Innovation Value Chain

The Innovation Value Chain.
By: Hansen, Morten T., Birkinshaw, Julian,
Harvard Business Review,
June 2007, Vol. 85, Issue 6

The innovation value chain is derived from the findings of five large research projects on innovation that we undertook over the past decade. We interviewed more than 130 executives from over 30 multinationals in North America and Europe. We also surveyed 4,000 nonexecutive employees in 15 multinationals, and we analyzed innovation effectiveness in 120 new-product development projects and 100 corporate venturing units.

The innovation value chain view presents innovation as a sequential, three-phase process that involves idea generation, idea development, and the diffusion of developed concepts. Across all the phases, managers must perform six critical tasks -- internal sourcing, cross-unit sourcing, external sourcing, selection, development, and companywide spread of the idea. Each is a link in the chain.

External networks for innovation: There are two fundamentally different approaches to building external networks, each of which fulfills different objectives. The first approach is to develop a solution network, geared toward finding answers to specific problems. This is what A.G. Lafley mainly has built at P&G. In-house product developers translate customer needs into technology briefs that include descriptions of the problems to be solved. The technology briefs traverse the company's external network -- which comprises technology scouts, suppliers, research labs, and retailers worldwide -- to see whether someone, somewhere can offer solutions to the problems posted.

(For more details about P&G's external solution network, see Larry Huston and Nabil Sakkab's "Connect and Develop: Inside Procter & Gamble's New Model for Innovation," HBR March 2006.)

Likewise, the pharmaceutical company Eli-Lilly has spearheaded InnoCentive (www.innocentive.com), a solution-seeking Web site that Lilly, P&G, and other companies use to find answers to specific technical or scientific problems. The companies post questions -- for instance, "How can we protect fatty acids from oxidation?" -- that any of the more than 10,000 engineers, chemists, and other scientists registered at the site can tackle. The individual or group offering the best acceptable solution gets a financial reward; the winner of the fatty acids challenge received $20,000.

Build internal cross-unit networks.- P&G has developed 30 communities of practice.

Recommended Reading




Idea Generation
In-house idea generation



Jamming: The Art and Discipline of Business Creativity, by John
Kao (HarperBusiness, 1996)



Crosspollination

"Collaboration Rules," by Philip Evans and Bob Wolf (HBR July-
August 2005)

"Coevolving: At Last, a Way to Make Synergies Work," by Kathleen
M. Eisenhardt and D. Charles Galunic (HBR January--February 2000)



External sourcing

Democratizing Innovation, by Eric von Hippel (MIT Press, 2005)
Blue Ocean Strategy, by W. Chan Kim and Renée Mauborgne
(Harvard Business School Press, 2004)

Open Innovation: The New Imperative for Creating and Profiting
from Technology, by Henry Chesbrough (Harvard Business School
Press, 2003)




Conversion
Selection

"Bringing Silicon Valley Inside," by Gary Hamel (HBR September-
October 1999)

Corporate Venturing: Creating New Businesses Within the Firm, by
Zenas Block and Ian C. MacMillan (Harvard Business School Press,
1993)



Development

10 Rules for Strategic Innovators: From Idea to Execution, by
Vijay Govindarajan and Chris Trimble (Harvard Business School
Press, 2005)

The Innovator's Solution: Creating and Sustaining Successful
Growth, by Clayton M. Christensen and Michael E. Raynor (Harvard
Business School Press, 2003)




Diffusion

Spread of the idea

Payback: Reaping the Rewards of Innovation, by Harold L. Sirkin,
James P. Andrew, and John Butman (Harvard Business School Press,
2007)

"Tipping Point Leadership," by W. Chan Kim and Renée
Mauborgne (HBR April 2003)

Morten T. Hansen (morten.hansen@insead.edu) is a professor of entrepreneurship and the André and Rosalie Hoffmann Chaired Professor of Family Enterprise at Insead, in Fontainebleau, France. Julian Birkinshaw (jbirkinshaw@london.edu) is a professor of strategic and international management at London Business School and a senior fellow at the Advanced Institute of Management Research in London.