The Four Sources of Intelligent Innovation

Winning the Race for Profitable Growth: "

The Big Idea

In the next decade, innovation will supplant cost reduction and mergers and acquisitions as the competitive battleground. Ninety percent of executives recently surveyed by Booz Allen Hamilton say that the introduction of new products and services is crucial to profitable growth. On average, they aim to improve their innovation performance by 30 percent in the next three years.

Where can they find such improvements? Many companies have been focusing on tighter control of the innovation process and innovation costs. But in order to move performance to the next level, it’s necessary to balance the analytical rigor of the control regime with a softer side encompassing creativity, curiosity, pattern recognition, cultural sensitivity, leadership, agility, and a learning organization. We call the new approach “Intelligent Innovation,” and it is the only way that companies can hope to exploit four major sources of advantaged innovation:

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Customer Insight: Great innovators such as Procter & Gamble keep many channels open to gather information about and from customers, and distribute this information widely within the company. They also seek opportunities for customers to participate directly in the innovation process.
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Global Network: Organizations with a “headquarters knows best” mentality are at a disadvantage. Intelligent innovators know how to leverage knowledge that may be dispersed across the globe, and that may be inside or outside the organization. They integrate each site or partner into a seamlessly managed innovation network. For example, when General Electric entered the wind energy market, it assembled a team of people from the U.S., Germany, India, China, and Canada to develop energy-generating equipment.
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Future Foresight: Although many companies do scenario planning, few use it to drive Intelligent Innovation. Identifying tomorrow’s market opportunities and risks requires working with senior management to assess the strategic and tactical implications of trends, and sharing information throughout the organization. Siemens, for example, recently began to create “pictures of the future” to discover market opportunities and create a roadmap for its R&D strategy.
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Innovation Organization: There is tremendous innovation potential residing in an organization’s employees. Intelligent innovators such as 3M have developed key principles and embedded them into their organizations’ DNA to unlock this potential. These principles must include a clear innovation commitment by senior management, opportunities for autonomy, cross-functional teaming, and aligned incentives.

The Case

After a period of growth by merger and acquisition, a major mobile telecommunications operator faced a difficult market environment. The industry had cooled down, new acquisition targets were hard to find, and some markets showed signs of saturation. So the operator launched a transformation program emphasizing both innovation and cost control, with the overall goal of increased profitability.

Applying the Four Sources of Intelligent Innovation framework, the operator was able to:

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Integrate the product development organization intelligently. Because different markets emphasized different competitive strengths, some local organizations were strong in mobile payment, others in music downloads, still others in imaging, etc. The reorganization eliminated duplication but kept the strengths intact with “Centers of Competence” focused on these special areas of expertise. The reorganization also established “Innovation Centers” in several countries to scout for, test, and champion worthwhile innovations.
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Improve idea and information flow by flattening the organization and emphasizing cross-functional teams; establish an empowered “Innovation Management” group to stimulate internal ideation and to orchestrate and strengthen linkages to external partners.
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Sharpen the focus on customer needs by establishing a “Voice of Customer” organization. This organization keeps the focus on the customer throughout the development process.
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Identify future scenarios and growth opportunities in the fixed–mobile convergent market to support the strategy definition and product innovation for the next years.

As a result of the program, the client has improved its organic growth rate and operating cash flow by 50 percent.

The Application

The Four Sources of Intelligent Innovation framework is particularly appropriate in industries where growth through innovation is critically important. These include high technology, pharmaceuticals, automotive, and consumer goods, among others."