30 minute interview

"R&D investments are no longer an indicator of how innovative a company is"

Navi Radjou Vice President, Enterprise Applications Forrester Research

Insights from Forrester Research on how innovative tech start-ups can survive in the new economy

*Why are companies not able to successfully market their inventions?

They [organisations] need to gain a better understanding of customer needs in their target markets. This requires a seasoned management team with decades of business experience. Most start-ups are founded by visionary, tech-savvy inventors who lack business acumen needed to convert their innovations into marketing successes. The life of these start-up companies is very short, as was evident during the dot-com bubble. Google, however, was different. It was founded by two PhD students and employs 100 PhDs. Yet, Google's real asset isn't its inventive brainpower, but its seasoned management team with CEO Eric Schmidt at the helm. The management knows how to transform raw employee brainpower into innovations that are relevant to the market. My advice to promising tech start-ups, and the VCs who back them is this. "Make your techie founder the CTO, and bring in an industry veteran as CEO to accelerate your invention-to-innovation cycle."

*Forrester Research's report, 'Innovation Networks', states that firms do not have to innovate. How does this model work?

Hollywood can be used as a metaphor to describe how an Innovation Network works. In Hollywood, you have writers who invent characters that are transformed into real-life personas by actors. You also have talent agencies that broker contacts between these actors and studios, which finance the movies. Finally, you have directors who orchestrate this network. Such a business model already exists in the software industry with inventive start-ups being financed by VCs, large independent software vendors (ISVs) and consulting firms that transform technology inventions into business solutions. We see this new ecosystem gaining traction in many other industries such as automotive, aerospace & defence, financial services, medical device, and consumer goods. Large companies-from IBM to Procter & Gamble-are revamping their invention-to-innovation processes to support 'Innovation Networks'. Consider Procter & Gamble (P&G). They are building an Innovation Network as part of their connect & develop programme to "source 50 percent of inventions from outside P&G by the end of this decade." So P&G is reinventing its organisational structure to mirror Innovation Networks. They have Inventors (their internal R&D group), Transformers (their supply chain group), Financiers (their Equity Ventures group), and Brokers (their Technology Entrepreneurs). P&G's goal is to shift their innovation mindset from "not-invented-here" to "nothing-invented-here".

*Do you expect the concept of Innovation Networks to have a significant impact upon the marketplace?

The major impact will be the disintegration of the innovation value chain. In other words, you don't need to invent in order to innovate. This insight is going to redefine the competitive landscape across industries. Take Dell. They invest so little in R&D. Yet, Michael Dell wants to overtake HP in the printer business. This despite the fact that HP invests $1 billion in R&D in its printer business alone. Dell uses an 'Innovation Network' model. They partnered with HP's rival, Lexmark, to license the latter's inventions. Dell will transform these into Dell-branded innovations using its world-class supply chain processes. What it means is this: how much you invest in R&D is no longer an indicator of how innovative you are as a company. Your new core competency should be about how effective you can be in transforming your internal and external inventions into market-relevant innovations.

*Can customers, partners or competitors benefit from Innovation Networks?

I see a win-win-win situation for customers, partners, and even competitors since Innovation Networks model lets a company source (inventions) from anywhere, and market (innovations) anywhere. For customers, I see two benefits: first, they gain access to more innovative products and services and second, they are able to shape innovation by becoming part of Innovation Networks. That's exactly what Procter & Gamble is doing. They actively engage customers as innovation partners by letting them submit product ideas and even vote on packaging designs. Instead of competition, it is the era of co-opetition. In 'Innovation Networks', you treat competitors as just another source of innovation or a channel for your inventions. For instance, Ford licensed its hybrid engine design from arch-rival Honda.

*Can IP-led companies benefit from the Innovation Networks concept?

I think IP-intensive firms—the inventors—should plug into Innovation Networks, and learn to identify and partner with the other players in the ecosystem. They may want to use emerging innovation marketplaces such as InnoCentive and NineSigma to make their inventiveness more visible to the external world. To maximise the value of their IP, they need to build business development skills-if they don't have them, they can always team-up with an external broker such as KnowledgeCampus (UK) or yet2.com that will connect them with potential buyers of their IP.

Should Indian IT companies (both in the services and products space) consider creating IP that is central to their business and transfer these to third-party service providers to convert these ideas into finished products?

I see three sets of companies in India doing that: the first are focused companies such as Persistent, which is a bioinformatics specialist. Its IP is used by clients that are either brick-and-mortar pharma companies or large ISVs. The second are "captive" R&D subsidiaries such as IBM India Research Lab in New Delhi or GE's Jack Welch Research Centre in Bangalore. Finally, the third category could be "contract labs", which might be research labs at IITs and IIScs for engineering or science as well as clinical research organisations (CROs) that can become part of global pharma or biotech Innovation Networks.

*Most successful Indian companies in the IT space have been relying on services. What needs to be done to transform Indian IT services companies into IP-intensive ones?

Interestingly, in my last visit to India, after meeting with TCS and Wipro, I realised that Indian system integrators are already IP-intensive companies. Wipro has a research arm that does research on embedded systems and TCS sponsors big-time academic research both in India and in the US. So to answer your question: what the Indian service companies have to do is to learn how they can convert internally and externally available IP into business innovations. They may want to look at IBM, which is rapidly reinventing its business model to make its inventions more market-relevant via its On-Demand Innovation Services (ODIS) and accelerate the invention-to-innovation cycles.

Srikanth R P