Futures-Diagnosis

Diagnosing the future of the Internet and innovation and their social impact

December 15, 2009 • 2:24 pm 2

INNOVATION & COLLABORATION: PROCESS TRANSFORMATION

A new study released today by the Business Performance Management (BPM) Forum and the Chief Marketing Officer (CMO) Council reported by CNN, titled Greater Innovation Through Closer Collaboration, finds that 21st Century business models have become increasingly dependent on partner networks to shape customer experiences, drive innovation processes and deliver products and services to global markets. But information systems and cross-company business processes, however, are strained to keep pace.

The report sponsored by Sterling Commerce and AT&T, is based on a survey of over 400 executives and managers across a wide range of industries, as well as over two dozen qualitative interviews with leading executives from global businesses.

While the report highlights the growing significance of cross-company collaboration it also points to the internal difficulties facing companies to effectively harvest their social capital, increase innovation and collaboration and expose this to partners and customers alike.

Thus the report details the following awareness of the importance of the external relationships necessary to their businesses:

  • 73 percent of respondents are investing in programs and systems to optimize the way they collaborate with partners;
  • 37 percent of respondents say their partner networks are contributing significant innovation, insight and value to their business, further emphasizing the return from program investment:
  • Executives are also responding to the pressure to transform customer experience and satisfaction as nearly 4 in 10 respondents report that their customers are demanding greater visibility into both their supply and distribution chains.

CROSS-COMPANY COLLABORATION STILL LOW

But the report highlights how information systems and cross-company business processes are not keeping pace with increased business interdependence to enable companies to achieve round-the-clock collaboration, shared innovation, improved productivity and cooperative customer handling:

  • Only 6 percent of respondents say they currently have end-to-end data and process integration across their partner networks, although 51 percent report at least some level of integration with select partners;
  • Some 64 percent of respondents say they have either no ability or an unsatisfactory ability to extend and leverage their internal systems to selling and service partners;
  • Some 75 percent say they have no ability or an unsatisfactory ability to extend and leverage their internal systems to suppliers and outsourced service providers;
  • Only 26 percent of respondents say they are effective in sharing customer data and insights with partners to enable innovation.

INNOVATING BEYOND COST SAVING

The study reveals that outsourcing, supplier and demand chain partnerships are contributing far more to their businesses than just cost savings and operational capacity. The challenge is how to increase productivity across their value chains. As the report states:

Many companies see themselves at the hub of their own business network, but also say they are participating in the business networks of other companies. On the one hand, they are organizing, managing and collaborating with partners and vendors to coordinate their own value chain to customers. On the other, they are interacting in other networks that have their own set of customers. This intricate web of interdependencies is elevating the need for improved and agile cross-company integration and coordination, and for the creation of what we refer to as “Business Collaboration Networks.”

To create Business Collaboration Networks means serious investment in both internal and external systems to increase the productivity and effectiveness of key relationships, from improving supplier vendor management, global procurement and sourcing; customer handling and support; sales and customer acquisition; transportation and warehousing; order management and fulfillment; and product life-cycle management.

But on the key question of innovation, the report touts the familiar mantra of co-innovation.

While the attempt by 23 per cent of participants point to a move within their companies toward co-innovation as a major driver to transform their ability to collaborate more seamlessly with partners, the authors of the report believe this move will become an even more powerful driver in the years ahead. Nearly 40 percent of study participants believe their partner networks are already contributing significantly to innovation, insight and customer value.

But the move toward a more open and collaborative network model that embrace the ideas and innovative capacity of both customers and partners, if it is to be more than a gimmick, means substantial improvements in key business processes – internally and externally. This is the area where the real potential of Enterprise 2.0 really lies – in the internal transformation of processes and the flows of information between employees – to increase the collaborative capital underpinning day-to-day business. Otherwise Business Collaboration Networks will simply become another management mantra which will yet again be seen everywhere apart from in the productivity statistics.

Filed under: Economics of Innovation,

December 4, 2009 • 1:07 pm 0

THE CORPORATE SHIFT FROM R to D AND SHORTERMISM

A new Booz & Company’s annual study of the world’s biggest corporate R&D spenders, reported on Strategy-business.com, finds that most companies have stuck with their innovation programs despite the recession. While many are boosting spending to compete more effectively in the upturn, the report confirms the shift from Research to Development (as noted on this blog in numerous posts), increased risk-aversion and  short-term pragmatism.

The Booz & Company’s report contains a number of important statistics about R&D spending and the trends underlying these. It found that the world’s biggest innovation spenders increased their R&D spending by 5.7 percent in 2008, a slower rate of growth than the prior year’s 10 percent increase, but in line with the group’s 6.5 percent increase in worldwide sales. On a quantitative level this increase in spending looks impressive given that operating income for the group fell 8.6 percent in 2008, and net income plummeted 34 percent.

More than two-thirds of the companies included in this year’s Global Inno­vation 1000 maintained or increased R&D spending in 2008 despite a third of the companies reporting a financial loss for the year. However, the recession has certainly had an impact.

Recessionary Effects

The Global Innovation 1000 have certainly not been immune to the recession. Overall, they spent $532 billion on R&D in 2008, a healthy 5.7 percent increase over 2007, but well below the 10 percent increase from 2006 to 2007. Total sales were up 6.5 percent, to $15 trillion — but again, it was a significantly smaller increase than the 10 percent gain this same group registered between 2006 and 2007. Thus the group’s R&D intensity — innovation spending as a percentage of sales — remained the same at 3.6 percent.

Not all companies maintained or boosted R&D spending. Caution appears to be high: more than a quarter of the Global In­novation 1000 cut their innovation budgets in 2008 while the top 20 innovation spenders increased re­search and development by only 3.2 percent, compared with 10.7 percent for these companies in the previous year. Further­more, the early evidence indicates that as companies entered 2009, spending on innovation slowed further. This has been fueled by steeper declines in sales and income: among the 522 companies reporting results for the first quarter of 2009, R&D spending decreased by 7.4 percent — which is still less than half the rate of their 18.5 percent decline in sales.

Worrying trends:

Despite the quantitative figures reported, the qualitative trends underlying these trends gives grounds for concern. The report draws three trends out which confirm the most worrying longer-term trends. These are and I quote:

  • As a rule, companies are performing less pure and applied research. Instead, they are concentrating their R&D budgets on product development and engineering. This has been a trend for several years — indeed, 44 percent of survey respondents said they spend less than 20 percent of their R&D budget on basic research and advanced development — but it became even more pronounced during the recession. Managers hope to bring new products to market to take advantage of the upcoming recovery. Nearly 40 percent of respondents said their companies are shifting re­sources from basic research in order to prioritize new product launches.
  • The downturn has encouraged many companies — 40 percent, in our survey — to speed up their efforts to make the innovation process more efficient.
  • In response to the downturn, companies have become more risk averse; nearly half of survey respondents say that their companies are now more conservative than before. Companies are changing the criteria they use when giving new products the green light, tightening their relationships with customers and consumers, and watching their competitors, and the marketplace, more carefully.

The report highlights that every top executive interviewed said their companies are working hard to spend smarter — to get more bang for their R&D buck. What this means is an increased focus on improving the returns on innovation investments, in both the short-term and the long:

  • More than 40 percent of survey respondents said their companies were focusing on process improvements to change R&D spend during the downturn, and a similar number reported that they were getting better at killing bad projects;
  • More than a third of companies surveyed, for instance, said they were terminating more exploratory projects that lacked specific time lines; and,
  • More than 40 percent said their companies were focusing more on newer products that have the potential to grow faster.

While searching for efficiencies is to be expected, like it or not, there is a relentless logic at play here which despite the best intentions can only negatively impact on innovation in the future. Short-termism and pragmatism, trends that were in full evidence before the global recession, are now being entrenched into recession-based management practices. This is best expressed by Alan Grant, senior vice president for R&D in developing markets at Kraft Foods Inc. when he argues as follows:

For the past two or three years, we have been looking at our R&D portfolio, focusing on fewer, bigger ideas as opposed to lots of incremental little things. What the recession has done is change the filters through which we view the portfolio. Which of these products might we bring to the front and which might we choose to back pedal on, given the challenging economic times?

While short-term financial speculation got us into this mess in the first place, this report reveals just how far a short-term, risk averse and pragmatic approach is now being entrenched in the innovation practices of the world’s top global companies. At one level this is inevitable. Recessions focus the mind. But this report highlights how the recession is strengthening a risk-averse, short-term pragmatic business culture which, while recognising the importance of innovation, seems to be powerless to take the longer-term measures to guarantee it into the future.

Filed under: Economics of Innovation, R&D and Innovation, Risk and Innovation

December 1, 2009 • 12:37 pm 1

THE RISE OF ASIA’S CLEANTECH ‘SILICON VALLEYS’?

According to an article on Cleantechbrief.com Asian countries are poised to outspend the United States on clean energy infrastructure and technology by a factor of three-to-one through 2013.

A new report from the Breakthrough Institute and Information Technology and Innovation Foundation Rising Tigers, Sleeping Giant states that the governments of China, Japan and South Korea will invest $519 billion in clean technology between 2009 and 2013, compared to $172 billion by the U.S. government. Climate and energy legislation, passed in the United States in June, would contribute $28.7 billion of the $172 billion five-year total. China alone will spend $440 billion to $660 billion over the next 10 years on cleantech.

The report which highlights the investment gap argues that “the United States will import the overwhelming majority of clean energy technologies it deploys.” It states that apparently 85% of U.S. President Barack Obama’s economic stimulus cleantech grants went to foreign firms suggesting the US is now lagging significantly.

Whatever your opinion on cleantech the report is important because it highlights an investment trend in longer-term research in Asia. Asian governments are taking a much more direct and coordinated approach while the US is characterised by a more “sporadic regulatory approach”.

Why is this significant? Because Asian countries by pursuing a more systematic approach are creating innovation clusters which combine universities, manufacturers, R&D labs, suppliers and other firms much like ‘the Pentagon helped create Silicon Valley in the fifties and sixties’. Ironically, these clusters will be attractive to US companies who are already making large investments in countries like China.

Private sector cleantech – China at the forefront

The success of Asia government strategy can already be seen in terms of the growth of private sector cleantech funding. Between 2000 and 2008 the US attracted $52 billion in private capital for renewable energy technologies; but China alone attracted $41 billion. However, China secured more private investment in this area than the US for the first time in 2008.

The report’s message is a big warning:

Small, indirect and uncoordinated incentives are not sufficient to outcompete Asia’s cleantech tigers…To regain economic leadership in the global clean energy industry, U.S. energy policy must include large, direct and coordinated investments in clean technology R&D, manufacturing, deployment and infrastructure.

The real question is whether there remains any belief or stomach for creating a new cleantech Silicon Valley in the US today. The short-term and increasingly risk-averse business and government culture of the past decades suggests this is not going to happen – unless fear of the East can be galvanised in a caricatured reenactment of the Cold War.

This report highlights how the shift away from longer-term thinking and the goals of pure research in the West is now being reflected in real investment and opportunity gaps. And this is just the beginning.

Filed under: Economics of Innovation, R&D and Innovation, ,

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