strategy+businessissue 69 WINTER 2012Overcoming the GlobalInnovation Trade-OffHow to maintain creative complexity without ...
Leadingleading ideas  1                Ideas                Overcoming                             comes wider and more va...
leading ideas                                                                                                             ...
leading ideas                coming this challenge is a full array          Collaboration. Many firms have                ...
strategy+business magazineis published by Booz & Company Inc.To subscribe, visit strategy-business.comor call 1-855-869-48...
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Overcoming the Global Innovation Tradeoff

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International companies need to find a way to maintain creative complexity without the difficulties of co-location. They can do this in three ways: redesigning their global footprint, optimizing communication, and developing opportunities for collaboration around the world.

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Transcript of "Overcoming the Global Innovation Tradeoff"

  1. 1. strategy+businessissue 69 WINTER 2012Overcoming the GlobalInnovation Trade-OffHow to maintain creative complexity without the limitationsof co-location.by Y VES DOZ AND KEELEY WILSONreprint 00145
  2. 2. Leadingleading ideas 1 Ideas Overcoming comes wider and more varied, co- location is no longer sufficient. innovation. (See Exhibit.) Many managers recognize that the Global Leading innovators are increasingly seeking competitive advantage by the knowledge best suited to dis- persed global innovation is explicit, Innovation combining knowledge and capabili- ties from many different places. codified, and modular. An example is provided by the Internet-based Trade-Off Consider Essilor International SA, software development and analytics the world’s largest manufacturer of company TopCoder Inc. Because of ophthalmic corrective lenses. It en- the highly codified nature of the gineers its lenses in Germany, makes knowledge it deals with, this com- How to maintain blanks from high-transparency poly- pany can break all its clients’ soft- creative complexity mers in the U.S., and adds micron- ware development projects into rela- without the limitations thin coatings in Japan. Essilor taps tively simple pieces. Then, through of co-location. into the best capabilities around the world to create, develop, and manu- Exhibit: Complexity Meets facture leading-edge products. Dispersion by Yves Doz and Keeley Wilson Very few companies, however, These curves represent two ways of managing the trade-off between complexity and global F have succeeded in internationalizing dispersion. Most companies exist on the lower curve, but by optimizing their innovation or their global innovation their innovation strategies enough practices, they can leap to the upper curve, strategies, many companies to draw on the globally dispersed, where even globally dispersed teams can work effectively on complex projects. have long relied on their complex knowledge needed for to- ability to assemble people with key day’s products and services. Instead, HIGH capabilities and critical knowledge. they use their international net- Optimized They typically do this through co- works only to arbitrage routine Trade-Off Curve location: bringing together design- tasks, and fail to exploit opportuni- Knowledge Complexity ers, engineers, technologists, and ties for global innovation. Our re- other creative thinkers in a few in- search suggests that the reason for novation centers at home and in lead this failure is the commonly accept- Conventional strategy+business issue 69 Trade-Off Curve markets. The new products and ser- ed trade-off between complexity vices they create are then dissemi- and dispersion. The challenge is to nated to markets across the world. overcome this trade-off: to build a LOW Global Dispersion HIGH But as the range of knowledge worldwide R&D team that can Source: Yves Doz and Keeley Wilson, Managing Global needed for global innovation be- master the complexities of robust Innovation (Harvard Business School Publishing, 2012)
  3. 3. leading ideas leading ideasa process of open innovation and that most of the complex knowledge boost support for collaboration inbidding for modules, TopCoder taps needed to develop, manufacture, innovation projects, both internallyinto a global community of software market, and package perfumes was and with external partners.developers to deliver projects for a rooted in France, the world’s leading Through the experience of arange of clients. perfumery market and competence number of companies, general prin- Even when knowledge isn’t ex- cluster. Eventually, Shiseido realized ciples are emerging for making eachplicit, some firms can achieve dis- that it had to connect its staff more of these facets work.persed innovation by putting it into closely with the critical knowledge it The innovation footprint. Limitmore simplified, explicit forms. The was lacking; it co-located its entire the number of physical sites in an innovation network to those thatThe optimal number of sites in an contribute unique and differentiated knowledge. As more sites are addedinnovation footprint is as many as you to a network, the marginal costs in-need, but as few as you can manage. crease, because of the greater costs of 2 management, communication, andIndia-based services firm Infosys perfume business in France. This coordination. The additional valueTechnologies Ltd. structured and move paid off. It allowed Shiseido to to innovation that these sites mightcodified much of its system integra- develop such successful global per- bring is likely to diminish because oftion and facility management fume brands as Jean Paul Gaultier, duplication and redundancy. Theknowledge. This allowed the com- Issey Miyake, and Zen. optimal number of sites in an inno-pany to develop a global delivery But both simplification and co- vation footprint is as many as youmodel serving a client base around location fall short of the ideal: need, but as few as you can manage.the world. innovation of products and services The ideal innovation footprint Unfortunately, in most indus- that involves the free exchange of should also be flexible enough totries, the knowledge that is critical tacit knowledge among people dis- help find and access new sources offor innovation is collective, tacit (not persed around the globe. As long as market, process, or technical knowl-easily codified), and locally rooted firms are bound by the complexity– edge, and easily disengage from ob-(not easily managed across long dis- dispersion trade-off, the opportuni- solete sources. To extend their com-tances). Simplifying it doesn’t always ties to create value and competitive pact physical footprint, firms canwork. Making tacit knowledge more advantage from global innovation adopt short-term approaches thatexplicit tends to diminish its rich- will be limited. might include employing openness, timeliness, and uniqueness, Fortunately, our research at source intermediaries to fill specificthereby seriously eroding or even more than 50 global companies over knowledge gaps, collaborating withdestroying its value. Thus, many the last few years suggests that it isn’t more geographically dispersed part-companies turn to a different ap- necessary to remain hostage to that ners, and organizing learning expe-proach: They co-locate more of their trade-off. Instead, innovation lead- ditions to access interesting sourcesresearchers at one single knowledge ers can take a third approach. They of knowledge.source so these people can collabo- can leap to the upper curve of the Communication and receptivity.rate more intensively. exhibit: They can redesign their in- In a typical co-located environment, For example, the perfume in- novation practice to enable far-flung combining complex knowledge isdustry is very slow to change; brand people to work together on complex straightforward. It takes placeshare remains relatively constant ideas. This transition can be made through an informal, reciprocal, andover decades. For 20 years, Japanese by optimizing three different facets iterative process of interaction, bol-cosmetics group Shiseido Company of innovation, generally at once. stered by the shared context andunsuccessfully tried to build a global First, build a more compact and ag- norms, as well as the language of aperfume business with marketing ile innovation footprint. Second, de- single place. But when innovatorsstaff and designers in France and velop the capabilities, processes, cul- are separated by distance, time, andproduct development in Japan. Shi- ture, and structures needed to culture, communication becomes aseido initially failed to recognize support rich communication. Third, serious challenge. The key to over-
  4. 4. leading ideas coming this challenge is a full array Collaboration. Many firms have of communication tools, processes, tried to get people working together and mechanisms, replicating as on global innovation projects. They closely as possible the richness of in- typically fail when they transfer best depth local communication. practices and skills from a co-locat- This can be achieved in part ed site to a more dispersed environ- through information and commu- ment. Globally dispersed projects nications technology–based tools require different competencies and that are part of the everyday work- processes, plus a strong project man- flow — Web meetings, integrated agement organization and the active engineering platforms, knowledge- involvement of senior management. sharing applications, forums, com- When projects extend beyond munities of practice, social media the boundaries of the firm to involve 3 platforms, and so on — together external players, an even greater set with regular periods of temporary of new capabilities is required — to co-location to build trust and famil- find external innovations, bring the iarity among dispersed teams. players on board, and manage the Companies can also deploy expectations and contributions of people with a multicultural back- complementary partners. For exam- ground or experience to interpret ple, when Intel launched WiMAX and translate complex knowledge (the wireless broadband standard), it among different contexts. Many initially partnered with a few other leaders recognize the value of such companies. But over time, Intel had people, but few companies have put to recruit a wider ecosystem of play- the career structures and rewards in ers to supply compatible infrastruc- place to develop these critical skills. ture, devices, and services. In many companies, knowledge Experience shows that innova- hoarding is common. But “not un- tion doesn’t have to be constrained derstood here” can be as big an im- to the complexity–dispersion curve. pediment to knowledge sharing as Implementing the necessary changes “not invented here.” To overcome is challenging and can take time — these barriers may require a grass- but it is one of the best ways to posi- roots change in corporate culture. tion an innovative company for com- Beginning in 2000, the Xerox Cor- petitive advantage in the future. + poration deliberately transformed its Reprint No. 00145 secretive, patent-based culture to one of open knowledge sharing across the group. This began with Yves Doz the adoption of an open source plat- yves.doz@insead.edu is the Solvay Chaired Professor of Tech- form called CodeX that made code nological Innovation at the international available for reuse across the com- business school INSEAD. pany. By hosting projects on the Keeley Wilson platform, engineers experienced the keeley@butlerwilson.plus.com benefits of knowledge sharing. To- is an INSEAD research fellow specializing strategy+business issue 69 in innovation. day, the culture at Xerox embraces an unusually high level of sharing This article has been adapted from the and collaboration; for example, the authors’ book, Managing Global Innovation: Frameworks for Integrating Capabilities website open.xerox.com invites pub- around the World (Harvard Business lic scrutiny of its latest innovations. School Publishing, 2012).
  5. 5. strategy+business magazineis published by Booz & Company Inc.To subscribe, visit strategy-business.comor call 1-855-869-4862.For more information about Booz & Company,visit booz.com• strategy-business.com• facebook.com/strategybusiness• http://twitter.com/stratandbiz101 Park Ave., 18th Floor, New York, NY 10178© 2012 Booz & Company Inc.

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