Deloitte 2: the future of Innovation

The Deloitte Report, Part 2
Big business and the future of innovation

The R&D spending mix is expected to change – in two ways
If companies are seeking to align their innovation strategies with their business strategies and are seeking to gain better insights into customers’ stated and unstated needs, how are their strategies towards innovation expected to change in the future?

Over the next decade many companies plan to shift their R&D spending mix—from incremental innovation to new and breakthrough innovation, and from product R&D to service R&D.

All respondents to the Deloitte survey report that they plan to shift their current R&D spending mix from incremental innovations to more new and breakthrough innovations. Today, 58 percent of R&D spending is directed at incremental or renewal innovations, just 28 percent at new or substantial innovations, and only 14 percent at breakthrough or radical innovations. In 10 years, respondents expect the picture will look quite different.

Breakthroughs, for example, involve higher risk than incremental innovations, so it is important to make sure both that these innovation goals make sense given the company’s market position and strategy, and that the right risk management capabilities are established to handle a higher-beta portfolio. “New research projects will continue to involve more collaborators, including universities, suppliers, and other industrial partners. Ultimately, this will make product development more robust and enable greater technology leaps, while reducing risks and cost.”

Companies also expect to allocate more R&D spending to enabling services and less to creating products. The current allocation slightly favors product R&D, 52 percent to 48 percent. By 2024, respondents expect that relationship to flip—with R&D for services rising to 62 percent, versus 38 percent for R&D for products.

Need Seekers should hone their distinctive capabilities, which include their proficiency at directly generated deep customer insights, enterprise-wide launches, and technical risk assessment. One priority that Need Seekers cited in this year’s survey as being important to their future success—open innovation—complements their approach by enabling them to seek new ideas and insights from a networked community beyond the borders of the company and its traditional partners. They should ensure that their products and services are advantaged by seeking out new ideas from customers, suppliers, competitors, and other industries, as well as by building focused technical innovation networks across the business. They should exploit front-end digital enablers such as visualization and engagement tools.

Market Readers should continue to develop their capabilities in managing resource requirements and engaging suppliers and partners. Their goals should include customizing their products for local markets, and creating a culture of collaboration across functions and geographies to facilitate rapid, seamless response. They need to be good at assessing feedback from sales and customer support and traditional market research. Digital enablers such as monitoring tools and idea-capture tools are critical, and are consistent with the needs of this model.

Technology Drivers should continue to enhance their product life-cycle management capabilities. Their priorities are strategic platform management and gaining a detailed understanding of emerging product- and service-related technologies and trends. They need to excel at technology road mapping and interacting with the external tech community. Digital enablers will be particularly important for them, including big data, customer profiling, and co-design tools, as well as collaborative environments that connect far-flung teams, customer relationship management systems, and ERP platforms.

Of course, some key imperatives have surfaced in the Global Innovation 1000 studies that apply to all companies seeking innovation success: * Define your innovation strategy, communicate it throughout the organization, and identify the short list of innovation capabilities that will enable it. * Tightly align your business and innovation strategies. * Ensure that your innovation culture is aligned with, and supportive of, your innovation strategy. * Focus on developing deep customer insight by directly engaging and observing end-users of your product. * Ensure that the technical community has a seat at the table defining the corporation’s agenda. * Systematically manage the R&D portfolio, aggressively winnowing out low-potential projects and ensuring that the right risk management capabilities are in place to support big bets.

Despite the impressive growth of innovation spending in the software and Internet category, four other industries spent more absolute dollars on R&D in 2014: computing and electronics, healthcare, auto, and industrials In fact, three of them—computing and electronics, healthcare, and auto—have spent more on R&D than the software and Internet industry in each of the last 10 years. This shows that there has been and continues to be a huge amount of innovation spending going on outside Silicon Valley and other tech clusters.

Open Innovation’s innovations
Corporates are articulating their needs and opportunities for innovation; and using intermediaries to search for innovators with ideas, and to provide candidates with a period of intensive development. Jan 2015. (http://wp.me/p3beJt-9N)

Unilever and Canary Wharf both invite you to come and help them crack a world-wide problem, but… Corporates are seducing startups into giving them their good ideas, but the odds and the risks against getting your rewards are less evident than they should be. April 2015. (http://wp.me/p3beJt-aI)

Cambridge Service Alliance A global alliance between leading businesses and universities that brings them together to work on the complex service solutions of tomorrow. (http://www.cambridgeservicealliance.org)

The full version of the Deloitte Report can be found at www.strategyand.pwc.com/innovation1000‎

John Whatmore May 2015

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