Innovating intelligently

Most articles and books on innovation focus on the success stories of market leaders. This is logical, since we are all attracted to learn what happened to Nokia or Kodak, how Tesla broke into the market, or how Procter & Gamble organised its Open Innovation system. But these flashes dazzle us and prevent us from seeing what lies beyond: when you go to the supermarket you find many brands of biscuits, and although there is only one leader, there are a few profitable ones. It is therefore necessary to look at the strategies followed by the second, third or fifth in each sector.

One of the objectives of any company is to last over time and innovation is a key tool to achieve this. In other words, the goal is to “endure” and not necessarily to be “the leader”, because after all, there are Olympic medals for three, but everyone else is competing. For some athletes coming second or third is a disaster, but for others coming eighth is a fantastic prize.

In an industrial company, in its usual mode of operation, the budget for innovation will come out of the gross margin: the more gross margin, the more money may be available for R&D, and if the gross margin is small then external funding will be necessary. But if our company is, for example, fifth in the industry, the gross margin of the market leaders is likely to be two or three times higher than our gross margin. So, the leaders are likely to have two or three times as much money for R&D and that could mean that they will be further behind in the future.

In the end, the question will be whether our products can compete in the market, even if the leader has much more money to innovate than our company, and whether our new product will provide a sufficient profit margin despite having less money available for innovation.

Key factors in innovation strategy

To the question of how much innovation effort we should put in, it certainly seems that spending too little is not the answer. But the good news (or bad news, depending on how you look at it) is that innovation is complex, and not driven by brute force: it is about spending better, not spending more. Some key factors are:

• Prioritise the R&D project portfolio: which projects do we focus on, which are core activities, which are adjacent, which are transformational, and what budget do we allocate? A good rule of thumb is to put most of the budget on activities in the core of the current business, and a smaller part on adjacent activities, but not forgetting also that we need a strategy for transformational activities.
• Develop the power of collaboration: with suppliers, but also with competitors and beyond industry boundaries: how much of the project portfolio will we do internally, how much will we do collaboratively, how much will we do through partnerships, do we innovate with customers, how do we work collaboratively, can we do it better?
• Assess whether corporate venturing is necessary and study the real capacity to impact the company’s business model, beyond trends and fashions.
• Establish processes and structures aimed at innovating with quality and agility, adapted to the reality of our company.
• Do not spend money or effort in vain: effectiveness and efficiency in the management of R&D, a strategy that is implemented and reviewed, being demanding in the selection of projects, in the selection and management of partners, and the monitoring of projects; killing some projects on time, analysing internal work processes, speed in the development…
• And of course, establish a culture of innovation: 15% to 20% of the CEO’s time dedicated to innovation, monitoring of innovation in the Management Committee, and a fine-tuned and aligned innovation strategy that is the result of good reflection.

So the important thing is how we innovate: are we efficient and effective in our innovation and processes, do we know what to do to keep our company competitive in the future, how do we organise our R&D, are we innovating in services, are we working on new business models, are we doing digital transformation or rather just digitalisation?

Surely the market leader has the money and the obligation to invest in every key technology, but many of its competitors cannot invest in so many lines. But there is also something magical about it: the market leader is likely to be more inefficient because it has to deal with more fronts, is less likely to make good partnerships, has more risk when it gets it wrong, and is sometimes slower and more conservative.

At Zabala Innovation we work with you to ensure that your company has a real, tailor-made innovation strategy that works and delivers results. Because a company with a good innovation strategy, well applied and with top management involved in innovation, if accompanied by the right amount of effort and talent, will have the key elements to succeed and continue competing in the next 5 or 10 years. And he who competes for wins.