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Innovating in an Age of Globalization

By Professor Sanjay Jain

Organizations today face an innovation imperative. Reasons include the emergence of new technologies and global competition, maturing of markets, increasing commoditization of products and services and corporate mandates for top-line growth.

But recognizing the need to innovate to drive growth and actually doing it can be very different things. There are many barriers to innovation—an organization’s core capabilities built around its existing technologies can be a significant barrier when developing products and services based on new innovations. Established firms often have the resources—but not the processes or values—to handle technological change. Developments within the photography industry in the 1990s and the recorded music industry more recently are stark reminders of how organizations can stumble in the face of disruptive change.

Other barriers include a lack of support for their innovation from other members of the ecosystem. The tepid growth of the high-definition television sets over the past decade has in large part been due to a lack of supporting infrastructure that has only recently begun to fall into place. Moreover, consumers may often not be “ready” for the innovation, as Apple’s experience in creating Newton, a pioneer in the personal digital assistant category, suggests.

Given these multiple challenges, let’s examine successful innovation strategies across multiple levels and in a variety of fields to see if we can identify some underlying themes of what it takes to innovate in an age of globalization.

First, let’s look at Infosys Technologies Ltd., a company based in India. Infosys provides IT services to clients globally and has more than 58,000 employees worldwide. In migrating up the value chain from supplying mainframe/Y2K solutions to becoming a consulting outfit, the company had to take a hard look at how to configure itself as an adaptive organization. It developed ways to seed its people, processes, governance systems and technologies with generative properties. This enabled it to enhance efficiency on its existing organizational platform while simultaneously developing competencies to extend this in new directions. The result was that during the period 1999- 2004, the company’s revenues grew from $121 million to $1.06 billion.

Closer to home, an exemplar of a mid-stream change in innovation trajectory is Procter & Gamble, the consumer packaged goods giant. For years, P&G grew through innovations that were developed in-house. However, the limitations of relying on internally developed improvements to fulfill growth objectives slowly became apparent. Starting in 2000, the company reinvented its innovation business model and mandated that 50 percent of its new products should come from outside the company. This “connect and develop” model has provided P&G with 35 percent of its new products (in 2005) and has enabled the company to better leverage its internal R&D capability.

An important facet of innovating in contemporary environments is the ability to imagine and deploy strategies that collectively drive the innovation ecosystem forward. This involves developing
a cooperative mind-set. The emergence of Ethernet as a local area network (LAN) standard is a good illustration of this. In the early 1980s, there was a proliferation of LAN alternatives, with IBM, the dominant computer company at the time, busy developing its own version called Token Ring. However, a loosely allied group of companies created a bandwagon around the Ethernet specification by making licenses to the technology easily available as well as rapidly improving on the original standard through a committee-based process. As a consequence, Ethernet has remained dominant for the past 25 years.

Such “open system” models of innovation are becoming more prevalent in contemporary environments, as the cases of Linux and Wikipedia attest. Originally created by Linus Torvalds, the collaborative development model underlying Linux in which developers collectively contribute their expertise has been instrumental to its rapid growth within corporate computing environments during the past decade. A similar open approach to product development is at the heart of Wikipedia, the free online encyclopedia. Contributors around the globe are continually changing the more than two million entries on this Web resource. The innovative approach by which Linux and Wikipedia work suggests that “incompleteness” in design can, in fact, be an asset.

Finally, companies often need to link their novel innovations to key stakeholders. The Wisconsin Alumni Research Foundation’s (WARF) experience in championing embryonic stem-cell technology is emblematic of this challenge. Within a regulatory climate that has been hostile for conducting research in this domain, WARF has engaged in steps that have enabled scientists to make steady (if slow) progress. At the same time, it has promoted a set of norms related to the conduct of such science and attempted to build support for this research within the public policy community. While key challenges persist, WARF and the UW-Madison remain committed to sponsoring this important technology.

Contrast this with the case of Monsanto, one of the first companies to develop genetically modified foods. In its rush to enter the market, it was not able to properly gauge the health and environmental concerns that were being raised by advocacy groups and end-users. The company eventually had to backtrack their plans as resistance to the innovation intensified, considerably dimming prospects for the innovation. Monsanto’s experience suggests that companies may need to take a broader societal view of the impacts of their innovations and engage with stakeholder groups early on in order to understand the unease that novel technologies can engender. They then need to address these concerns as the first step toward building robust markets around these technologies.

So, what can we take away in terms of innovating in an age of globalization?

Balance exploration and exploitation activities
Companies that are attempting to change tracks vis-à-vis their innovation activity need to devote considerable resources to developing new structures and processes even as they rely on existing ones.

Develop and implement collective strategies
Understanding and appreciating the power of cooperation is critical to a company’s ability to develop markets based on novel technologies. It is better to have a slice of a large collective pie rather than have a small, individual cupcake. This adage is particularly relevant given that operating in “open-system” environments is likely to become more of the norm in the future.

Engage in institutional entrepreneurship
Companies need to recognize the social and ethical implications of the innovations that they are fostering. This involves interacting with a large number of stakeholder groups—employees, suppliers, customers and government, among others—in order to build support for new technologies. This, in turn, requires companies to deploy social, political and cognitive strategies to create environments that are conducive to the innovation.

To sum up, organizations that have innovated successfully have paid attention to how they design change amidst continuity, been actively involved in initiating bandwagons and are committed to being institutional entrepreneurs.

Sanjay Jain is an assistant professor in Management and Human Resources at the School of Business. His research focuses on technology entrepreneurship and the strategic management of innovation.This article is adapted from a talk he gave in Milwaukee in September to an international group of more than 200 executives from SABMiller, which has brewing interests or major distribution agreements in over 60 countries.