Next week, thousands of people from around the world will gather in Boston to hear the latest developments in the fast-changing field of innovation. For me, the Front End of Innovation conference is a kind of homecoming, a place where I meet up with organizational practitioners and fellow consultants and thought leaders, and often learn of important emerging trends. In preparation for next week’s event, here’s my take on the most significant trends shaping the innovation field in 2014. I’ll let you know in future articles here on Innovation Excellence which ones I left out.
1. Startups are Overtaking R&D as the Key Source of New Ideas
Only a few years ago, pundits were worried sick that all the best minds of the younger generation were headed to Wall Street. How 30 minutes ago! Today millennials with even an ounce of entrepreneurial spirit are heading instead to the tech hubs: Silicon Valley, or Silicon Beach (Venice, California), or Soho (New York) or Tel Aviv, Dublin or Lima, with a passion that makes Wall Street seem downright dull in comparison. They’re fired up to create the next Facebook, or WhatsApp, or start a robotics company that changes the world. They are discovering that funding is available, fans and followers and paying customers are receptive, and incumbent multinationals ready to buy their ideas. Google has purchased eight companies in the past five months, including Nest, maker of smart thermostats and smoke detectors, and is apparently branching out to serve “the connected home.” Who’s next? Serial entrepreneur Richard Barton, whose startups include Zillow, Expedia, Glassdoor and others says he benefits from being away from the frenetic pace of Silicon Valley. He gets ideas by repeatedly asking a simple question: “what piece of marketplace information do people crave and don’t have?”
The net effect of this burgeoning trend: corporate R&D is being overshadowed as CEOs look outside for startups to acquire. The message is clear: cultivate a culture of innovation inside your company or your best and brightest will bolt. No industry’s incumbents are safe from the startups, who are busy trying to disrupt the business models, often in the unlikeliest of industries.
2. Open Innovation is Going Mainstream
With global R&D budgets declining in real dollars over the past decade, collaborating externally with partners (suppliers, customers, universities, etc.) by sharing technologies, risk and financial rewards has become a growing method to make up the shortfall.
The term was first coined by UC Berkeley professor Henry Chesbrough in his 2003 book Open Innovation, and received notice when Procter & Gamble adopted his methods with their pioneering Connect and Develop program, whereby 50 percent of product ideas come from outside the company. Today, legal concerns around IP (Intellectual Property) have been somewhat mitigated, and the boundaries between a firm and its suppliers and stakeholders have become more permeable. Within this new “open” framework, ideas (and technology) can easily transfer inward and outward to the mutual benefit of all parties.
At the conclusion of the recent Open Innovation Summit in Baltimore, blogger Sara Caldicott reported in Innovation Excellence on case studies from companies as diverse as Clorox, Amazon, Intel and Pfizer, and concluded that “open innovation success offers firms newfound abilities to pivot rapidly into diverse business models, distant geographies, as well as gain access to new target audience groups and technology platforms.” Look for Open Innovation to go mainstream as an essential best practice in a resource-constrained era.
3. Innovation is Becoming Everybody’s Business
Until only recently, innovation was the province of the R&D department, new product development, and the marketing team. No longer. Today a firm’s next breakthrough might arise from its logistics department, from a new manufacturing technique, or from its creating a new market or business model. With this in mind, more and more progressive companies are training their high potential managers and individual contributors in the skills of innovation. Topics include: How to pounce on opportunities; how to recognize the unarticulated needs of consumers; how to collaborate cross functionally to remove barriers to successful innovation; how to sell new ideas up, down and laterally; and how to set expectations in the case of a high-risk new ventures or business models. While the present generation of CEOs is dominated by Boomers –who didn’t study innovation as a field in school — the rising generations are finding it valuable, if not essential, to champion a revenue–building project, product or service. In sum: mastering the mindset, skillset and toolset of innovation is sure to become a requirement for advancement to the top.
4. The “Sharing Economy” is Unstoppable
The hotelier that will soon overtake Hilton and InterContinental to become the world’s largest lodging chain doesn’t own a single room. AirBnb, based in San Francisco, is a website which enables homeowners in 192 countries to rent out their spare rooms or vacant homes or apartments to travelers. Airbnb is one of a growing number of innovative startups that are part of the burgeoning “sharing economy” movement, which allows regular people to make money on assets they already own. Result: more and more traditional industries are being upended by competitors from outside their industry. The taxi industry is being disrupted by Uber, a ride sharing app that’s already spread to 70 cities. Airbnb is busy disrupting the hotel industry. TaskRabbit is a threat to the temporary staffing industry. Want to share your car and pick up some extra income? Register it on RelayRides or Sidecar.
According to Forbes, the trend is already generating $3.5 billion a year, with growth exceeding 25%. While regulators are currently clipping the wings of certain of these upstarts, their cumulative effect is said to have a major impact on cities, product manufacturers and service providers. Using Ebay’s rating system, and smartphones that let sharers transact anywhere, anytime, micro-entrepreneurs are empowered to further monetize this space for years to come. Just as YouTube did with TV, and blogs did to traditional media, the peer-to-peer sharing trend is becoming a major disruptive force that will, in the years ahead, create winners and losers in its wake.
5. The Rise of the CINO
In 2006, a new breed of senior managers began to emerge at forward-thinking companies like GE, BBC, Whirlpool, Humana, and Shell. The title they took was often chief innovation officer; their goal was to align innovation strategy and culture. By putting somebody in this role, these organizations helped drive growth and transformation in a more systematic way.
Then came the Global Financial Crisis. For a while, not much was heard from these “innovation czars” as some have termed them. But now the trend is again on the upswing, helped along by a string of CINO conferences that bring these souls together to commiserate and collaborate. According to a Cap Gemini global survey of 260 innovation executives, 43% said their companies have a formally accountable innovation executive, up from 33% the previous year.
My own preliminary research reveals that roles and responsibilities vary widely, as does their clout and effectiveness. However, there does seem to be one key to success: having the ear and the support of the chief. Another major success factor is whether incentives and are aligned such that business units are compensated at least in part on inventing the future, rather than profitability alone.
Not all CINOs succeed; for some it’s a lonely and career-risking post. But those who do, such as Lee Clark Sellars at building materials giant Ply Gen Corporation, move the growth needle and get promoted, or recruited to run major companies (Marissa Mayer, now CEO of Yahoo). “Companies with highly aligned innovation strategies and cultures generate 30% higher enterprise value growth and 17% higher profit growth than industry peers,” reports a Booz & Company study. There’s growing recognition that CINOs are the missing link in gaining this kind of alignment. Look for the position to grow in the years ahead.
6. Crowdsourcing Will Continue to Gain Clout in Large Organizations
Denmark-based Lego Toys uses crowdsourcing to inspire ideas from fans that its own 180 designers might not have ever thought of. Submissions that receive 10,000 votes from site visitors are then vetted by Lego reviewers. And fans whose models are chosen for production receive one percent of their toy’s revenue. Thanks to the internet and social media, crowdsourcing is one of the hottest new methods of tapping customers (and the wider public’s) knowledge, creativity and insight to further your company’s goals. Other organizations are crowd-sourcing for solutions to vexing technical problems or to discover winning algorithms (Netflix), while snack giant Lay’s, a division of Frito Lay, asks the crowd to suggest new chip flavors or even whole snack categories via its crowdsourcing website. To see the front lines of this revolutionary trend visit Clorox Connects and you’ll see dozens of ideas submitted by Clorox consumers. Fact is, we’ve been cr owdsourcing since the time of the Romans. What’s different today is the scale and scope of this new method of interacting with the wider world, and this dynamic will only grow in the years ahead.
Clearly, you can look at your company’s innovation efforts and say “business as usual.” But that’s dangerous. The driving necessity is to continue to upgrade and refine the way you practice innovation, and this is a function of leadership. Hopefully these six trends will spur you to take action. Hope to see you in Boston.
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Robert B. Tucker is the President of The Innovation Resource Consulting Group. He is a speaker, seminar leader and an expert in the management of innovation and assisting companies in accelerating ideas to market.