As domestic markets mature and global competition increases, organisations face the challenge of becoming more customer and service-focused to reach their profit goals. Many organisations have turned to innovation as the key to producing new products and services. To implement innovation strategies, organisations usually focus on increasing investment in research and development. Australian business spending on R&D is at its highest level, yet many government and business leaders have called for Australian firms to dramatically increase their rate of R&D investment to maintain global competitiveness. Is more R&D the solution to making Australian organisations more innovative?
There is growing evidence that simply investing in R&D does not guarantee that firms achieve high levels of innovation. Innovation is broadly recognised as a two-part process that encompasses the creation of new ideas and the harvesting of these ideas to create valuable products, services and processes. R&D investment may help organisations develop new ideas but that does not necessarily lead to successful idea implementation.
Research shows that more than 50 per cent of organisations' attempts to implement important technological and administrative changes end in failure. A Strategyn survey estimates that in Australia alone, more than $10 billion annually is wasted on research that is never commercialised. There is a difference between invention and innovation and managers can never assume that a great idea will automatically yield an innovative product or process.
A research study I conducted with associates at the University of Maryland and American University suggests that although R&D may be a necessary condition for innovation, it is the way in which organisations combine - or bundle - R&D with other complementary knowledge resources that determines success.
The study examined the patent productivity (an important measure of innovation output) of 101 US-owned Fortune 500 high-technology companies over 11 years. It found that organisations which combined high levels of R&D with the development of internal legal expertise through the hiring of intellectual property lawyers produced many more patents than R&D-intensive firms that did not possess this internal expertise.
By meeting regularly with inventors to discuss their research projects, internal intellectual property lawyers were able to identify early on those projects that had the greatest potential for producing valuable intellectual property - something the inventors themselves often could not ascertain. The development of this complementary resource enhanced the ability of organisations to benefit from their R&D.
The study also found that organisations in which top management teams contained people with expertise in patent law were more effective at producing patents through the bundling of R&D and legal expertise than organisations that did not. Executives with patent expertise were able to bring more organisational focus to converting R&D into intellectual property and helped develop processes that enhanced communication between the R&D and legal areas.
In addition to recruiting individuals with technological expertise, organisational leaders should re-evaluate the selection and development of employees in complementary areas, such as legal, marketing and operations. The extent to which an organisation has strengths in these areas can determine how effectively it exploits their technical expertise.
Managers must create situations that allow employees from many areas to participate in all phases of any innovation process. An international study by the Human Resource Institute found that 48 per cent of companies surveyed did not have a policy or procedure for evaluating the ideas of their employees.
The experience of Hewlett-Packard illustrates how firms can effectively bundle their internal resources to encourage innovation. HP developed a formal intellectual property decision process for determining how to handle the patenting of all R&D developments. All R&D output at HP is examined by an internal committee with input from engineers and internal lawyers. Microsoft, Xerox, Timberland and IBM have also adopted the practice of integrating researchers into multifunctional product teams to better harvest research ideas for commercialisation.
Executive leadership plays an important role in bundling an organisation's resources for innovation. Senior executives must play an active role in creating structures and processes that take advantage of organisational knowledge across multiple functional domains. The insight of senior executives can go a long way to ensuring that great ideas are converted into great innovations. BRW
Ian Williamson is Associate Professor of HR Management at Melbourne Business School.
©Fairfax Business Media
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.