“Innovation is the central issue in economic prosperity.” — Michael Porter
To compete globally, companies must innovate on a global scale. Corporate innovation can be defined as “new ideas plus action that results in a new product or service, process improvement, or business model.” In an increasingly global economy, this often requires:
- Collaborating between widely dispersed locations;
- Discovering fresh ideas far from headquarters;
- Learning about customer needs in fast-growing but unfamiliar markets;
- Battling energetic new competitors that seem to have come from nowhere;
- Rolling out products simultaneously in several regions; or
- Choosing deliberately to enter the world’s most competitive markets in order to test new products or services.
Companies based in countries as varied as the U.S., Finland, Italy, Japan, Korea, or Singapore have highlighted the need for innovation, deeming it critically important to ensure their success and sustainability. Increasing numbers of Chief Innovation Officers are charged with fostering innovative corporate environments. Innovation is becoming recognized as an organization-wide concern — not just the charter of Research & Development, but a complex process that takes a new idea from conception to implementation or commercialization. Yet, recognizing and valuing innovation does not necessarily translate into know-how for creating a culture of innovation in a domestic context, let alone within a global organization. Companies struggle to turn a desire to innovate into global systems with the leadership, structures, processes, and practices that support innovation in action.
There are a variety of ways in which working in a global business environment makes innovation even more complex.
A Success Trap with Wider Jaws
A commonly cited obstacle to breakthrough innovations is the so-called “Innovator’s Dilemma,” or “Success Trap.”1 This occurs when the patterns of success that have been such a vital part of a company’s history to date and have become ingrained in its culture – for instance, commitments to certain technologies, customer relationships, price points, service practices, employee training, and so on – become precisely what impedes movement into technologies and business practices that are likely to become the next major growth engine.
However, for a company involved in many major markets, there may be a host of potentially misleading variations on this theme, ranging from countries where the old products and practices work just fine and still have a long shelf life even beyond that in the company’s home market, to countries which may be the source of the next new disruptive innovation that is still invisible back home (e.g., mobile phone features in use among Japanese or Finnish consumers have long run ahead of consumer behavior in the U.S.). So while feedback from some markets abroad may reinforce an established business model by extending a profitable product cycle for years even beyond its domestic market viability, a new competitor from a different market may also blindside your firm with a disruptive innovation that is still beyond the horizon of your home country consumers. In short, the jaws of the Success Trap become even wider, and you can be lulled to sleep and rudely snared simultaneously.
Business Model Innovation: Linking Functions and Regions
The most powerful innovations combine novel products and/or services with innovations in business process as well as innovative marketing. Such a combination requires R&D staff to work seamlessly with Manufacturing and with Sales & Marketing. This is unlikely to happen automatically, as each of these functional groups often has its own unique sub-culture and values that do not guarantee the success of such interaction. But when all three functions work in concert, the net result can be an innovative business model with unique competitive strength. Toyota, GE, Apple, Infosys, or Google have been successful not just because they had great products or services, but because they have combined innovative products and/or services with process excellence and with marketing skills that present a compelling package to customers.
Carrying out such cross-functional collaboration is difficult enough within one country and one market. It becomes vastly more complex and difficult when such teamwork needs to occur across many different regional and country operations, each with its own capabilities, customer needs, and views of how best to proceed. The reality may involve hundreds or even thousands of employees from each function trying to understand and coordinate activities both within the same function and across functions as well.
An environment in which innovation is cultivated at all levels and at every process step acts as a greenhouse; new ideas germinate and bear fruit far more quickly than they would in a location where even fertile seeds fall on dry ground. Here are steps that people in a variety of leadership roles can take – whether they are C-Suite executives, functional heads, human resources professionals, or team leaders – in order to foster such an innovative environment on a global scale and help to address the kinds of challenges described above.
Is this country a marketplace that has leading-edge technologies and world-class customers, and what are the capabilities of the local organization? Subsidiaries naturally have different degrees of innovative potential according to their size, employee mix, and business objectives. Depending on the type of subsidiary and the nature of the country’s market, the proper approach could be to simply disseminate an existing technology or business model with a bit of local adaptation – such relatively modest forms of innovation are nonetheless important to business growth in markets around the world. At the same time, having highly skilled employees in distant locations who can function as full-scale participants in leading-edge research and development activities enables round the clock project work at a pace and scale unimaginable even a decade ago.
It is important for corporate leaders to think carefully about the strategic role of their subsidiary operations in the innovation process, including both how they can leverage investments made elsewhere and how subsidiary employees themselves could be the source of new products or processes. Although not every employee around the world will be a corporate scientist, it is hugely motivating for many to be aware of practical ways in which they can contribute to corporate innovation, and how they might enhance their capabilities to take part in more significant ways. These employees are the ones who can enable an organization to both extend the profitable life of established products and provide an early warning about new competitors in their local markets who might soon go global. Useful forms of subsidiary innovation include:4
B. Product Development
Embracing the “Other”: Leaders can choose through the values they articulate and personally model to embrace global contacts that will accelerate the pace of innovation. Research has shown that diverse teams are less likely than monocultural groups to succumb to “groupthink,” and they are also more readily able to generate creative ideas. Contact with other people, ideas, markets, and customers provides rich soil for innovation, and leaders play a key role in instilling this principle in the minds of their employees. Many actions are useful to make the embrace of strange and unusual sources of new ideas a corporate habit. These could include regular use of global teams for vital projects, travel to new markets for the express purpose of learning rather than teaching, periodic events such as technology exhibitions that bring people from various locations together, and the creation of formal and informal systems for generating and reviewing innovative ideas through different cultural lenses.
The Who, What, and How of Innovation Strategy: Corporate leaders, however well-intentioned, are typically most comfortable conferring on strategy with the people they know best. It might not occur to them to ask who else should be participating in the strategic discussion in order to encourage innovation on a global scale, especially people from other countries who speak different languages, or even underrepresented minorities from their own country. In the world of innovation strategy, blind spots are just as important as blinding insights. In addition to “Who else should we involve?”, they can ask themselves, “What else should we be looking at?” Are there innovative competitors from another part of the world that actually pose the greatest future threat, or are there vital sources of information or data that can only be tapped far from headquarters? And finally, once all the right people are present in a strategy session examining a rich stream of information, is there a process in place – a “How” – that allows each person to be heard from who can contribute to a truly innovative strategy? Expert facilitation is often essential to ensure that old communication habits and processes do not override the potential contributions of everyone in the room.2
Goals of International Assignees: It is tempting to focus on an international assignment as a way to put in place somebody familiar who can get the job done. But those who select and prepare such assignees should also consider how to position them to develop the innovation capabilities of individual subordinates and the subsidiaries in which they work. Are they tuned into the aspirations and talents of existing employees along with the innovative potential that new people could bring into the organization? When properly positioned, assignees play a pivotal role in bridging innovative efforts across both functional and geographic boundaries. A first step may be for them to assist subsidiary employees in plugging into the ocean of expertise that already exists in the company. Organizations should also consider assignments for high potential innovators from any location that will put them in contact with hot projects that allow them to learn while carrying out their tasks. The effective contribution of international assignees to the innovation process requires specific performance objectives that make this a priority plus ongoing reinforcement through global succession planning, identification of innovation competencies, developmental opportunities for talented employees, use of multicultural and cross-functional teams, and so on.
Subsidiary Innovation: Distance from headquarters has advantages as well as disadvantages. While it could mean “out of sight, out of mind,” there may also be a freedom to explore new technologies or ways of doing business that is not available to company employees who are closer to the center; headquarters-based staff departments tasked with enforcing corporate policies sometimes unintentionally impede innovation through their vigilance. The ability of subsidiaries to make quick decisions and get immediate feedback from customers can compensate for lack of resources, and enables them to innovate in ways that others cannot.3
- Product packaging: A new package of products or services that incorporates a local language message along with a trusted symbol or logo will probably sell better than one that does not.
- Sales & marketing techniques: Local customers tend to be most responsive to products and sales approaches that incorporate their values, customs, and unique requirements. At the same time, there are sometimes opportunities to introduce foreign products that have appeal precisely because of their foreign image.
- Concurrent development: Even when products are invented at headquarters, involving employees abroad in product development efforts from a relatively early stage can enable better fit with local needs, more rapid product introduction, faster local regulatory approval, and a greater return on investment.
- Use of existing technologies: There are often technologies sitting on the shelf at headquarters that could be turned into viable commercial products in other markets. Subsidiary personnel who have both knowledge of local customer needs and the ability to assess technology at headquarters are better positioned than anyone else in the company to develop these technologies for their own markets.
- Product adaptation: Sometimes relatively small changes in the shape or function of a product based on the input of subsidiary employees suddenly make it far more attractive.
- Acquisition of technical information: A number of companies make a very deliberate practice of placing offices in locations where they can gather new technical information and channel it rapidly back to researchers elsewhere.
- Co-design: The inclusion of subsidiary employees is typically a source of fresh thinking and better knowledge of global customer needs.
- Original inventions: Subsidiary researchers might not have all of the equipment or the breadth of technical expertise available to headquarters colleagues, but their relative freedom from bureaucratic constraints and the stifling weight of preexisting practices gives them a fresh starting point.
- Subsidiary “invention” need not be confined to new products or services. Again, because of their distance from headquarters, subsidiaries are often in the position of being able to pilot new organizational systems and processes – for example, a new marketing campaign that fits local tastes while supporting the company’s global brand image, a process for recruiting or retaining qualified employees, or manufacturing techniques that are more efficient.
Corporate Heroes: Every company has its stories and heroes, and corporate leaders can ensure that these provide aspiring innovators worldwide with encouragement and models for success. When good examples exist, are they broadcast globally in a manner that will catch the attention of employees with diverse backgrounds and languages? And are the stories themselves from around the world? Hero status need not be confined to individuals. What can be done to find and disseminate the best practices of innovative project teams engaged in concurrent engineering, cross-functional cooperation, or hand-offs between product development and commercialization? Meanwhile, are there stories circulating that contradict these positive messages, and how might their impact be mitigated? Leaders at all levels in the organization can identify and spread the word about innovation in their midst so that the perception of such activity can begin to match reality instead of lagging it, and employees have a more specific idea of what role they can play, however modest.
Social Innovation: The world’s hottest growth markets in places such as China and India also face deeply troubling socioeconomic gaps, horrendous environmental problems, and a host of other pressing issues that go beyond traditional definitions of business. The future gold standard for innovation is already emerging in some locations where companies such as Honda or Infosys have integrated world-class product or service innovation with tangible social contributions, undertaking initiatives such as reforestation or increasing village literacy (see Figure 1).5 Leaders who can understand the scope and severity of the social challenges in the markets their employers serve and who can integrate product and social innovation are the most likely to attract customers, talented employees, and a well-deserved reputation for global citizenship that will enhance their future prospects in world markets. In an age of ever more alarming human and environmental crises, the task of growing ideas increasingly means that companies must address universal human issues at the same time they furnish products or services that customers are ready to buy.