful or very successful. Innovation leaders Others Product quality 90 33 88 New product development 50 88 Customer service 36 82 Sales and Marketing 31 70 Internal IT systems 25 53 Manufacturing processes 20 41 Distribution 13 Source: Economist Intelligence Unit 6 © The Economist Intelligence Unit 2008
  • 8. The innovators: How successful companies drive business transformation What is clear from this research is that success product quality, distribution, customer service, at innovation varies greatly across the companies manufacturing processes and internal IT that took part in this survey. The survey asked systems. Of all the respondents, we isolated the respondents to rate how effective they are at 50 companies that are most successful across the driving innovation in seven business areas: board to compare their responses with the rest of sales and marketing, new product development, the sample in this report. Who are the leaders? Of the 261 respondents to the survey, we separated difference is that the successful innovators have the responses of the 50 companies who ranked a more global reach than the others. Some 70% of themselves as most successful at innovating the leaders have operations in North America com- across seven business areas. Financial services pared to 58% of the rest of the sample; 54% have and technology companies are highly represented operations in the Middle East and Africa compared amongst the leaders. In terms of size, the leader to 41% of the rest, and 44% conduct business in companies are not necessarily any larger or smaller Australia and New Zealand compared to 35% of the than the rest of the sample, but one significant rest. © The Economist Intelligence Unit 2008 7
  • 9. The innovators: How successful companies drive business transformation Burning platforms C ompanies that innovate most successfully There is some truth in the mantra “innovate make it a top corporate priority. However, or die”. One of the companies examined in this this change in mindset often does not report, Denmark’s LEGO Group, a leading toy happen without a burning platform— manufacturer, found itself in just that position meaning that companies are forced to innovate after racking up huge losses over several quarters because they are losing market share, or the due to overstretching itself in product lines and competitive landscape of their industry or product inefficient manufacturing processes. While this is changing so rapidly that it is threatening the provided the impetus for a global restructuring existence of their business. It is often forgotten of its manufacturing and logistics functions, that in the pre-iPod days, Apple lost almost half its cutting costs was not the only driver. Of crucial market share and posted a loss of over US$700m importance was that the restructuring provided a in early 1997. benefit to the customer too. Successful companies use innovation to respond to trends that affect consumer behaviour How important are the following types of innovation to maintaining your company’s competiveness? Respondents answering critical or important. and buying patterns—take General Electric’s Innovation leaders Others ecoimagination initiative, which aims to focus Business process innovation 86 all parts of the US$330bn company on innovative 70 solutions to the world’s growing environmental 86 Product innovation 65 challenges, or Tata Motors’ much-hyped US$2500 Source: Economist Intelligence Unit car. Which processes or functions will be the main target areas for innovation or re-engineering at your company in the next two years? Innovation leaders Others 68 New product development 51 Sales and marketing 54 processes 50 46 Customer service 41 20 Finance and reporting 27 24 HR processes 19 Supply chain 20 20 Manufacturing 10 13 Purchasing 4 10 IT help desk 8 5 Source: Economist Intelligence Unit 8 © The Economist Intelligence Unit 2008
  • 10. The innovators: How successful companies drive business transformation When asked which areas of the business development, customer service, and sales and are most likely to be the focus of innovation marketing. This trend is universal, although the efforts in the coming two years, respondents leaders seem to be more focused on invigorating overwhelmingly pointed to those processes new product development than firms that are less that touch customers, such as new product successful at innovating overall. © The Economist Intelligence Unit 2008 9
  • 11. The innovators: How successful companies drive business transformation Mountains beyond mountains T he wildly varying success rates that generate enough innovative ideas to build a companies report for their innovation pipeline of new products or support ongoing efforts demonstrate how difficult this process change. To fill this pipeline, 56% of process is. Short-term focus and shifting respondents suggest that their organisations rely strategic priorities make it difficult for companies on cross-functional teams, while some 40% work to allow staff enough freedom to do things with consultants. But even with these teams in differently. Frequently, the natural process of place, results are often disappointing. organisational growth throws up barriers to But it gets worse: when asked about the most change. As companies expand, hierarchies emerge difficult part of the innovation process, very few to control the way work is carried out and ensure companies suggest that ideation is the biggest that processes are followed—preventing agility bottleneck. Almost 60% of respondents report and flexibility. that taking good ideas and bringing them to One of the first challenges in the innovation implementation—whether introducing a new process is to generate ideas. Almost 60% of product or transforming a business process—is respondents suggest that they are unable to by far the most challenging aspect of corporate How do you generate ideas for innovation? Innovation leaders Others Forming cross-functional 60 project teams 55 Forming global project 42 teams 42 Attending cross-industry 40 conferences 37 36 Working with consultants 40 Networking with executives 28 from other firms 37 24 Suggestion box scheme 25 Source: Economist Intelligence Unit Which stage of the innovation process is most challenging in your view? (% respondents) Bringing ideas through to adoption 59 Prioritising the value of innovation ideas 27 Generating ideas for innovations 14 10 © The Economist Intelligence Unit 2008
  • 12. The innovators: How successful companies drive business transformation innovation. respondents, but they have less difficulty in Patrick Gelsinger, senior vice president at engaging stakeholders. Intel Corporation and general manager of the Perhaps most fundamental barriers to company’s Digital Enterprise Group—its largest innovation in large companies are the implications business group, accounting for more than half of of growth itself. Shona Brown, senior vice the corporation’s revenue—agrees. The process president for business operations at Google, of turning great concepts into sellable products is considered one of the world’s most innovative “agonisingly painful,” according to Mr Gelsinger. companies, describes the enviable situation as “We work hard to get the commercialisation Google managed rapid growth. “When we were process right, but it’s an area that can always use on one floor in one building, it was easy to make improvement.” In part, the difficulty is driven by decisions. Spreading across two floors made the size and scope of the research being done at it tougher. The big change, though, was when Intel. “We run technology research investments we moved into more than one building. This is of anywhere from a few hundred thousand dollars when most companies see a step change in their up to US$15m, and when turned into products ability to stay co-ordinated, manage information these can yield revenues of anywhere from US$5m flow, and the like. In most cases, the natural to US$300m, so it’s important we get it right. It’s response is to impose hierarchy and structure,” tough when we’ve got a full product schedule and she says. “Companies at this stage of growth a sudden disruptive idea comes along which forces get highly stressed and want to maintain some us to adjust at short notice.” control over the situation, and so they introduce In addition to the inherent complexity in the strict reporting structures, bureaucracy and innovation process, basic organisational issues hierarchy. It’s the simplest way of making sure get in the way. The biggest barrier to innovation, things continue to get done—but it squelches according to 52% of survey respondents (not innovation.” including innovation leaders), is resistance to This view is supported by the survey change, followed by shifting strategic priorities respondents, 47% of whom say that “lack of (36%) and a lack of project ownership (29%). visibility across business units or geographies” is The leaders cite a lack of project ownership as either a significant or very significant barrier to more of a challenge than the rest of the survey innovation. What are the main challenges to bringing ideas through to adoption? Innovation leaders Others 50 Resistance to change 52 38 Shifting strategic priorities 36 Lack of project ownership 38 27 24 Inadequate project piloting 22 18 Inability to engage stakeholders 29 8 Fear of public failure 15 Source: Economist Intelligence Unit © The Economist Intelligence Unit 2008 11
  • 13. The innovators: How successful companies drive business transformation Innovation is also more firmly etched in the culture of innovation, the smallest companies are ethos of smaller companies, according to Ms substantially more likely to cite “customer-centric Brown. Start-ups are, by definition, born out of mentality” and “emphasis on learning”, while an innovative idea and are intimately tied to their respondents from the largest companies point to customers. As the company grows, this customer risk appetite and cross-functional collaboration focus and emphasis on regeneration can be (concepts which are part of the everyday more difficult to maintain. In the survey, when experience of most small companies). asked about the most important elements of a Rebuilding LEGO: a case study in overcoming resistance to change In 2004, Denmark’s LEGO Group was in and was leading to sizeable losses. trimming headcount to 5,000 employees, trouble. The family-owned toy company, The solution was a radical one: the down from 6,500 in 2003. which produces of one of the world’s firm opted to close the ten European “It was a difficult process,” says most well-known and loved products, distribution centres, replacing them Mr Nielsen, “but the fact that we had posted its biggest-ever loss of nearly with one centralised distribution centre had a burning platform made all the US$300m in the financial year 2003, and for Europe in Prague (at the same difference.” That the company was almost it registered an even larger loss in 2004. time as the company was planning to facing extinction was crucial in focusing The firm had strayed unsuccessfully into streamline its manufacturing operations the minds of senior executives and those several new areas and product lines that in Europe) and in North America the firm working within the operations centres, resulted in unprofitable growth. moved manufacturing to Mexico with a whose own jobs were at risk. At the same time, the company’s distribution centre in Dallas. The LEGO Mr Nielsen points to two factors manufacturing and distribution Group outsourced logistics to DHL, and which helped underpin the successful operations were outdated and expensive part of its manufacturing to a US firm, strategic transformation and overcome to run, forcing management to radically Flextronics, and other manufacturing the resistance to change within the rethink both the product it was delivering partners. This allowed the company to organisation. First, “we were very to customers and the way that it gets focus on its core competency: the design active in communicating with all staff those products from concept to market. and creation of children’s toys. what we were doing: we needed to Egil Møller Nielsen, the LEGO Group’s Mr Nielsen also believes that switching generate awareness of the need to senior director of logistics for Europe and to centralised but regional sourcing change, otherwise we wouldn’t have got Asia, joined the company in 2004 and will be a great source of competitive anywhere.” Second, he suggests that was tasked with developing a strategy advantage in the future. “Being closer to bringing new blood in to the organisation for turning around the logistics function. the market [relative to competitors who was important. “I and several others came In part, that meant going around to all largely source from China] means we have in with a clean slate, which made it easier of the company’s logistics and transport less inventory tied up in shipment at any to see what needed to change. If the suppliers and convincing them to squeeze given moment, but more importantly it process had been left only to those who out cost savings for the company. The means we are closer to our customers. We had grown up with the company, it would bigger issue, though, says Mr Nielsen was can react to the latest fad in the market have been harder for them to step outside that “within the company there was just more quickly,” Mr Nielsen says. their own experiences and really look for too much complexity.” Managing product These process innovations led the radical solutions.” flow, inventories and intelligence across company from record losses to profits of the Group’s ten European distribution over US$200m in both 2006 and 2007. centres was creating a major headache— At the same time, though, they meant 12 © The Economist Intelligence Unit 2008
  • 14. The innovators: How successful companies drive business transformation Innovation enablers T he challenge for large companies is how although Ms Brown points out that even in to emulate their more spritely smaller Google’s case “not everybody gets to make all competitors. Survey respondents and senior decisions”—it also becomes more important leaders at the world’s most innovative to tolerate mistakes. “We have an approach of companies agree that having a leadership group deliberate experimentation, which means we need and corporate culture that support innovation is to be more tolerant of failure.” most important. While companies that are heavy This appetite for risk is another recognised on bureaucracy, hierarchy, structure and process element of a successful innovation culture, tend to suppress innovation, the right set of especially in the technology field, says Mr shared values among company staff, along with Gelsinger of Intel. “Risk-taking is one of our core appropriate messages coming from senior leaders, values. The day we stop taking risks is the day we can have the opposite effect. know that some other technology company will take advantage of technology innovation better Culture than we do.” Companies like Google and Apple best typify Cultural transformation has to start at the top. the corporate culture that actively generates Culture is a function of how senior management innovative activity. At Google, says Ms Brown, thinks and acts—64% of survey respondents say one of the key factors is the ability to accept some that leadership commitment is the most important loss of control. “All companies face a trade-off element of a culture of innovation. And this can be between control and adaptability. At Google, we as much about what leaders don’t do as what they are explicit about our willingness to live with a do. “At Google, we’re blessed to have company bit less control in exchange for more flexibility.” leaders who are comfortable getting out of the This loss of control isn’t really a loss—it’s largely way of the smart people they’ve hired. They’re a transfer from senior managers to the wider comfortable with a degree of messiness,” says Ms Google community. As responsibility for coming Brown. up with exciting new process and product ideas While leading is important, it’s also crucial to gets pushed out further into the organisation— get the right people in the door in the first place— How important are the following as enablers of innovation? Respondents answering critical or important Innovation leaders Others 100 Executive support for innovation 92 98 Innovation culture 89 Tools and technologies that 78 facilitate communication 57 Close collaboration with 70 customers 66 37 Flat organisational structure 30 Source: Economist Intelligence Unit © The Economist Intelligence Unit 2008 13
  • 15. The innovators: How successful companies drive business transformation staff who are flexible and enthusiastic about innovation. change. At Genentech, a leading biotechnology What constitutes a culture of innovation company, research staff are allowed to publish differs depending on geography. Europe and their studies in academic journals—a rare practice the Asia-Pacific region showed the greatest across most scientific industries, given firms’ differences. While European executives prize fears of losing control over their intellectual cross-functional collaboration and emphasis on property. Genentech’s opinion is that by offering learning, executives based in the Asia-Pacific research staff this benefit, and allowing scientists region value an appetite for risk as a foundational to maintain a reputation within academia, the enabler for innovation to take place. Having a company is better able to compete with the top customer-centric mentality was considered more universities for talent. important by executives in North America than by The critical ingredient to a culture of respondents in other regions. innovation is the remuneration and incentive structure. Mr Charan, the innovation author, puts Tools and technologies it this way: “What is company culture? It’s what Companies that are most successful at people do routinely without being told. Once innovation—the leaders—consider tools and innovation is integrated into the firm’s main technologies to be of greater importance for decision-making process, and people are being enabling innovation than rest of the survey evaluated on and praised for their innovative sample. The trends relating to where companies activities on a regular basis, a culture of are investing in technology are broadly the innovation will emerge naturally.” Having worked same across the two groups. The highest areas with the CEOs of many of the world’s largest of investment are around technologies that ease companies, he suggests that this is something information sharing and boost productivity. Eric few companies do well—and survey respondents Lauzon, chief information officer (CIO) of Nortel agree. Just under half listed a mismatch between Networks for Asia, says: “In Nortel, initially we staff incentives and operational metrics as either piloted Unified Communication [integration of a “very significant” or “significant” barrier to fixed and mobile voice, e-mail, instant messaging, In which technology areas do you think improvements and wider delopyment are most necessary now? Select up to two. Innovation leaders Others Content & knowledge 28 management technologies 26 16 Business intelligence tools 25 Workflow automation 16 technologies 21 HR/Finance management 16 technologies 7 Remote connectivity 10 technologies 5 Web 2.0 (blogs, wikis, social 10 networks) 3 Workforce mobility tools 2 7 Source: Economist Intelligence Unit 14 © The Economist Intelligence Unit 2008
  • 16. The innovators: How successful companies drive business transformation When redesigning business processes, what do you think are the most important benefits that your company is hoping to achieve? Select up to two. Innovation leaders Others 44 Reduce process complexity 51 Achieve additional scale in 42 business processes 33 Concentrate on core business 36 functions 37 28 Empower users 22 Eliminate obsolete 16 technologies 12 Lower upfront investment 16 costs 11 10 Reduce headcount 16 Source: Economist Intelligence Unit desktop and other applications] across 5,000 When redesigning business processes, the lead adopters in the organisation globally before most important benefit that survey respondents making the service available to all employees. We hope to achieve is to reduce process complexity. estimate that the new technology has increased The leaders placed more importance on achieving productivity by 15%. And we’d probably see even scale in business processes, whereas companies bigger gains if suppliers and customers were that are less successful at innovation chose the opened up to multimedia convergence; this is only ability to concentrate on core business functions the start.” as the second most critical benefit. Fears of At the moment they are only just appearing process reengineering as a Trojan horse for cost- on the radar, but as technologies that facilitate cutting and layoffs appear less well-founded in interaction—wikis, virtual team environments, today’s market—only 15% of respondents suggest and the like—become as ubiquitous as computers that reducing headcount is among the most and mobile phones today, high-performing important benefits of their process innovation companies will look to these tools to create new efforts. And cost cutting isn’t the primary ways for individuals and teams to interact, and motivator either, as proved by its low ranking on ultimately to create value for the enterprise. the list of reengineering benefits. Again, as with Embryonic technologies that are touted as the innovation more broadly, a focus on improving “next big thing” include prediction market the organisation’s ability to understand and meet applications (statistical models for assessing customer needs is the key driver—not cost. risk and linking asset values to specific dates Like innovation in general, it can be difficult and events) to forecast sales, product launch to measure the benefits of implementing new dates, market share growth rates, manage technologies. Of all the barriers to deploying manufacturing capacity and influence business new technologies, it is the inability to prove decisions. Companies as diverse as Hewlett- ROI on these investments that is the greatest Packard, Renault, Pfizer, Masterfoods and Arcelor obstacle. Survey data shows this to be a far Mittal are known to be using predictive market greater challenge for executives based in Asia applications. than elsewhere in the world. However, when they © The Economist Intelligence Unit 2008 15
  • 17. The innovators: How successful companies drive business transformation Technology-led innovation at Actelion Innovation isn’t always about achiev- from patients involved in clinical drug solution that was the least ‘invasive’ ing the biggest shake-up possible. With trials and was seeking a way to increase possible.” resource constraints and the inevitable the speed of collecting and processing The company chose to introduce resistance to seismic change, sometimes this information while maintaining Anoto’s digital pen and paper technology, it’s more useful to tinker “under the full compliance with strict regulatory providing its clinical trial investigators hood” while minimising the disruption requirements about how data can be with pre-printed case report forms on to the daily work of a set employees gathered. There was a challenge to doing Anoto’s digital paper and a special digital engaged in a vital business process. The this, as Massimo Raineri, Actelion’s pen for entering data. The information example of Actelion, a Swiss pharma- head of systems development, explains: captured by the 500 pens is uploaded ceutical company which focuses on the “Our goal was to reduce data collection daily, integrated and processed. discovery, development and commerciali- time without changing the way that the Regulatory requirements mean that the sation of synthetic small-molecule drugs, doctors who are conducting the trials are data must later be re-entered manually provides a case in point. The company has used to working. Many doctors told us into Actelion’s systems, but the increased won several innovation awards, includ- that they felt uncomfortable typing data speed and accuracy with which Actelion ing the 2007 Process Innovation Vision on a keyboard during trials; the use of gets a first look at the trial data can shave Award for its collaboration with Anoto pen and paper was actually an important precious days off the approval process. Group AB, a world leader in digital pen part of developing a natural and relaxed For a blockbuster drug, cutting the time to and paper technology. interaction between the nurse and approve by one week can mean a savings Actelion collects large amounts of data subject, so we decided to propose a of US$1.5m or more, says Mr Raineri. do introduce technologies, they experience fewer increasing willingness to look outside the four problems around encouraging staff to use them. walls of the company for help. “We are well aware In North America, executives were twice as likely that not all of the brightest people work at Intel, to find employees resisting newly introduced so we are very aggressive in our engagement tools and technologies. Innovation leaders with external partners,” says Mr Gelsinger of appear far more concerned about the security Intel. The thousands of external projects Intel implications of deploying technologies than the shares with the academic community and smaller rest of the survey sample. corporate partners “provide a rich set of ideas and prevent the ‘not invented here’ syndrome Looking outside from developing.” He also notes that working Successful innovators know that to bring about with universities—Intel has small laboratories on change in products, processes and technologies a number of campuses around the world—helps they must draw on the best skills and knowledge keep the company accountable. “If the academic available, whether inside or outside the community is consistently getting better results organisation. They rely on collaborative but than us, we’d better do something different!” carefully structured relationships with a range of Companies are putting ever greater burden third parties, including customers, consultants on their suppliers to find innovative solutions to and even competitors. their business problems. Loncin, a motorcycle Over the past decade there has been an company from China, sets broad specifications for 16 © The Economist Intelligence Unit 2008
  • 18. The innovators: How successful companies drive business transformation Which of the following parties is involved in product and/or process innovation at your company? Innovation leaders Others 78 Customers 68 56 Consultants 53 44 Competitors 41 Suppliers 42 43 24 Research institutes 28 18 Universities 21 Source: Economist Intelligence Unit its products and leaves it to its suppliers to work as well. “We established an IT Laboratory, and together to design the actual components in a invited customers to come and do experiments cost-effective way. And in this case, technological together,” says Dr Bai Sho, CTO of the Shanghai advances have also been vital: the rise in open- Stock Exchange, describing a recent collaboration standards computing has made it easier for initiative. “After the launch of our new trading Loncin’s suppliers to collaborate with each other system, our customers were required to make and with their end customer, and for Loncin to some adjustments to their front-end systems, and maintain control over the process in real time. they did it on site with us at the IT Laboratory. This When asked how they plan to change the mix is a new model of cooperation—opening up our of collaboration arrangements in two years, all systems to customers, as we have, will continue to respondents agree that customers will remain be the key to even better offerings.” the most important of collaborators. Ways of In the future, survey respondents report that working with customers may be as simple as they plan to significantly increase their levels soliciting product feedback and advice, or in the of collaboration with research institutes and case of high-performing innovator companies, universities, but scale back their level of use of implementing defined processes for regular consultants. Among the innovation leaders, there sharing of insights with key customers. “Working was an 18% drop in the number of respondents with our customers is particularly crucial for Intel, who said they would work with consultants in two because ours is a building-block business—the years time compared to current usage. experience of our end users is determined by the Globally, there are some differences in how input and expertise of our customers. With that in companies collaborate with third parties. mind, Intel has initiated a broad set of customer- Respondents in Asia work most closely with Intel activities to help foster mutual innovation, their customers (78%), but are much less used including ‘CTO to CTO’ and ‘lab to lab’ engagements to partnering with consultants and suppliers for in which our CTO [chief technology officer] meets innovation than respondents in North America regularly with his counterparts to look for mutual or Europe. Partnering with universities is a far laboratory research programmes.” more established practice for companies in Services companies are getting in on the act Europe (35%) than for those in North America © The Economist Intelligence Unit 2008 17
  • 19. The innovators: How successful companies drive business transformation (20%) or the Asia-Pacific region (12%). That said, relationships in the future; by 2010, 34% say they respondents in Asia do have plans to build these will be collaborating with universities. A commercial approach: Business process reengineering and technology at DHL Germany’s Deutsche Post World Net research bodies and technology employee to a measurable improvement (DPWN) is one of the world’s leading mail companies. Staff at the Innovation in customer satisfaction—be it internal and integrated logistics companies, and Centre, a futuristic building emblazoned or external customers—and provides is the parent company for DHL. The firm in DHL’s signature red and yellow staff with a structured methodology for has two strategies for innovation: a “blue livery—“it’s like a science museum,” says thinking about their own processes and sky” approach to thinking of ideas for Mr Muench—are currently working with how to make them better. First Choice radical change and fine-grained process- technologies like RFID (radio-frequency relies on DPWN staff themselves to create improvement initiatives across its opera- identification), satellite navigation and and implement solutions. “This is a tions. “Given the massive throughput emissions-free engines to find ways to culture change for our company and key we deal with, any small reduction in the integrate them into DPWN’s operations. for ensuring that our staff really engages cost of our processes, or improvement in One of the keys to the Innovation with the change being made,” says Tom speed, can make a big difference to the Centre’s success, says Mr Muench, is Schaefer, a communications manager in bottom line,” says Stephan Muench, the that it’s run on a commercial basis. “The the firm’s Singapore office. head of the company’s in-house consult- Innovation Centre has to go out and find The portfolio approach taken by ing arm in Asia. a business unit that is willing to buy the DPWN to its innovation efforts is partly a The company relies on its DHL solutions they develop. That keeps them function of its size. Mr Muench says “we Innovation Centre (DHL is one of DPWN’s on their toes.” call it slicing the elephant. This company three brands) in Troisdorf, Germany While the Innovation Centre takes is so big [500,000 employees, the sixth- to scour the academic and technology care of the science of DPWN’s innovation largest employer in the world] that we’re worlds for exciting new technologies efforts, the company also realises the not going to be able to tackle it all with that can be adapted and applied to importance of getting all employees big-bang innovation. We need to break the company’s core mail and logistics involved in the less glamorous end of the problem of process improvement businesses. The centre collaborates the innovation spectrum. The company- and innovation down into manageable with the Massachusetts Institute of wide process improvement programme, pieces.” Technology (MIT) and a host of other First Choice, ties the incentives of every 18 © The Economist Intelligence Unit 2008
  • 20. The innovators: How successful companies drive business transformation Conclusion C ompanies that innovate most successfully need to learn to tolerate things being done don’t rely on it solely for “big bang” differently around the world. For those firms product or process revolutions. that do have it, resisting the urge to impose too “Innovation is often evolutionary, not much hierarchy or structure in periods of rapid a ‘rip and replace’ process,” says Mr Lauzon expansion is vital to keeping the culture in place. of Nortel. The best integrate innovation At the same time as having an open and activities fully into their everyday way of doing risk-tolerant culture internally, firms have business and link any process improvement to tap external sources of expertise in order to a genuine customer benefit. Process and to provide customers with the best solutions product changes must be focused on improving available. Being open and sharing knowledge or customer satisfaction and increasing revenue and strategy with outside parties such as research organisational growth. institutes, suppliers, consultants and customers To achieve this, innovation isn’t something is increasingly necessary for driving innovation. that’s done just by a small group of high-flyers The concerns companies have about maintaining with privileged access to the CEO (although in competitive advantage, minimising security many cases such structures are useful). It must be threats and loss of control over the innovation embedded in the company culture, such that all process are natural, but accepting these risks is employees see the value of, and are rewarded for, all part of the mindset shift required to innovate taking risks and speaking up to propose change. effectively. Creating this culture is not easy and managers © The Economist Intelligence Unit 2008 19
  • 21. The innovators: How successful companies drive business transformation Appendix: Survey results 1. To what extent do you think the credit crunch and prospect of a recession in the US will affect your company’s revenue growth? (% respondents) Severely affect 15 Moderately affect 63 Not affect 18 Don’t know/not applicable 4 2. Which of the following is more of a priority for your company over the next two years? (% respondents) Increasing sales and topline growth 60 Cost reduction and creating internal efficiencies 40 3. How important is product and process innovation to your company in maintaining your competitiveness? (% respondents) Critical 1 2 3 4 5 (Not at all important) Product innovation 32 38 20 8 2 Process innovation 31 43 20 6 1 20 © The Economist Intelligence Unit 2008
  • 22. Survey results The innovators: How successful companies drive business transformation 4. Which of the following parties is involved in product and/or process innovation at your company? (% respondents) Product innovation Process innovation 70 Customers 69 Consultants 53 48 Suppliers 43 45 42 Competitors 43 28 Research institutes 39 20 Universities 33 5. Which of the following pose the greatest risks in collaborating with third parties for innovation? (% respondents) Loss of intellectual property 46 Loss of control over the innovation process 37 Leaking of information on corporate strategy 35 Difficulty sharing knowledge 33 Cultural differences 24 Undue reliance on other firms in areas 23 which are core to the company’s success Reputational risk 22 6. How important do you think the following are as enablers of innovation? (% respondents) Critical 1 Critical 2 Executive support for innovation 70 23 Innovation culture 56 35 Tools and technologies that facilitate communication 20 42 Flat organisational structure 5 26 Close collaboration with customers 29 38 © The Economist Intelligence Unit 2008 21
  • 23. Survey results The innovators: How successful companies drive business transformation 7. What do you think are the most important elements of a culture of innovation? (% respondents) Leadership commitment 64 Cross-functional collaboration 48 Customer-centric mentality 43 Appetite for risk 36 Emphasis on learning 34 Providing staff incentives for innovation 25 Wide use of technologies 18 Lack of hierarchy 10 Internal staff mobility 10 8. Which stage of the innovation process is the most difficult, in your view? (% respondents) Bringing ideas through to adoption 59 Prioritising the value of innovation ideas 27 Generating ideas for innovations 14 9. How does your company generate ideas for innovations? (% respondents) Forming cross-functional project teams 56 Forming global project teams 42 Working with consultants 39 Attending cross-industry conferences 38 Networking with executives from other firms 36 Suggestion box scheme 25 Other, please specify 14 Don’t know/Not applicable 4 22 © The Economist Intelligence Unit 2008
  • 24. Survey results The innovators: How successful companies drive business transformation 10. How significant are the following as barriers to generating ideas for innovations at your company? (% respondents) Critical 1 Important Staff incentives are not aligned to 16 32 operation metrics Lack of visibility across business units or geographies 13 34 Insufficient time to generate ideas 17 23 Ideas are too generic 9 29 It’s hard to achieve global collaboration 12 24 11. How would you describe the number of innovation ideas generated at your company? (% respondents) Too many–it’s hard to identify which ones to pursue 17 The right number 24 Too few 56 Don’t know 4 12. What are the main challenges for your company in bringing ideas through to adoption? Select up to two. (% respondents) Resistance to change 52 Shifting strategic priorities 36 Lack of project ownership 29 Inability to engage stakeholders 27 Inadequate project piloting 22 Fear of public failure 13 Other, please specify 7 Don’t know 1 © The Economist Intelligence Unit 2008 23
  • 25. Survey results The innovators: How successful companies drive business transformation 13. Which business processes or functions will be the main target areas for innovation or re-engineering at your company over the next two years? Select up to three. (% respondents) New product development 54 Sales and marketing processes 51 Customer service 42 Finance and reporting 25 HR processes 20 Supply chain 20 Manufacturing 13 Purchasing 9 IT help desk 6 Other, please specify 4 Don’t know/Not applicable 4 14. When redesigning business processes, what do you think are the most important benefits that your company is hoping to achieve? Select up to two. (% respondents) Reduce process complexity 50 Concentrate on core business functions 37 Achieve additional scale in business processes 34 Empower users 23 Reduce headcount 15 Eliminate obsolete technologies 13 Lower upfront investment costs 12 Other, please specify 3 Don’t know/Not applicable 1 24 © The Economist Intelligence Unit 2008
  • 26. Survey results The innovators: How successful companies drive business transformation 15. In which technology area do you think improvements and wider delopyment are the most necessary now and in two years’ time? (% respondents) Now Two years’ time 26 Content & knowledge management technologies 22 24 Business intelligence tools 21 20 Workflow automation technologies 15 9 HR/Finance management technologies 11 6 Workforce mobility tools 9 6 Remote connectivity technologies 8 4 Web 2.0 (blogs, wikis, social networks) 7 2 Don’t know/Not applicable 2 16. What do you think are the main factors that prevent technologies from being deployed more widely at your company? Select up to two. (% respondents) Inability to prove ROI on technology investments 34 Senior executives are unsure of technology benefits 29 Employees don’t know how to use technologies effectively 28 Security concerns about sharing sensitive information 26 Employees resist introduction of new technologies 20 Employees don’t know what technologies are available 20 Technologies prove unreliable 10 Don’t know 3 © The Economist Intelligence Unit 2008 25
  • 27. Survey results The innovators: How successful companies drive business transformation 17. How does your company measure the effectiveness of innovation efforts? Select all that apply. (% respondents) Standard return on investment 48 Qualitative feedback 46 We do not measure innovation effectiveness 21 Innovation scorecard 15 Don’t know 3 18. What is the greatest challenge to measuring the effectiveness of innovation efforts? (% respondents) Innovation isn’t systematic enough to measure 29 Benefits difficult to quantify 27 Difficult to track return on investment 26 Measurement can stifle innovation 9 Don’t know 6 19. How successful are the following areas of your company in driving innovation? Rate on a scale of 1 to 5, where 1=Highly successful and 5=Highly unsuccessful. (% respondents) Highly successful 1 2 3 4 Highly unsuccessful 5 Sales and marketing 11 32 32 15 4 New product development 17 40 23 14 2 Product quality 12 33 36 13 1 Distribution 3 15 44 17 5 Manufacturing processes 6 21 32 14 2 Internal IT systems 9 25 34 21 6 Customer service 10 36 39 9 2 26 © The Economist Intelligence Unit 2008
  • 28. Survey results The innovators: How successful companies drive business transformation Which is your company’s main business? (% respondents) Financial services 50 Professional services 37 IT and technology 34 Healthcare, pharmaceuticals and 23 biotechnology Energy and natural resources 15 Manufacturing 13 Consumer goods 12 Telecommunications 3 Chemicals 12 Construction and real estate 3 Transportation, travel and tourism 12 Logistics and distribution 3 Aerospace and defence 12 Education 3 Entertainment, media and publishing 12 Automotive 3 Retailing 3 What is your company’s annual revenue? (% respondents) Less than US$500m 39 US$500m to US$750m 6 US$750m to US$1bn 7 US$1bn to US$5bn 17 US$5bn to US$10bn 6 More than US$10bn 25 © The Economist Intelligence Unit 2008 27
  • 29. Survey results The innovators: How successful companies drive business transformation Which of the following best describes your job title? (% respondents) Board member 3 CEO/president/managing director 23 CIO/Technology director 5 CFO/Treasurer/Comptroller 7 Other C-level executive 5 Senior vice president/vice-president/director 15 Head of department 8 Head of business unit 7 Manager 22 Other 7 In which geography are you located? (% respondents) Asia-Pacific 31 Europe 27 North America 23 Middle East/Africa 8 Australia/New Zealand 6 Latin America 4 In which geography does your company have business operations? Select all that apply. (% respondents) Asia-Pacific 64 Europe 63 North America 61 Middle East/Africa 44 Latin America 43 Australia/New Zealand 37 28 © The Economist Intelligence Unit 2008
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