MIT Sloan Management Review

Relationships between a company’s R&D and marketing departments aren’t always cordial.  According to a survey conducted by Philip Kotler, Robert C. Wolcott and Suj Chandrasekhar, only 34% of mid-level managers describe the relationship between their company’s R&D & marketing departments as collegial. 

The researchers describe their findings in their  article “Playing Well With Others,” which is part of the new edition of Business Insight, a collaboration between MIT Sloan Management Review and The Wall Street Journal.

What are the complaints? Among other things, Kotler, Wolcott and Chandrasekhar found that R&D employees complained about poor data from marketing, while marketing folks felt the R&D people did not include them in the early stages of product development. To address the problem, the authors suggest a number of approaches:

• Make sure people understand each department’s value — and how they complement one another.
• Prevent one group or the other from dominating the company’s new product development process.
• Develop a common language for both groups to use.
• Avoid having people stay strictly in their silos.
• And, finally, stay focused on the customer.   

“When engagement and thinking in terms of customer needs becomes routine, everyone has a common vision for what is being developed and why,” the authors note.

Heard an interesting talk about energy innovation today by Charles Weiss and William B. Bonvillian, authors of Structuring an Energy Technology Revolution, a new book from The MIT Press. In their talk, Weiss and Bonvillian discussed the challenges the U.S. faces in achieving the kind of energy innovation needed to address climate change.

Some key points from the talk:

• Americans have a “covered wagon culture” (think pioneers heading west to new territories) that, in innovation, involves finding open territory and creating radical innovations. We’ve got an economy that operates at the technology frontier, observed Bonvillian. Our innovation system does biotech — but we don’t go back and innovate in health care delivery.
• However, innovation in a complex, established sector like energy is much more complex — and requires a different approach to policy, he said.
• To address the challenge, the U.S. needs a public strategy for energy technology that should be very large in scale and scope — comparable to the Manhattan Project in scale and scope, but not in form or organization, Weiss said.  Because energy technology involves innovation in an established sector, “you want to organize it around obstacles to market launch,” involve public-private partnerships and be as technology-neutral as possible, Weiss said. That, he explained, is rather different from the traditional “pipeline” approach to U.S. technology policy, which stresses basic research as the key ingredient to radical innovation.

How is innovation faring during the economic downturn? The answer depends on whom you ask. Recently, we have seen interesting, but somewhat conflicting, reports on the state of innovation in the U.S. economy.

First, The Wall Street Journal reported some surprising good news last week: Despite the economy, large U.S. companies spent almost as much on R&D in the fourth quarter of 2008 as they did a year prior. Write Justin Scheck and Paul Glader of The Wall Street Journal: “Big R&D spenders say they’ve learned from past downturns that they must invest through tough times if they hope to compete when the economy improves.” 

But Scott Anthony, president of Innosight, worries in a blog item on the Harvard Business Publishing site that, in this difficult economy, companies could focus too much of their R&D on improving existing products — rather than on bigger innovation opportunities.

And Sramana Mitra, in a column for Forbes.com, suggests that we need to address  systemic economic problems that inhibit innovation – such as a focus on short-term speculation. One key, she thinks: Government funding of technology research at universities.  She cites the Internet as an example of a technological breakthrough that emerged out of “a sustained R&D effort over a long period of time. ”

Similarly, diverging views on the future of innovation are represented in the Spring 2009 issue  of the MIT Sloan Management Review: Clayton M. Christensen of Harvard Business School predicts that the downturn will be good for innovation, whiles Joshua Gans of Melbourne Business School expresses concern about the effect of the financial crisis on technology start-ups.

What do you think? Are these auspicious or inauspicious times for innovation?

What characteristics does it take to successfully develop a radical innovation in a large or mid-sized company? A fascinating article in the new March 2009 issue of the Journal of Product Innovation Management looks at that topic, in the context of the electronics industry.   (The article, “Voices from the Field: How Exceptional Electronic Industrial Innovators Innovate,” is available to Journal of Product Innovation Management subscribers or for a $29.95 pay-to-view fee.) 

Researchers Abbie Griffin, Raymond L. Price, Matthew M. Maloney, Bruce A. Vojak and Edward W. Sim interviewed 11 of 58 individuals cited for lifetime achievements by the magazine Electronic Design. All 11 engineers whom the researchers were able to interview had achieved their breakthrough innovations while working in medium to large companies, so the research illuminates innovation within established companies rather than more generally.

 And, the findings suggest, exceptional innovator-engineers within established electronics companies are notable for a number of characteristics, including:

• starting with a customer problem, where a solution has business potential
• spending a lot of time defining the problem in the early stages; this phase includes planning and interacting with customers
• being systems thinkers
• having deep knowledge in one area but also acquiring knowledge in related areas
• working well with others and using their people and political skills to get their product developed. (One interviewee told the researchers that, when the company was not supporting his idea, he started leaking word to customers about the product’s capabilities. When customers started calling the CEO asking when the new product would be available, it got the funding needed for commercialization!) 
• spending energy making sure the product, once launched, gained market acceptance.

In recent decades, institutional investors have made up an increasing percentage of stock ownership  in U.S. markets. Is that good or bad for innovation? A new working paper suggests that the effect of institutional investment on innovation in public companies is positive — with a greater percentage of institutional investment associated with higher R&D productivity, measured in terms of patents and their significance. (Institutional investment also had a small positive effect on overall R&D spending.)

Researchers Philippe Aghion, Luigi Zingales and John Van Reenen  found support for a hypothesis that institutional investors reduce the career risks that executives at public companies undertake in innovation – because the institutional investors can monitor an executive’s performance in a more sophisticated way than the stock market as a whole can. In addition to their findings on R&D productivity, the researchers found that CEOs at companies with greater institutional ownership were less likely to be fired if the company reported poor financial results.

What if government innovation statistics measured not only proprietary innovations like patents — but also innovations that are developed by users and sometimes freely shared?  That’s a question raised by a new working paper by Fred Gault, a visiting fellow at the International Development Research Centre, and Eric von Hippel of the MIT Sloan School. Their new paper looks at the question of the prevalence of innovation by users – and its policy implications.

The working paper describes a survey of 1219 Canadian manufacturing plants that had been identified as “user-innovators” — in that they used advanced manufacturing technologies and either modified the equipment for their own use or developed their own equipment. Interestingly, the researchers found that the user innovation projects were not, on average, trivial: The average technology modification project cost more than 600,000 Canadian dollars, while  the average new technology development project cost close to 1 million Canadian dollars. 

Nonetheless, 17.3% of the companies that modified the technologies and 19% of those that developed new technology equipment shared their process innovations with other firms or institutions — often for no charge. (The most common reasons given for sharing an innovation were to enable a supplier to build a more suitable product or to gain feedback and expertise.)

The authors argue that such innovation-sharing is not adequately measured in current economic statistics — and is thus frequently overlooked in public policy, which focuses more on enabling intellectual property protection.

How important is collaboration to breakthrough innovation? And, conversely, how significant are the contributions of inventors who work alone? Earlier research on this question has shown conflicting results on the importance of lone inventors to breakthrough innovation. Now, in a recent working paper, Lee Fleming of Harvard and Jasjit Singh of INSEAD take a new look at this topic. Their conclusion, based on a study of U.S. patents, comes down in favor of the benefits of collaboration. When it comes to inventions, the authors conclude, collaboration reduces the probability of very poor results (perhaps because teams are better at screening ideas than individuals are by themselves) and increases the probability of very good results (perhaps because teams have greater diversity of knowledge that they can combine in new ways).

However, the authors note, their research doesn’t answer the question of whether the benefits of collaboration in innovation are worth the opportunity costs. In other words, a team may be more effective than one individual at generating breakthrough innovations — but that doesn’t necessarily mean that the team is more effective than the combined effort of all the individuals on it would be, if they were each working alone.

Related links:
“Breakthroughs and the ‘Long Tail’ of Innovation” (Lee Fleming, MIT Sloan Management Review, Fall 2007)
“Managing Innovation in Small Worlds” (Lee Fleming and Matt Marx, MIT Sloan Management Review, Fall 2006)
“Navigating the Technology Landscape of Innovation” (Lee Fleming and Olav Sorenson, MIT Sloan Management Review, Winter 2003)

How much should companies invest in innovation in difficult economic times? In a new article in The McKinsey Quarterly, Tom Nicholas, an associate professor at the Harvard Business School, looks to the Great Depression for lessons.

Nicholas examined U.S. patent applications by companies with R&D labs in the 1930s and found — not surprisingly — that the number of U.S. patent applications grew more slowly then than in the booming twenties.  What’s more, in the thirties, the number of patent applications fluctuated more in relation to the economy: After a year of economic growth, patent applications were apt to go up the next year and, conversely, were apt to drop after a year of contraction.   However, Nicholas points out, some companies that made savvy investments in innovation benefited: DuPont discovered and commercialized neoprene and nylon during the thirties, and Hewlett-Packard was launched then.

So, is it wise to invest in innovation in a downturn? For businesses with money and good ideas, Nicholas concludes, such periods can offer excellent opportunities.

On the other hand, it’s hard to invest in new ideas if you don’t have the cash. That’s a situation that some start-ups could face if they depend on venture capital or hope to gain it– given recent reports that some venture capital firms may have trouble collecting promised capital from their own investors and that there may be a shakeout in the venture capital industry.