Three Approaches to Innovation

Last Updated Mar 31, 2010 5:56 AM EDT

Consultancy Arthur D Little has brought out a benchmarking report on innovation that has some interesting insights in how companies should approach it.

The report -- 'Pathways to Innovation Excellence' -- argues that innovation is the only activity that will pull you out of the low-growth recovery we are mired in at the moment. Existing product portfolios and markets can benefit from innovation, it says, but the complexity of pushing the boundaries here makes the whole exercise potentially not worth the bother.

How then do you innovate out of your comfort zone? The report divides innovators into four separate streams.

  • Low innovators may put in the work to developing a place in the market, but they don't go very far in peer group comparison. They are limited in the extent to which they learn from other companies in their own industry.
  • Medium innovators make the effort and they are well-versed in their rivals' innovations. However, they don't bother to look outside their sphere of activity. They don't look at innovative companies in other industries.
  • Good innovators are committed to their own innovation processes, they constantly monitor innovation in their own industries and they are starting to take leads from other great innovators across all industries.
  • Top innovators do their innovation homework, they keep tabs on what is going on in the rest of the industry, but they put as much weight on innovation across all industries, taking a holistic view of where they draw inspiration from.
Whatever level of innovation you think you are on, it's important that you identify your company's approach. The report breaks the activity out into three separate approaches to innovation -- ideas, research and analysis-led. These approaches have been embraced in different proportions within different vertical industries -- consumer goods companies tend to prefer the ideas-led approach, whereas manufacturers appear to be the most reliant on analysis. Pharmaceutical companies are the most likely to use the research-driven approach.

Just because your company is in a particular vertical market doesn't mean the most prevalent innovation approach is the best one. It's possible to innovate in a way that rivals don't use, but it may be more useful to compare yourself to companies that are more likely to take a similar approach, even though they support a completely different market.

So here's a breakdown of the three approaches, the processes that typify them and the industries most likely to adopt them:

  1. Ideas-driven innovation: This approach collects and generates a number of ideas which are filtered until one is selected. Once an idea is selected for development, it is seldom then discarded. The lead time for this process is one to five years. Organisations that adopt this approach are often in volatile markets offering products with short life-cycles, such as fast moving consumer goods and telecoms services.
  2. Research driven ideas: This approach collects a huge number of ideas generated from research which are filtered even after a number of them is selected for development. However, many of these promising projects will be rejected at any stage of the development process, up until completion. Research-driven innovators are the smallest group, as the development cycle for this approach takes significantly longer -- up to 10 years. Organisations that take this approach would do best to align themselves with industries such as pharmaceuticals and oil and gas exploration.
  3. Analysis driven innovation: This approach draws ideas in a systematic way from analysis of the market, competitors and the organisation's internal capabilities. There is a set strategy controlling which projects will be initiated and when. Once a project is selected for development, chances are, it won't be discontinued. This process typically takes one to five years and is favoured by organisations that support shifting markets and offer products with long life-cycles, such as automotive manufacturers and software producers.