How Three Successful Giants Think About Their Innovation Goals and Measures
Innovation Centers at BT Focus More Than Half Their Time and Money on Selling Internally
Research brief, 2019.
With £25 billion per year in sales, BT runs four separate business groups – Consumer, Enterprise, Global, and Openreach which houses a cluster of new services and ventures focused on pervasive networks (IoT, integrated digital home services, and a wide range of additional new applications) – and a fifth peer group, “BT Technology” – which runs as a blend of a shared-services organization and strategic R&D organization, headed by Howard Watson. The Technology group includes a head of R&D and the BT Chief Information Officer.
Each of the other four business groups allocate their own funds for incremental innovation and short-cycle R&D projects close to their customers, often internally engaging parts of the Technology group’s innovation program (see the BT chart below).
The heads of the business groups negotiate annually for high-level funding for each group, with a blend of similarly top-designated funds for the Technology group as an equal peer of the other four, and a planned and budgeted – but not guaranteed – contribution from each of the four to the Technology group to be finally allocated on a project-by-project basis as each year unfolds.
Jan-Marc Frangos, long-time Managing Director of External Innovation for BT, reported up to the head of the Technology group. Frangos built an innovation workflow over the past decade that engages internal clients and external resources and has a budget to support a global staff of 200, as well as ad hoc funding Frangos negotiates for with operating groups throughout each year.
Frangos explains: “If you look at this process chart, you can see that more than half our total investment of people, time and energy went into selling internally.
“Making sure that the operating business leaders at BT knew what was coming out of the firm’s technology development, knew the layers we added in the innovation programs by making them solutions, solving real problems for existing and emerging markets, and getting that uptake among the people across this large global enterprise who could actually do something with the outstanding tools that we invent and build.”
An earlier approach at BT – Measuring “Innovation Dividend”
Paul Excell, Chief Customer Innovation Officer for UK’s telecom giant BT Group until 2012, explained to ILO that at BT he focused on what he calls the “Innovation Dividend” – the net financial contribution, eight quarters out, of each discrete R&D effort, in his communications to his board and his CEO.
“On the internal side, I simply must demonstrate that the money spent by my group has value, eight quarters out. That’s the innovation dividend: based on the products that made it to market roughly eight quarters ago, what’s the operating earnings difference that was made, compared to what our operating earnings would have been had we done no R&D in that period, and brought nothing to market.
“At any given moment, we can say that about eight quarters ago, we were spending roughly at a $40 million annual rate in my group, and that that contributed about $1 billion in net new sales, and maybe $200 million in earnings. I needed that number to tell a compelling story to my colleagues and bosses.
“But there was also an important use within our group’s strategy. What I want to see is whether there is a distinguishing character of the individual efforts that have had the greatest innovation dividend, and then do more projects like that.
“So I wanted to use that lagging indicator to group discrete R&D efforts in the top-, middle- and lower-contributing groups, and then find whether I can see that the top ones share important characteristics, so that we can cluster newer efforts in that area.”
Three Measures of Success for AT&T’s Foundry Network: Sponsors, New-Business Development, and Reputation
At US telecoms leader AT&T, the rise of the “Foundry” network of six research and business accelerators, each with a designated customer partner, has become an important adjunct to AT&T Labs, which focuses on longer-term initiatives.
The scorecard for success at the Foundry begins with the sponsoring partner at each center. The continuing funding by that partner is a strong element of success; it reduces the financial risk of the network significantly and adds a closeness to key customers that is highly valued across the company.
Three measures of success: Scouting, Culture and Reputation
“I think we understood right at the outset,” the first managing director of the foundry program shared with ILO, “that we had to do three things.
“We had to be an entry point for new technologies and applications of technology into new solutions. These are what we want to hand-off to account leaders and sector leaders in the company and see grow into meaningful long-term assets.
“We had to have an impact on the culture, both by having a better recruiting platform for very strategic hirers who were culturally uncomfortable with the traditional AT&T workplace.
“And we had to move the needle in the company’s overall reputation.”
AT&T now claims about $6 billion in new-business revenue that has flowed out of the Foundry network, which has absorbed less than $1 billion in total cost since its launch.
From ILO’s perspective, this number includes a good deal of value that intersected with the Foundry but was originated and largely developed in other corners of the company, but the real impact has nonetheless been strong.
Given the very small numbers of staffers actually working in the Foundry centers, we think recruiting impact has been more symbolic than substantial, but that symbolism matters. Add to the incremental recruiting benefit the larger exposure of in-service mid-level staffers to the Foundries, and the culture impact is substantial.
The reputational value of the Foundry network has been the clearest home run for the network. Particularly in a time that has seen IBM’s business shrink and reputation decline, AT&T has been able to capture more enterprise awareness of the company as a high-end technology firm suited to major corporate engagements, with a strong creative and cutting-edge capacity symbolized in the much-celebrated Foundry network.
Three Elements of Innovation at Toyota
Toyota does not address innovation as a distinct discipline, but embraces the connection between design, product, and market signaling. While no Toyota executive owns innovation as a function, three core corporate values combine to express Toyota’s innovation philosophy.
Toyota’s core methodology of process simplification – always documenting, measuring, and simplifying the steps to accomplish any task – combines with a continual measurement of outcomes and value across the enterprise to embody this measure of innovation.
Simpler process for higher quality, across the board.
At the highest level of product planning, Toyota is determined to deliver a high-value product to address every segment of the market, and new-product development and product enhancements are measured in part by their ability to cover the range of the marketplace’s revealed desires.
The third leg of Toyota’s innovation stool is speed of information, from sale to production. Efficiency in systems that tie sales activity to product development and production is essential inside Toyota, and supporting technology and organizational design revolve around this core measure of value.
Key Measures of Innovation at Toyota:
- Simpler Process.
- Speed of information traveling from sales to production in usable form.
- Constant measures of quality..