What Drives Innovation Success? Boston Consulting Group, Inc.BCG_ea60f656-e4f7-11e3-b92e-a9ea913a63b5James P. AndrewCo-Author -- James P. Andrew is a senior partner and managing director in the Chicago office of The Boston Consulting Group and the leader of BCG’s global innovation activities. Andrew TaylorCo-Author -- Andrew Taylor is a partner and managing director in BCG’s Chicago office. The Manufacturing InstituteTMI_ea60f926-e4f7-11e3-b92e-a9ea913a63b5Emily Stover DeRoccoCo-Author -- Emily Stover DeRocco is president of The Manufacturing Institute and a senior vice president of the National Association of Manufacturers. _ea60fad4-e4f7-11e3-b92e-a9ea913a63b5To identify key success factors for improvement of corporate innovation performance_ea60fbb0-e4f7-11e3-b92e-a9ea913a63b5InnovationOnce narrowly defined as simply the development of new products, innovation is now understood to apply to all aspects of a business. One executive we interviewed summed up this evolving definition: “We’ve expanded our thinking on innovation. We used to focus on new-product development, but now we see that products are only one aspect. We look upstream and downstream for other applications, including the business model, enterprise structure, value chain, proprietary processes, channels, service, brand, and customer experience.” IdeasStructured ProcessesWhile structured processes have traditionally been considered the enemy of creativity, the most innovative companies strike a balance between discipline and freewheeling creativity so that neither overwhelms the other. “We aren’t overly prescriptive,” said one executive. “We provide project managers with the tools they need to meet objectives, then let them figure out how to do it.” Added another, “Structural buildup as companies age can slow things down, reduce spirit, and stifle innovation. It’s important not to let that happen.”LeadershipStrong, focused leadership is a differentiating factor in U.S. companies that are top innovators, and the executives we interviewed emphasized its importance. Leaders must develop disciplined, well-structured innovation processes, hold management accountable for outcomes, and create a company culture that embraces and encourages innovative thinking. Specific approaches to leadership include benchmarking, setting an example, and demonstrating real interest in innovation. As one executive explained, “Most people don’t wake up thinking, ‘How am I going to innovate today?’ It’s a leader’s job to get them thinking that way.”Idea Generation_ea60fc78-e4f7-11e3-b92e-a9ea913a63b51CustomersOutside sources of ideas are important to innovation. For example, working closely with customers can help generate new ideas while deepening existing relationships. Said one executive, “We help customers by identifying needs and solving them. This often means that we create a custom solution just for them, which in turn expands our own capabilities and expertise.” Another explained, “Saying yes to customer requests drives innovation. We endure a trial by fire when we commit to something we don’t actually have yet.” Customer-driven innovation can lead to higher-margin products. It also adds customer value, which can make it easier to compete with low-cost producers.SuppliersSuppliers are another valuable, efficient, and cost-effective source of new ideas. As one auto manufacturer said, “We drive innovation through the supply chain. Seventy to eighty percent of our innovation value comes from suppliers in some way.” Another executive claimed, “Many of our key suppliers are also small, creating a peer relationship that encourages collaboration.” Partnerships with suppliers can also diffuse risk and lighten the capital investment needed for development.Good ideas matter. Generating and developing ideas are the first step toward better innovation performance, and companies deemed “excellent” in this area use a variety of tools. Those cited most often include making a bigger investment in idea generation (this is especially relevant to larger companies with more resources); developing a deep understanding of customers; increasing management focus; and establishing a company culture that supports innovation. InvestmentIncrease investment in idea generation_ea60fd40-e4f7-11e3-b92e-a9ea913a63b51.1UnderstandingDevelop deep customer understanding_ea60fe12-e4f7-11e3-b92e-a9ea913a63b51.2FocusIncrease management focus_ea60feda-e4f7-11e3-b92e-a9ea913a63b51.3CultureEstablish conducive company culture_ea60ffb6-e4f7-11e3-b92e-a9ea913a63b51.4Outside SourcesEffectively use outside sources of ideas_ea610088-e4f7-11e3-b92e-a9ea913a63b51.5PartnershipsPartner with suppliers for new ideas_ea610164-e4f7-11e3-b92e-a9ea913a63b51.6SuppliersResourcesDedicate additional resources_ea610236-e4f7-11e3-b92e-a9ea913a63b51.7IncentivesProvide incentives for innovation_ea6103d0-e4f7-11e3-b92e-a9ea913a63b51.8Structured Processes_ea61052e-e4f7-11e3-b92e-a9ea913a63b52Large CompaniesBut small and large companies can differ in the rigor of their approach. The inherent complexity of large organizations demands a stricter approach to innovation.Small CompaniesSmall companies often manage innovation efforts less formally because there are fewer projects to track and fewer resources to allocate, and leaders can have a bigger impact. Moreover, smaller companies tend to place less value on portfolio management and rapid idea development, perhaps because they tend to have fewer projects under way at any given time. Still, most successful companies -- even small ones -- have good processes and recognize the importance of discipline to those processes.Measure outputs such as patents, technology transfer, and other R&D results; business performance, such as labor productivity and total shareholder returns; and the broader public impact of innovation on business migration and economic growth. -- The most innovative U.S. companies in our study are those that excel at generating and benefiting from new ideas. In addition, they have a greater appreciation for the value of processes and execute at a higher level than unsuccessful companies. They design structured, standardized processes for generating ideas, developing them, and bringing them to market, and they believe that process discipline is integral to their success. Respondents from top-performing companies consistently made statements such as the following: “We have a very disciplined, deliberate, and consistent process-oriented approach to innovation” and “Our rigorous innovation approach is well known.”QualityDevelop quality ideas_ea61060a-e4f7-11e3-b92e-a9ea913a63b52.1Portfolio ManagementManage a portfolio of ideas_ea6106e6-e4f7-11e3-b92e-a9ea913a63b52.2Rapid DevelopmentEnsure rapid development of ideas_ea6107c2-e4f7-11e3-b92e-a9ea913a63b52.3CommunicationCommunicate innovations to salespeople_ea610894-e4f7-11e3-b92e-a9ea913a63b52.4SalespeopleMarketingMarket innovations to customers_ea610b1e-e4f7-11e3-b92e-a9ea913a63b52.5CustomersLeadership_ea610cae-e4f7-11e3-b92e-a9ea913a63b53Small CompaniesSometimes small companies have an advantage. As one executive explained, “It’s easier to encourage a culture of innovation in a small company like ours, since everyone interacts with leaders and engineers. We make a point of listening to everybody.” Executives also reported that establishing an innovative culture was a challenge, given how hard it is to find the right mix of creative, enthusiastic, and achievement-oriented people. Encouraging management to focus on innovation efforts is crucial. Leaders do this in several ways. First, they make sure that innovation objectives are aligned with business objectives. Then they make tools available, build knowledge and expertise, and use performance metrics to track progress. Company LeadersIt is also the role of leadership to establish and maintain the discipline that leads to better innovation performance. To this end, the companies that excel use a number of best practices, such as developing well-defined processes, setting clear financial hurdles, and assigning unambiguous management responsibility for outcomes. Regular meetings and updates ensure that innovation teams keep their eyes on the ball. Successful companies also use proven product-development approaches. As one respondent noted, “All incoming ideas are pushed through a portfolio management funnel to be evaluated strategically.”Vocal support of innovation by leadership helps build an innovative culture. Our respondents felt strongly about the importance of this factor. One of them observed, “You need to be serious about creating a good culture that encourages excitement, success, problem solving, questioning, and the celebration of success. You cannot just pay lip service to the idea.” Another executive promotes an innovative culture by actively showing his interest in innovation: “I encourage innovation by walking around and talking to people who have been noted for good ideas -- it demonstrates that you are interested in innovation and it motivates the employees.” ProcessesDefine processes well_ea6116e0-e4f7-11e3-b92e-a9ea913a63b53.1FinancingClear financial hurdles_ea6116e1-e4f7-11e3-b92e-a9ea913a63b53.2ResponsibilitiesClarify management responsibilities_ea6116e2-e4f7-11e3-b92e-a9ea913a63b53.3ManagersAlignmentAlign organization around processes_ea6116e3-e4f7-11e3-b92e-a9ea913a63b53.4IncentivesTie incentives to correct use of processes_ea6116e4-e4f7-11e3-b92e-a9ea913a63b53.5Skilled Workers_ea6116e5-e4f7-11e3-b92e-a9ea913a63b54U.S. ExecutivesU.S. executives ranked the difficulty of finding high-quality talent among their top “pain points,” citing a lack of skilled workers at both the engineering and the basic-skills level. U.S. StudentsOne problem is that U.S. students are not being encouraged to pursue science and technology-related fields. An executive described the challenge: “We offer scholarship programs to the children of our employees. At a dinner honoring this year’s recipients, only one planned to go into engineering. The others said their parents -- our employees and engineers -- told them not to pursue the field.”Foreign StudentsEven attracting foreign talent, including people educated in the United States, is an issue. Said one executive, “The U.S. is the only country in the world where it is easier to get citizenship as a laborer than as a PhD.” Although the United States remains a center of higher education, many of its most talented graduates are forced to go elsewhere because they are not U.S. citizens. Janet Napolitano, the new secretary of homeland security and then governor of Arizona, summarized the situation in a February 2007 address to the National Press Club: “We need scientists and engineers.... After a successful background check, I believe that every one of them should have a green card stapled to their diplomas.”Technical Training InstitutionsAdding to the problem is the negative perception of technical training and education among U.S. students today. “We treat those pursuing technical careers as second-class citizens,” said one respondent. “We have a program in my city called the Career Development Center, or CDC, for those pursuing technical careers. The kids call it ‘Come Dumb Children.’ If you don’t think technical education results in viable careers, take a look at your next plumbing bill.” U.S. Educational InstitutionsAll of these problems weaken the work force -- and the ability of the United States to innovate. The executives we spoke to believe that many of them stem from a decline in the country’s education system, and many had strong opinions in this area. One respondent observed, “We’ve been building workarounds because employees can’t do basic math. We’d rather have smart people thinking on their feet, but we’ve had to automate.” Another said, “I even need floor employees. You would be shocked at how many I see who can’t read and write.” One executive summed up the problem: “The quality of our schools is slipping because they are not accountable to any real quality standards.”EngineersThis education deficit creates a talent deficit. The executives we surveyed and interviewed reported having difficulties finding and keeping capable employees. The following comments were typical: “The average engineer’s tenure is under one year.” “I’ve had an ad up for an entry-level engineering job for three to four months. Even in this economy, I’ve had no qualified hits.” “As school budgets are cut, they often eliminate classes like shop, so students don’t realize that this type of work is an option for them. They think that if they aren’t good at book-based academics, then they’ll just drop out. They don’t realize there is a need for those skills.” And finally, “Too many poets, not enough engineers.”U.S. ManufacturersManufacturing itself may have a tarnished reputation in the United States, making it hard to attract good talent. “Americans associate manufacturing with the auto industry and its current strife,” explained one executive. Said another, “No one wants to work in a factory. People think it’s dirty and backbreaking manual labor. I own a factory; it’s sparkling clean and every employee has a computer.”According to our 1,000-plus respondents, a skilled, educated work force is the single most critical element of innovation success -- and the hardest to acquire. The truth of this claim is supported by both of our innovation indexes, which indicate that a large number of researchers with advanced degrees, particularly in science or engineering, is the greatest predictor of success. Put simply, innovation requires capable and skilled people._ea6116e6-e4f7-11e3-b92e-a9ea913a63b52009-03-312014-05-26http://www.themanufacturinginstitute.org/~/media/6731673D21A64259B081AC8E083AE091.ashxOwenAmburOwen.Ambur@verizon.net