Although, many enterprises have research centers or product-development crews across the world, all of them are not focused on the knowledge available. Most of these centers are dominated by the thinking and technologies available locally. Quite a few innovation activities incorporate inimitable knowledge from across the world effectively. Additionally, the innovation units in most companies are under-equipped to cut costs down by accessing knowledge from relatively newer and cheaper locations. Also, conjoining technological expertise/knowledge in unusual ways does not necessarily lead to fruitful business innovations. Companies need to develop keen market insight to escape from commercial failure that may reflect lack of understanding of customer needs and the competitive crescendos of the market ( Santos., et.al, 2014).
These enterprises can largely improve their flow of innovation only by compiling the best blend of technical knowledge and market expertise and accessing far and wide situated resources -external resources such as partners and alliances, distributers, in addition to their own R&D units abroad- rather than relying merely on homegrown - internal - resources. Moreover, the probability of successful innovation increases, when information from different resources is examined together instead of mining through the same locally available data/knowledge repeatedly.
From here, in order to develop diverse cluster of knowledge database, need for decentralized R&D units in home country and abroad seems inevitable for the MNCs to fostering a successful innovation mechanism.
These enterprises can largely improve their flow of innovation only by compiling the best blend of technical knowledge and market expertise and accessing far and wide situated resources -external resources such as partners and alliances, distributers, in addition to their own R&D units abroad- rather than relying merely on homegrown - internal - resources. Moreover, the probability of successful innovation increases, when information from different resources is examined together instead of mining through the same locally available data/knowledge repeatedly.
From here, in order to develop diverse cluster of knowledge database, need for decentralized R&D units in home country and abroad seems inevitable for the MNCs to fostering a successful innovation mechanism.
Case of P&G
One of the biggest MNCs, P&G, had history of having the most successful innovation strategy (Innovating –from within) in the past, for generations. They possessed their own research accommodations, and hired the best talent in the world. By 2000, CEO A.G. Lafley realized that strategy devised in 1980s was not any more capable of supporting high levels of top-notch growth due to increased competition, struggling to develop new techniques from within, increasing R&D budgets, stagnating innovation success rate at 35% and saturating markets due to arrival of massive competitors with cheaper products; And the result was big drop in their market cap when their share dropped down from $118 to $ 52 per unit. “It was clear … that … invent-it-ourselves model was not capable of sustaining high levels of top-line growth” Huston and Sakkab (2006).
They changed their approach to innovation management and “moved from a centralized approach to a globally networked internal model—what Christopher Bartlett and Sumantra Ghoshal call the transnational model in Managing Across Borders” According to Huston and Sakkab (2006).
P&G was able to discover the sources of innovation. They were able to identify the hidden opportunities available outside. These opportunities were: a)“small and mid sized entrepreneurial companies”, individuals, universities and government labs. Where these resources were not able to fund their innovation process, they were impatient to license and trade their intellectual property to funding their research. b) Availability of Internet - opening up the channel streams to the talent markets across the world and c) a lesson learnt from companies such as IBM and Eli Lilly those started experimenting with open innovation, “leveraging one another's (even competitors') innovation assets—products, intellectual property, and people”, Huston and Sakkab (2006). P&G executives were able to recognize these resources and connecting them to each other and further developing their prospects and leveraging their capacities. This process resulted into inculcation of “Connect and Develop” (C&D) technology.
After deliberately analyzing the internal and external resources of innovation, executives of P&G could analyze the importance of external connections and “Betting that these connections were the key to future growth, Lafley made it … goal to acquire 50 percent of … innovations outside the company. The strategy wasn't to replace the capabilities of our 7,500 researchers … but to better leverage them” Huston and Sakkab (2006). The CEO urged to acquire half of the products from outside resources. As P&D aspired to opt for C&D technology, each of their research and support staff worker would have to have 200 equally talented worker along with the massive operational change into the R&D organization. For the development of C&D model P&G was to develop keen sense of consumer preferences, which helped them to recognize assuring ideas through out the world, blending them into their own working techniques. With that they were able to produce improved and cheaper products in a faster way.
After opting for “Connect and Develop” model, their R&D productivity has been increased by approximately 60 % and innovation success rate has been more than doubled. In addition to this their cost of innovation has decreased and within five years of stock fall in 2000, their share price has been back to double.
We can clearly see how their CEO understood the importance of open innovation for sustaining growth and was able to make his top executives develop C&D model that led the collapsing company to leverage its own R&D potential by utilizing the external resources which in turn not only helped the MNC to leverage its profits again, but also lowered the portion of its percentage sales to spend on R&D/innovation model leading to long term sustainability.
They changed their approach to innovation management and “moved from a centralized approach to a globally networked internal model—what Christopher Bartlett and Sumantra Ghoshal call the transnational model in Managing Across Borders” According to Huston and Sakkab (2006).
P&G was able to discover the sources of innovation. They were able to identify the hidden opportunities available outside. These opportunities were: a)“small and mid sized entrepreneurial companies”, individuals, universities and government labs. Where these resources were not able to fund their innovation process, they were impatient to license and trade their intellectual property to funding their research. b) Availability of Internet - opening up the channel streams to the talent markets across the world and c) a lesson learnt from companies such as IBM and Eli Lilly those started experimenting with open innovation, “leveraging one another's (even competitors') innovation assets—products, intellectual property, and people”, Huston and Sakkab (2006). P&G executives were able to recognize these resources and connecting them to each other and further developing their prospects and leveraging their capacities. This process resulted into inculcation of “Connect and Develop” (C&D) technology.
After deliberately analyzing the internal and external resources of innovation, executives of P&G could analyze the importance of external connections and “Betting that these connections were the key to future growth, Lafley made it … goal to acquire 50 percent of … innovations outside the company. The strategy wasn't to replace the capabilities of our 7,500 researchers … but to better leverage them” Huston and Sakkab (2006). The CEO urged to acquire half of the products from outside resources. As P&D aspired to opt for C&D technology, each of their research and support staff worker would have to have 200 equally talented worker along with the massive operational change into the R&D organization. For the development of C&D model P&G was to develop keen sense of consumer preferences, which helped them to recognize assuring ideas through out the world, blending them into their own working techniques. With that they were able to produce improved and cheaper products in a faster way.
After opting for “Connect and Develop” model, their R&D productivity has been increased by approximately 60 % and innovation success rate has been more than doubled. In addition to this their cost of innovation has decreased and within five years of stock fall in 2000, their share price has been back to double.
We can clearly see how their CEO understood the importance of open innovation for sustaining growth and was able to make his top executives develop C&D model that led the collapsing company to leverage its own R&D potential by utilizing the external resources which in turn not only helped the MNC to leverage its profits again, but also lowered the portion of its percentage sales to spend on R&D/innovation model leading to long term sustainability.