Innovation has been called the “lifeblood of the organization,” fueling the development of new and improved products and services, identifying ways to satisfy unmet customer needs, and creating growth and value for the business. While innovation is most often discussed in a B2C context, many B2B companies have also earned recognition for tremendous strides in implementing a culture of innovation.
Despite the success of companies such as BASF and Dow, there are still many other B2B executives who are concerned about the ROI of innovation within their own companies and are worried that “they do not do innovation well.”
Several common factors drive these insecurities. First, there is often a disconnect from the customer and a lack of understanding of big picture future needs in the B2B space. Where B2C companies interact with their customers, design products and services based directly on customer feedback and have control over the product that is ultimately delivered, B2B companies have little contact with end-customer. Furthermore, the B2B sales process is complicated involving purchasing professionals who are primarily concerned with controlling cost. This distance from the customer often hinders focus in the B2B project portfolio and hinders the identification of big opportunities and new ideas.
Some B2B organizations interpret innovation very narrowly, often purely in the context of R&D and technology development. Given that B2B product development cycles tend to be longer and involve large numbers of engineers and scientists, it is very easy to see how technology can become the center of the world. As one B2B executive commented during an interview on innovation, “…the main challenge is to get them [PhDs] to understand that it’s not all about the science; they need to understand the business drivers…” However, it is essential that B2B companies recognize the impact service innovation, business model innovation, manufacturing, and customer/supplier innovation can have in augmenting the overall innovation pipeline.
Many B2B companies underestimate the impact culture has on the way they innovate. There are many different innovation models – incremental vs. disruptive, open vs. closed, corporate-funded vs. business-unit focused – but companies fail to understand the implications of a specific model on the culture. For example, is the company culture risk averse? Are employees penalized for failure? If so, how could a disruptive innovation model work in this type of setting? There must be consistency across processes, procedures, metrics, funding mechanisms, reward systems, governance and organizational structures to support the chosen model.
Finally, B2B companies must develop a deep understanding of customers and future trends. It’s essential to identify unmet needs and technology gaps, and use these customer/trend insights to develop those “big ideas.” Furthermore, the delivery of the end product is not the domain of the technology organization alone, but requires deep involvement from the commercial organizations as well. It demands an integrated approach that becomes ingrained as part of the organization’s culture, rather than delegated to one department or another.
For organizations that are ready to make the shift to amplify B2B innovation, here are the five best practices and how these precepts have been driven by real-world results for B2B companies:
Build marketing deeply into the innovation process. The complete marketing function—including gathering consumer insight, supporting concept development and formulating compelling value proposition—should play a much larger role than it does in many B2B companies. To be truly effective in serving customers’ needs, companies must involve marketing from the beginning, not just in development of the technology strategy, but also in evaluating and vetting ideas, managing the project portfolio and ensuring that the overall end-product meets customer and market needs. For example, a catalyst company made significant improvements to their new product portfolio after learning that environmental emissions at several of their client’s refineries were out of compliance, which threatened continuing operations. The catalyst company took on the innovation challenge, provided catalysts that reduced unit emissions, solved a client’s pressing issue and ultimately, created a lucrative product line for the industry at large.
Learn about your customer, and then learn about your customer’s customer. Don’t rely on what your customer tells you; research your own customer and market needs, but also look beyond that, at the value chain all the way to the end-user, if necessary. One way to achieve this insight is to use trend and technology mapping to identify areas of opportunity. For example, one leading global food ingredient company took it upon themselves to validate a future growth platform, identify “white space” opportunities globally and develop participation strategies aimed at helping their customers understand the opportunity. By articulating the value, it would create for their customer’s customer and how they (the ingredient supplier) could support their customers in achieving growth and success, the company was able to differentiate and create a deeper partnership with its customer beyond price competition to solidify the relationship.
Innovate in your areas of strength, and let others do the rest. Gone are the days when companies kept every aspect of product development in-house. B2B companies are now recognizing the importance of sharing the burden (and risk) by innovating with partners. A great example of this exists in the technology development of automotive and industrial lubricants. Due to increasing complexity, joint development approaches are being used to develop new additive technology. This typically involves multiple partners working together—often a component supplier or additive package and lubricant company. Each partner brings their own expertise to the table. To be successful in these arrangements, partners must have a solid understanding of what they are looking for in a partner, clear guidelines around ownership of IP and a good measure of trust.
Align the innovation processes with business priorities. Don’t adopt a radical innovation approach just to check the box on the strategic plan checklist—your approach has to make sense with your business goals. For example, recognizing that their innovation emphasis was on the short-medium term, one specialty chemicals player created a consistent organizational structure, platforms and approach. They identified growth platforms relevant to current lines of business with clear external and internal drivers and ensured that these fell clearly within the realm of a business unit. Close collaboration between the business units on evaluating the portfolio and projects ensured that goals, objectives and achievements aligned with the overall strategy.
Actively drive culture change to focus on innovation. Creating an innovation culture is easier said than done, and it has to start at the top. Senior management must walk the walk, modeling the change they expect to see in the organization. A culture of innovation must empower all employees and foster a feeling that they are all contributing members, and part of something “big.” Establish and adhere to a metrics and reward system that supports the desired behavior. Above all, it is important to remember that true change takes time—it’s not a lightning bolt, but an evolution. For example, DSM’s transformation from a mining company into a leading life sciences player has evolved over many decades. While, most companies do not want to wait that long, it is important to remember that change is a process, not something that happens overnight.