Overcoming the Global Innovation Trade-Off
How
to maintain creative complexity without the limitations of co-location.
For their global innovation
strategies, many companies have long relied on their ability to assemble people
with key capabilities and critical knowledge. They typically do this through
co-location: bringing together designers, engineers, technologists, and other
creative thinkers in a few innovation centers at home and in lead markets. The
new products and services they create are then disseminated to markets across
the world.
But as the range of knowledge needed
for global innovation becomes wider and more varied, co-location is no longer
sufficient. Leading innovators are increasingly seeking competitive advantage
by combining knowledge and capabilities from many different places. Consider
Essilor International SA, the world’s largest manufacturer of ophthalmic
corrective lenses. It engineers its lenses in Germany, makes blanks from
high-transparency polymers in the U.S., and adds micron-thin coatings in Japan.
Essilor taps into the best capabilities around the world to create, develop,
and manufacture leading-edge products.
Very few companies, however, have
succeeded in internationalizing their innovation strategies enough to draw on
the globally dispersed, complex knowledge needed for today’s products and
services. Instead, they use their international networks only to arbitrage
routine tasks, and fail to exploit opportunities for global innovation. Our
research suggests that the reason for this failure is the commonly accepted
trade-off between complexity and dispersion. The challenge is to overcome this
trade-off: to build a worldwide R&D team that can master the complexities
of robust innovation.
Many managers recognize that the
knowledge best suited to dispersed global innovation is explicit, codified, and
modular. An example is provided by the Internet-based software development and
analytics company TopCoder Inc. Because of the highly codified nature of the
knowledge it deals with, this company can break all its clients’ software
development projects into relatively simple pieces. Then, through a process of
open innovation and bidding for modules, TopCoder taps into a global community
of software developers to deliver projects for a range of clients.
Even when knowledge isn’t explicit,
some firms can achieve dispersed innovation by putting it into more simplified,
explicit forms. The India-based services firm Infosys Technologies Ltd.
structured and codified much of its system integration and facility management
knowledge. This allowed the company to develop a global delivery model serving
a client base around the world.
Unfortunately, in most industries,
the knowledge that is critical for innovation is collective, tacit (not easily
codified), and locally rooted (not easily managed across long distances).
Simplifying it doesn’t always work. Making tacit knowledge more explicit tends
to diminish its richness, timeliness, and uniqueness, thereby seriously eroding
or even destroying its value. Thus, many companies turn to a different
approach: They co-locate more of their researchers at one single knowledge
source so these people can collaborate more intensively.
For example, the perfume industry is
very slow to change; brand share remains relatively constant over decades. For
20 years, Japanese cosmetics group Shiseido Company unsuccessfully tried to
build a global perfume business with marketing staff and designers in France
and product development in Japan. Shiseido initially failed to recognize that
most of the complex knowledge needed to develop, manufacture, market, and
package perfumes was rooted in France, the world’s leading perfumery market and
competence cluster. Eventually, Shiseido realized that it had to connect its
staff more closely with the critical knowledge it was lacking; it co-located
its entire perfume business in France. This move paid off. It allowed Shiseido
to develop such successful global perfume brands as Jean Paul Gaultier, Issey
Miyake, and Zen.
But both simplification and
co-location fall short of the ideal: innovation of products and services
that involves the free exchange of tacit knowledge among people dispersed
around the globe. As long as firms are bound by the complexity– dispersion
trade-off, the opportunities to create value and competitive advantage from
global innovation will be limited.
Fortunately, our research at more
than 50 global companies over the last few years suggests that it isn’t
necessary to remain hostage to that trade-off. Instead, innovation leaders can
take a third approach. They can leap to the upper curve of the exhibit: They
can redesign their innovation practice to enable far-flung people to work
together on complex ideas. This transition can be made by optimizing three
different facets of innovation, generally at once. First, build a more compact
and agile innovation footprint. Second, develop the capabilities, processes,
culture, and structures needed to support rich communication. Third, boost
support for collaboration in innovation projects, both internally and with
external partners.
Through the experience of a number
of companies, general principles are emerging for making each of these facets
work.
The innovation footprint. Limit the number of physical sites in an innovation network
to those that contribute unique and differentiated knowledge. As more sites are
added to a network, the marginal costs increase, because of the greater costs
of management, communication, and coordination. The additional value to innovation
that these sites might bring is likely to diminish because of duplication and
redundancy. The optimal number of sites in an innovation footprint is as many
as you need, but as few as you can manage.
The ideal innovation footprint
should also be flexible enough to help find and access new sources of market,
process, or technical knowledge, and easily disengage from obsolete sources. To
extend their compact physical footprint, firms can adopt short-term approaches
that might include employing open source intermediaries to fill specific
knowledge gaps, collaborating with more geographically dispersed partners, and
organizing learning expeditions to access interesting sources of knowledge.
Communication and receptivity. In a typical co-located environment, combining complex
knowledge is straightforward. It takes place through an informal, reciprocal,
and iterative process of interaction, bolstered by the shared context and
norms, as well as the language of a single place. But when innovators are
separated by distance, time, and culture, communication becomes a serious
challenge. The key to overcoming this challenge is a full array of
communication tools, processes, and mechanisms, replicating as closely as
possible the richness of in-depth local communication.
This can be achieved in part through
information and communications technology–based tools that are part of the
everyday workflow — Web meetings, integrated engineering platforms,
knowledge-sharing applications, forums, communities of practice, social media
platforms, and so on — together with regular periods of temporary co-location
to build trust and familiarity among dispersed teams.
Companies can also deploy people
with a multicultural background or experience to interpret and translate
complex knowledge among different contexts. Many leaders recognize the value of
such people, but few companies have put the career structures and rewards in
place to develop these critical skills.
In many companies, knowledge
hoarding is common. But “not understood here” can be as big an impediment to
knowledge sharing as “not invented here.” To overcome these barriers may
require a grassroots change in corporate culture. Beginning in 2000, the Xerox
Corporation deliberately transformed its secretive, patent-based culture to one
of open knowledge sharing across the group. This began with the adoption of an
open source platform called CodeX that made code available for reuse across the
company. By hosting projects on the platform, engineers experienced the
benefits of knowledge sharing. Today, the culture at Xerox embraces an
unusually high level of sharing and collaboration; for example, the website open.xerox.com invites
public scrutiny of its latest innovations.
Collaboration. Many firms have tried to get people working together on
global innovation projects. They typically fail when they transfer best
practices and skills from a co-located site to a more dispersed environment.
Globally dispersed projects require different competencies and processes, plus
a strong project management organization and the active involvement of senior
management.
When projects extend beyond the
boundaries of the firm to involve external players, an even greater set of new
capabilities is required — to find external innovations, bring the players on
board, and manage the expectations and contributions of complementary partners.
For example, when Intel launched WiMAX (the wireless broadband standard), it
initially partnered with a few other companies. But over time, Intel had to
recruit a wider ecosystem of players to supply compatible infrastructure,
devices, and services.
Experience shows that innovation
doesn’t have to be constrained to the complexity–dispersion curve.
Implementing the necessary changes is challenging and can take time — but it is
one of the best ways to position an innovative company for competitive
advantage in the future.
by Yves Doz and Keeley Wilson http://www.strategy-business.com/article/00145?pg=all
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