A major US company is currently in the process of getting rid of their large corporate R&D group. They are moving all of the scientists and engineers into the Business Units. Over 50 years of R&D tradition is being disrupted. What could go wrong?
Looking closer at the rationale for this move, one can understand at least some of the motivation. A clear-eyed, rational assessment of what the R&D organization has contributed to the company’s bottom line comes up short. The heads of the company’s multi-billion-dollar Business Units, who are being pressed for growth, look at this analysis and naturally say:
“Our corporate R&D is ineffective; the money is better spent by us. We are close to customers and can focus research on areas that will directly impact our business.”
This sentiment, and the analysis behind it, is true – as far as it goes. Every year, articles are written that show that R&D spending is poorly correlated with long-term growth. And so the R&D pendulum swings from a heavily centralized R&D organization to one that is completely decentralized. Scientists and engineers once devoted to long-term ‘science’ are being pushed into businesses in an attempt to move them ‘close to the customer’.
The thinking behind this ‘balkanization’ of R&D, while well intentioned, is misguided. Pushing R&D to the periphery, to the businesses focused on meeting next quarter’s profits, is an overreaction to a perceived deficiency. The ‘failure’ of corporate R&D, and yes, there have been many failures, is not due to the fact that the R&D group is a corporate group as opposed to a business unit group. It is due to a failure to reimagine how innovation happens – at all levels of the organization.
Instead of asking, “where should our R&D reside”, companies should be asking ‘what is the most effective way for us to innovate”? And many companies are indeed asking this question. They are looking at their entire ‘Innovation System’ and reimagining the role of not just R&D but the role of strategy and business development in value creation as well. Companies are realizing that:
- R&D without Strategy is directionless – Strategy without R&D is blind
- Strategy without Business Development is pointless – Business Development without Strategy is just random trial and error
- Business Development without R&D is ineffective – R&D without Business Development is a huge waste of resources
In today’s environment, R&D is no longer sufficient. What is needed is an Innovation System that is much more than traditional R&D. It is a profound reimagining of the traditional functions of Strategy, R&D and Business Development.
- Future Insight extends strategy to create a practical understanding of plausible futures that directs innovation activities aligned with strategic intent.
- Invention and design extends R&D to integrate what is possible with what is wanted from the very beginning of opportunity discovery.
- Entrepreneurship extends Business Development to create an active mechanism for nascent businesses to survive in the corporate environment.
Leading corporations are evolving from a hierarchical and siloed Strategy – R&D – Business Development architecture to a networked Innovation System architecture. This new organizational architecture allows Future Insight, Invention and Design, and Entrepreneurship to come together at many nodes within the company to create new growth in both traditional and radical ways. These networked nodes are in all businesses (including the corporation as a whole), at all levels, and in all geographies.
The keys to an effective Innovation System are:
- The integration of strategy, R&D and business development into something more than the sum of the parts.
- Distributing the ‘Innovation System’ throughout the company, at corporate and in every business, at all levels, and in all geographies.
- The flexible marshalling of resources based on the situation of the Innovation work (discovery, incubation, or acceleration) that is to be done. Recruiting the right people from throughout the company, no matter where they are, for ‘tours-of-duty’ on innovation initiatives.
- Organizing and running innovation projects at the right level – let Lines-of-business or Business Units run the projects that are strategic for them, but raise up projects that have the potential to stretch, cross or go-beyond what these business units do.
A company with a persistent and effective Innovation System (IS) will outperform its competitors and, over the long term, achieve the growth desired (and required) by its stakeholders.