Driving strategy

how leading companies are enabling open innovation

Stephen Townsend, Director, Global Alliances & Networks, Project Management Institute

Abstract

Bolstered by the increasing rate of change in many markets, organizations are seeking ways to get to market faster, deliver greater value to customers, and better manage costs. Open innovation, with an emphasis on collaborating externally and internally, has helped many organizations achieve those goals.

APQC and Project Management Institute jointly explored the linkages between strategy, innovation, and execution with five leading global organizations: Amway; British Telecommunications plc (BT); Cisco Systems Inc.; Corning Inc.; and General Mills Inc. The study identified 11 best practices employed by those organizations that effectively drive their innovation processes. Within those best practices are seven key knowledge nuggets to which project, program, and portfolio management practitioners should pay particular attention.

Introduction

All aspects of the innovation process—ideation, evaluation, validation, and execution—are important. Still, research organizations such as Booz & Co., the Boston Consulting Group, and PricewaterhouseCoopers continue to produce studies showing that execution performance is the most critical component of innovation. For example, the Booz & Co. 2012 Global Innovation 1000 study found that those companies that described themselves as highly effective in the early stages of innovation reported that being highly effective at idea conversion is more important to financial success than being highly skilled at generating ideas. This finding demonstrates that innovative ideas must be transformed into some end that drives business strategy to be of value to organizations. Organizational project management—which includes project, program, and portfolio management—is the system through which innovations are transformed from ideas into actions.

Aligning the Open Innovation Portfolio with Organizational Strategy

In addition to maintaining a focus on addressing the needs of the business, the best-practice organizations in this study ensure that open innovation efforts align with organizational strategy. This means that organizations include looking for innovation opportunities in adjacent markets that expand the business without moving in a radically different direction. The best-practice organizations also set clear expectations on the value that must come from new innovations. Many organizations that have advanced open innovation practices provide a process to review and integrate unanticipated, adjacent technologies found through open innovation that could add value.

PMI's 2012 Pulse of the Profession™ In-Depth Report: Portfolio Management found that highly effective organizations are twice as likely to look to portfolio management to enable innovation as those that are minimally effective. Highly effective organizations have staffs that spend 75% more of their time on portfolio management. In organizations where managers focus on strategic as well as departmental goals, 70% of projects meet or exceed their forecasted ROI.

Cisco Systems’ emerging technologies group seeks new innovations in markets adjacent to Cisco and in areas in which other parts of the organization are not investing. It focuses on the value that these new innovations can generate for the organization overall. However, the organization's revenue goal in expanding is an ambitious one: its emerging technologies group has a mission to cultivate new businesses with billion-dollar revenue potential. It set this goal because of the amount of revenue needed to make an impact on overall revenue for an organization the size of Cisco. The organization also seeks to generate value for the enterprise by seeking innovations that provide growth opportunities for Cisco's foundation and other businesses.

Amway also uses innovation as a means of staying competitive. The organization views innovation as a combination of creativity, potential value, and strategic fit. It uses innovation strategically in that it only pursues an idea that has a clear market and aligns with the long-term goals of the organization. Its innovation process focuses on bringing together a consumer need, a technology (including design, materials, process, or information), and an opportunity to create value for the business. Amway recognizes that it needs innovation because it does not have the resources that its much-larger competitors have to devote to internal product development; thus, it determined that open innovation could potentially facilitate US$48 million in new business every month and lead to 5% organic growth. Having an ambitious goal for the organization's open innovation initiative ensures that Amway remains focused on using innovation to remain competitive.

BT's core innovation processes focus on bringing concepts to market. BT's centralized innovation group is responsible for qualifying ideas after they have been sourced from an initiative. After ideas are qualified they enter BT's formal process for bringing concepts to market. BT executives measure benefits realization by how well BT packages existing and evolving services with market-facing strategies that meet customer needs. For example, BT's technology scouting initiative aims to find organizations with innovative technologies that BT can then package and offer to its customers. This goal is in line with BT's focus on providing new service offerings to customers at the lowest cost and with the best customer service. An example of how the technology scouting group provided value to the organization is BT's service offering Dolby Voice. BT's scouting group learned that Dolby Laboratories Inc. was developing surround sound technology that could be applied to phone calls. BT licensed this technology as a way of differentiating its audio conferencing services from that of its competitors. BT's innovation team therefore has a direct interface with corporate strategy. That strategy provides the portfolio inputs into the innovation system. The innovation system then authorizes strategic projects and programs for exploration and development.

Integrating Innovation and Execution Are Critical

The PMI-funded Best Industry Outcomes study found a clear connection between project and program management and innovation. As the Best Industry Outcomes study found, project and program management involve:

…planning and then creating some product or service that at the point of inception exists only in the imagination of the person or people who are promoting it. The process of planning these activities, therefore, involves imagining a series of steps that may or may not work out as planned, each of which may have unforeseen consequences. It could be described as a process of enfolding an envisaged future into a known present, and can be conveniently labeled as “innovation.”

Project and program management capabilities are core to enabling the delivery of innovation. A 2012 Franklin Covey/PricewaterhouseCoopers LLC global study on the current state of project management revealed that as many as 97% of respondents believed project management was critical to business performance and organizational success, and 94% believed project management enables business growth. PMI's 2013 Pulse of the Profession™: The High Cost of Low Performance study found that when standardized practices are used throughout the organization, 70% of projects meet goals and business intent. When they are not used throughout, only 47% of projects meet goals.

The best-practice organizations in our study show that successful open innovation efforts are often driven by a dedicated group of staff members. Seventy-five percent of responding best-practice organizations from this study have a group of staff members specifically dedicated to open innovation. One benefit of having a dedicated group for open innovation is that it enables an organization to execute an agile open innovation strategy. Without such a group an organization may struggle to maintain direction and achieve continuity. Another benefit is that this group is the clear owner of the open innovation process. Although this group may work closely with others in an organization, it maintains accountability for open innovation initiatives. It is worth noting that despite their ownership of open innovation, the dedicated groups for the best-practice organizations in this study do not own product or service development. Instead, they act as facilitators that connect business units with potential sources of innovation.

Without calling itself out as such, BT's innovation process is highly projectized. Project managers participate in most aspects of the innovation process so that project flow is maintained and helps accelerate speed to market. Enhanced flow reduces the concept-to-market time frame within BT.

BT's process begins with an open-ended idea stage that involves sourcing and filtering ideas from internal and external sources of innovation. BT moves a concept into the proposal stage when it is deemed worthy of consideration for a business case. Once this stage is complete and the relevant BT business unit has validated the idea, it moves into the business case development stage. Once trials are completed and a full business case is developed, the business unit responsible for the technology confirms project approval, and the delivery stage begins. The process ends with a full commercial launch for the product or service.

BT has also established an accelerated “lite” development process for ideas that do not need complex validation processes. This accelerated process facilitates a “fail fast, fail cheap” environment that makes product market trials more efficient.

At Amway, a formal, enterprise-wide process guides innovation and can be applied to multiple types of innovation, including a business model. During R&D exploration, Amway narrows its portfolio and creates a project proposal and business case for each idea. At key milestones its technology review board decides which ideas move forward and receives additional funding. In the product development phase, the project management function creates a project brief, which is a contract among the development groups, Amway's marketing function, and representatives from the markets where the product will be initially launched. The project brief defines each idea further and lays out details regarding scope, costs, and the timeline for development and launch. The business sustaining phase of Amway's innovation process begins once the product is launched and addresses ongoing evaluation and continuous improvement.

One important observation about Amway's integrated process is that there is an overlapping transition period between phases rather than a sharp handoff. This gradual shift helps team members with critical knowledge ensure that all relevant information is communicated and that the receiving team members have time to absorb the information and preserve continuity in the project. This clear acknowledgment of the need to capture and transfer knowledge is echoed in APQC's knowledge management research.

In addition to project and program management, Lean principles have application within innovation efforts. Flow is one of the key Lean principles. Flow means that systems and processes are structured to ensure a smooth transition from one developmental phase to the next without interruption, rework, or stoppage. Flow leverages the resources dedicated to the project by ensuring that the right people are involved at the right time to keep the project's forward progression. Flow also reduces non-value-adding activities, such as handoffs, redundant tasks, and waiting. Integrating innovation with program/project management processes helps to ensure a smooth flow from ideation to commercialization.

Organizational project management is based on interdisciplinary integration. Team members from knowledge management, innovation, project management, engineering, product development, operations, marketing, legal, acquisition, and other functions must contribute and collaborate to achieve business results. Organizational project management must enhance open innovation practices. To do that, organizations must develop and sustain project management skills at world-class levels.

Strengthening interdisciplinary project teams is an important approach organizations have deployed to increase their agility. Why? Interdisciplinary project teams ensure that the people with the right talents, skills, and knowledge collaborate to drive execution and find creative solutions to challenges that may surface during the project.

The best-practice organizations in this study recognize those connections and have created integrated links into their processes. BT, for example, is in an industry in which speed to market is critical. Time lost to hand-offs and knowledge transfer interrupts flow and can affect project performance. Therefore, BT engages project managers in the early stages of evaluating new ideas to enhance a smooth flow from ideation to development to launch. Innovation staff, engineers, project managers, marketing team members, and others work shoulder to shoulder on project execution.

Leveraging Engaged Executive Sponsors

An engaged executive sponsor—with a vested business interest in the project from kickoff to close—can mean the difference between success and failure. Indeed, one of the most common reasons why projects fall short is a lack of executive sponsorship and management buy-in, according to KPMG's 2010 New Zealand Project Management Survey. Despite the strategic importance of the role, the KPMG survey found that 68% of companies do not always have an effective sponsor. In addition, PMI's 2010 government program management study found that 81% of program managers at U.S. government agencies said that strong support from at least one executive-level sponsor had a high impact on program success.

Executive sponsorship of strategic projects is critical for program and project success. PMI's 2013 Pulse of the Profession™ :The High Cost of Lower Performance study found that more than three-quarters of projects (79%) at high-performing organizations enjoy active project sponsors, compared to less than half (43%) at low-performing organizations.

Enthusiastic and engaged senior leaders can play a vital role in enabling a successful open innovation initiative and help accelerate a shift in the company's culture toward openness and collaboration. Executive sponsorship can help remove roadblocks and drive participation in open innovation efforts. This support can help managers spend less time overcoming barriers and more time enhancing innovation productivity. New open innovation programs often have an R&D manager or director rally people to participate across the organization, as well as develop internal and external networks.

Corning's CEO has hands-on involvement in innovation. The CEO sits on its growth and execution council, to which program managers present open innovation projects. Having the exposure to and input from executive leadership helps provide direction for scientists in the organization. It also encourages scientists to create more innovative ideas to present to senior leadership.

Cisco has found that having strong senior executives as champions elevates innovation and ensures that it happens. Executives at the most senior level evaluate company-wide innovation, and it is customary for senior leaders to promote new ideation challenges and send out broad communications to drive employee engagement in innovation. Cisco's Services Innovation Excellence Center was formed in 2010 to provide a vehicle for employees with valuable knowledge to showcase their ideas. Within two years, the program has grown to having several senior vice presidents as sponsors and drawn attention from others.

Within BT, executive sponsorship is critical for successful innovation. Business unit executives jointly invest with the innovation team in research and development. That support and collaboration early on ensure that innovation projects have the resources and executive oversight required to proceed.

Since 2005, General Mills has conducted innovation reviews twice per year in which executives engage with business leaders to gain greater insight into product development projects. The reviews help to ensure that the executives understand the projects and have input into the product pipeline.

Tapping the Right Talent is Critical for Success

Organizations in which talent management aligns with organizational strategy have an average project success rate of 72%, whereas organizations in which talent management is not effectively aligned to organizational strategy have an average project success rate of 58%, according to PMI's 2013 Pulse of the Profession™ In-Depth Report: The Competitive Advantage of Effective Talent Management. Those organizations understand the need to provide training in soft skills such as leadership, conflict management, and negotiation (85%) while also making training a priority (84%). They also have active performance management systems (66%) and integrate talent management across the organization (62%).

The results of this study indicate that best-practice organizations look for specific skill sets when staffing their open innovation teams. The employees sought for these teams tend not to be new hires to the organization. The best-practice organizations in this study look beyond the skill sets of a traditional R&D employee to include the ability to work with others in the organization to identify and communicate innovation needs. Several of the best-practice organizations also look for individuals with an entrepreneurial mindset to ensure that their innovation teams can work creatively and quickly with limited resources.

Because of the need for open innovation staff members to facilitate collaboration, identify needs, and enact change, these employees are often developed within the ranks rather than acquired from outside the organization.

BT has developed a set of criteria for the staff members in its centralized innovation group. All members must have enough experience with technology to articulate to other BT employees how new technology features will translate into business benefit. They must also be able to establish relationships with both internal stakeholders and external partners. Open innovation staff members who work with external partners must have project management skills that include relationship development in addition to the more traditional process skills. Staff members who work with innovation activities involving other BT employees must be connected within the organization so that they can help keep employees engaged.

BT also has a focus on talent management that extends beyond just project management skills and capabilities. Being a highly technical company, BT targets talent development in a way that ensures project managers bring more systemic talents to their projects. So project managers must have strong stakeholder engagement skills, demonstrate an understanding of business strategy in how they approach their work, display inquisitiveness and openness to innovation, and have the ability to communicate effectively with senior-level executives. Most importantly, BT sees its project managers as translators: they translate customer needs and requirements in high-level terms into prototypes the company can turn into new offerings.

At Amway, the open innovation team is part of the organization's R&D function. Most of the team members are experienced Amway employees with long tenures in product development. The staff members in this team, therefore, have knowledge of both the organization and of its product development process.

Managing Change

There are many change management principles associated with innovation. At the highest level, strategy execution occurs in a dynamic environment. Thus, the need to manage the changes within that dynamic environment, maintain strategy alignment, and ensure cross-organizational integration with strategic change are critical capabilities for successful execution and benefits realization across a portfolio of programs and projects. Similarly, organizations need to effectively and smoothly assimilate the impact of change resulting from the implementation of the projects and programs. Both objectives require organizational change management.

Organizational leaders are starting to respond to the need for more effective change management. PMI's 2012 Pulse of the Profession™ In-Depth Report: Organizational Agility found that organizations with strong change management practices have high to moderate levels of agility. Those organizations effectively detect and evaluate changes in the external environment (52% compared to 7% of organizations that are minimally effective) and identify and leverage significant changes (39% compared to 12% for minimally effective organizations). Those results echoed findings from the 2011 Pulse of the Profession™ study, which found that 71% of portfolio and project management office leaders within organizations felt that managing change was one of the most critical success factors for projects.

Open innovation itself is a change to the way most organizations have conducted research and development. To get employee buy-in, an organization looking to collaborate with external sources has to carefully manage the change. The organization's leaders must encourage buy-in across the organization and address fears that open innovation will replace peoples’ jobs or reduce their roles.

APQC's 2005 study Realizing Change: Knowing When and How to Successfully Change found that best-practice organizations gain buy-in for change by having a commitment from the highest levels of the organization, aligning change to the core strategy, having a model or methodology to guide the journey, and communicating the strategic message of change and a change culture. Change rarely occurs within an organization without some cultural resistance.

Amway put forth a great deal of effort in managing change within its organization. When Amway decided to launch its open innovation program, the open innovation team had to find a way to engage senior leadership, managers, and scientists in the product development function. Because Amway was successfully producing new products and growing, many of the organization's members did not understand why there was a push to change existing processes. In order to facilitate change, the open innovation team created a presentation that promoted the benefits of open innovation and highlighted the reasons why Amway needed to make adjustments to its approach. However, changes to Amway's culture could not occur without senior leadership support driving the change. Even though its open innovation initiatives began at the grassroots level, Amway found that its open innovation team had to make a formal case to leadership to ensure that there was ongoing support and funding for the initiative.

General Mills’ attitude regarding innovation has shifted from a focus on only sourcing innovation internally to a focus on actively seeking innovation from both internal and external entities. Prior to 2005, company policy was not to evaluate, accept, or fund ideas generated outside of the organization. However, after recognizing that its focus was leading to mainly small, close-in product line extensions, General Mills benchmarked externally and researched other innovation programs to compile best practices. The strategy and innovation group then adopted its current organization of smaller catalyst teams to support the implementation of these best practices.

Corning has changed its culture by encouraging its employees to share new ideas and collaborate across teams in order to increase efficiencies, reduce time to market, and realize ROI and operational goals. By widening its external strategic alliances and partnering with suppliers and research firms, it has been able to sustain a competitive advantage and deliver innovative products to its customers.

Effectively Managing Risk in External Relationships

Like project management, innovation processes may sometimes benefit from external inputs and supports. Critical external support can come through partnerships—that is, structured relationships in which two or more parties exchange services, products, technologies, knowledge, or other capabilities in exchange for something of mutual benefit. There are two key partnership types that relate to innovation and project management: suppliers and collaborators/alliance partners.

Both supplier and collaborator structures add elements of risk to innovation projects. Both introduce multiple stakeholders, each of which may expect a different outcome from the project. Key risks in this area include goals that are not shared among stakeholders, hidden agendas, and imprecise terminology that affects communication and understanding. Partners involved in groundbreaking projects that neither party has attempted before may face ambiguous project elements, unpredictable risks, and nonlinear processes. Partnerships can generate structural stresses as the partners attempt to integrate their staff, processes, and technologies. All of these uncertain elements create new risks for the innovation project.

A good example of the need for partnership alignment comes from the automotive and IT sectors. Automotive companies are now embedding third-party software into the technology systems of their products to provide greater value to customers. With the rapid pace of technological change, software providers that want long-term relationships with automotive companies must ensure that their software remains aligned with the technologies their clients embed in their vehicles. So the relationships between software and automotive companies require long-term management and strategic alignment in order for both to achieve the full benefits of the collaboration.

Among the best-practice companies in this study, BT often leverages services developed by third-party companies as part of its innovation practices. BT focuses on licensing and adapting existing technologies rather than investing in technology development. The creation of BT's Dolby Voice audio conferencing service is an example of this. Rather than develop the technology within BT, the organization invested in an adaptation of an existing service. For BT and its partner, both parties are at risk in that relationship if either partner changes its technology platform, software, or infrastructure in such a way that it is no longer compatible with that of the other.

Ensuring that Business Benefits are Realized

Strategy is a plan of action for achieving the vision and mission of the organization. It translates the vision and mission into benefits and changes that will deliver maximum value to stakeholders, thus ensuring continued growth and a sustainable competitive advantage in a chosen market. In PMI's perspective, benefits, value, and changes from implementing organizational strategy may be realized in any or all of the following key areas:

Exhibit 1 – Benefits, value, and changes from implementing organizational strategy

Benefits, value, and changes from implementing organizational strategy

Measures allow an organization to gauge the effectiveness of its open innovation efforts. These measures must be compelling in order to capture organizational interest and tell a story that people will listen to. The number of ideas submitted and the rates of implementation and adoption of ideas are important measures. However, every best-practice organization participating in this PMI/APQC study has fewer than 50% of its ideas survive the filtering-out process. In addition to the hard measures for open innovation, the best-practice organizations also look at softer measures or indicators to measure and improve their performance in open innovation.

Cisco's emerging technologies group focuses on building new markets and pushing innovations forward faster. Projects are tracked through rigorous timelines. Cisco uses many different measures depending on the phase of the innovation. To avoid projects being killed too early, initial measures for startups are not the same as measures used in the core business; however, Cisco measures customer satisfaction and product quality at each stage.

Although its measures differ from those of the emerging technologies group, Cisco's Services Innovation Excellence Center maintains a focus on the business impact of innovation. The center's key metrics include the financial and non-financial impacts of implemented ideas, as well as innovation maturity level and progress from awareness, to competence, and then to excellence.

Executives and business unit leaders at General Mills meet twice a year to discuss the product pipeline, set expectations and evaluate performance using new product measures. Measures reveal product sustainability in the marketplace, product sales, and an analysis of margin and profit. General Mills is also developing measures to evaluate the quality of an innovation partner's service and its innovation potential.

BT uses a balanced scorecard approach to its innovation measures and sets both leading and lagging measures for the different stages of the innovation process. The organization recognizes that balancing short-term successes with long-term thinking is a specific challenge when it comes to measuring innovation. Measuring the number of ideas across certain milestones or phases is also important because it offers value to individual innovation initiatives.

Corning's operating divisions use a variety of measures to track open innovation success. Aside from measuring the percentage of new products introduced to the market in the last three years and the number of patents filed by its scientists, Corning evaluates improved efficiencies and product success in the marketplace. Corning assesses the outcomes of its projects to determine if objectives were achieved, costs were avoided, capital expenses were reduced or avoided, new inventions were created, and new thought leadership was established. Therefore, managing this knowledge and maintaining its portfolio of ideas is vital to the organization's innovation model.

At Amway, after-action reviews allow its open innovation team to evaluate what worked, what did not, and why. Even when a project is discontinued, something is learned, and Amway tries to focus on this aspect when projects are eliminated or put on hold. The Amway open innovation team reports that it is not uncommon for a project to be shelved and then later resurrected and brought to market.

In today's increasingly competitive global environment, organizations are constantly seeking ways to improve their capabilities and performance in the delivery of strategy. So although business measures and value are critical metrics of innovation, organizations should also evaluate their execution performance. A 2010 Franklin Covey/PricewaterhouseCoopers report Execution-Focused Leadership: Balancing Short-Term Survival with Long-Term Sustainability found that CEOs identified their organizations’ three greatest challenges as: excellence in executing strategy (55%); consistent execution of strategy by top management (47%); and speed, flexibility, and adaptability to change (47%). However, most CEOs did not feel that their organizations were particularly effective at executing their programs and projects. Since execution performance affects business measures and value, it is critical that organizations evaluate that performance and target underperforming areas for improvement.

Summary

Open innovation is helping to revitalize organizations’ ability to remain competitive in today's volatile market. With speed to market and value to customers driving organizations to deliver more, faster and better, executive leadership and staff face significant pressures to deliver. An effective innovation process is one critical delivery component—it is the life's blood of an organization's competitive capability. Project, program, and portfolio management are the circulatory system that helps the innovation process to produce the outputs that achieve organizational strategy and deliver the intended business results. Organizations that couple the two together effectively greatly increase the likelihood that they will remain viable, competitive players in today's unpredictable business environment.

References

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This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2013, Marisa Brown
Originally published as a part of 2013 PMI Global Congress Proceedings – New Orleans, Louisiana

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