The Innovation Premium

The Innovation Premium: Achieving Peak Performance and Profitability

By Ronald S. Jonash and Tom Sommerlatte

About the Author

Ronald S. Jonash is vice president of Arthur D. Little, Inc. in Cambridge, Massachusetts, and global leader of the firm's technology and innovation management practice. Tom Sommerlatte is Arthur D. Little's chairman of management consulting worldwide and a vice president of the firm in Wiesbaden, Germany. Together, they bring a wealth of experience in innovation management and strategic consulting, providing insights into how companies can achieve and sustain high performance through innovation.

Main Idea

"The Innovation Premium" delves into how businesses that prioritize innovation achieve higher valuations and greater profitability. Jonash and Sommerlatte introduce the concept of the "Innovation Premium," which is the market's valuation of a company that consistently delivers earnings growth through innovation. They provide a comprehensive framework for capturing this premium, focusing on five critical areas: strategy, process, innovation resources, organizational structure, and a culture of continual learning and change.

Table of Contents

1. Meet the Next Generation
2. Strategy: Build Platforms, Not Just Products
3. Process: Move Seamlessly from Concept to Customer
4. Resources: Invest in Innovative Platforms and Partners
5. Organization: Create Worldwide Networks of Innovators
6. Building a Culture of Continual Change and Learning
7. Capture the Innovation Premium

Meet the Next Generation

True innovation drives not only individual companies but entire economies. Next-generation companies must realign their strategies, processes, and resources to focus on innovation and technology. These companies view innovation as a cross-enterprise effort that involves accelerating learning, building networks, and leveraging technology and competencies to gain competitive advantages.

"True innovation never occurs in isolation. Next-generation companies must accelerate learning, build cross-enterprise networks, and expect real-time expertise." - Ronald S. Jonash

Next-generation companies focus on creating value by integrating innovation into every aspect of their operations. They harness the collective skills and capabilities of their employees, align these with business goals, and build cross-disciplinary networks to foster teamwork and inspire innovation.

Strategy: Build Platforms, Not Just Products

Next-generation companies build technology and competency platforms that serve as the foundation for growth and innovation. These platforms are sets of key technologies and capabilities that can be applied across a variety of products and services, providing a significant competitive advantage.

"To set the pace for innovation, companies must build technology and competency platforms - sets of key technologies and/or capabilities applied as the basis for growth and innovation." - Tom Sommerlatte

There are four levels of platforms:

• Knowledge and learning: Exploratory platforms with minimal managerial control and low investment.
• Excellence and leadership-building: Platforms developed in response to emerging technologies or trends.
• Innovation and development: Platforms recognized as centers of innovation, actively pursued for growth.
• Business-performance and growth: Established platforms that continue to deliver successful products and services.

For example, Millennium Pharmaceuticals uses sophisticated technology platforms for gene mapping, while Canon builds competency platforms for digital imaging. These platforms enable companies to innovate continuously and stay ahead of competitors.

Process: Move Seamlessly from Concept to Customer

Next-generation companies manage their innovation processes to ensure a steady flow of new ideas and products. This involves having a wide-open front end for generating diverse concepts and a broad ending where multiple products and services are brought to market.

"An organization's 'idea basket' must be constantly full with concepts that relate to both expected and unexpected demands." - Ronald S. Jonash

The innovation process should include:

• Exploiting the knowledge of the entire enterprise: Sharing knowledge with allies and partners.
• Integrating customers and suppliers: Engaging them in the innovation process through meetings and brainstorming sessions.
• Opening up the front end of innovation pipelines: Managing the chaotic initial stages to capture diverse ideas.
• Increasing the pace with innovation networks and platforms: Addressing the short shelf life of products and ideas through a high-velocity process.

For instance, Nokia applied its entire organization to develop a portable telephone with internet access and other features, relying on a fluid, flexible team to achieve success.

Resources: Invest in Innovative Platforms and Partners

To accelerate innovation, companies must invest in next-generation resources, including facilities, equipment, financial support, and human resources. These resources should be leveraged to build technology and competency platforms and foster partnerships.

"Next-generation companies recognize the value of their suppliers, partners, customers, and employees to their innovation premium." - Tom Sommerlatte

Effective management of resources involves: