The hollowing out of big corporate R&D

I’ve just returned from delivering the opening keynote for the 14th Annual Portfolio Management for New Products & Services Conference in Fort Lauderdale, an event sponsored by the Product Development and Management Association.

I spoke to the broad theme of “innovating faster,” but also challenged the crowd to think about how the “source of innovative ideas” has changed.

There are some pretty dramatic trends which have gained traction. The source of innovation is rapidly shifting from:North America to Asia. Noted corporate R&D centers such as Bell Labs, Xerox’s Palo Alto, and the IBM TJ Watson Center play a far smaller role in global innovation today. On the rise? Overseas labs such as GE’s John Welch Center in Bangalore. Noted

• North America to Asia. Noted corporate R&D centers such as Bell Labs, Xerox’s Palo Alto, and the IBM TJ Watson Center play a far smaller role in global innovation today. On the rise? Overseas labs such as GE’s John Welch Center in Bangalore. Noted Business Week in a recent article: “…we will soon witness a dramatic rise in the participation of India and China in global R&D…..the reason for this is the diminished role of corporate laboratories that were the birthplace of the ideas of the 20th century.”
• corporate R&D groups to open-sourced ideas. The head of R&D for Johnson & Johnson recently observed that faster=paced scientific discovery and increasing complexity of discovery is driving this trend: “All simple diseases have been solved. The next generation drugs, therapies, are much more complex. You need much more information and science than what you can get out of your own labs.” Extend this thinking to the complexity of innovation in the energy, environmental and health care sectors — the scope of innovation is becoming too large, and an organization can’t simply master all the innovation knowledge they need to in order to discover what’s next. That’s why increasingly, organizations need to tap into the global idea cycle for idea generation and innovation research.

• large to small. Simply put, innovation is switching from large corporations and labs, to smaller, more nimble competitors. Here’s some sobering numbers; big pharma’s 10 biggest companies spent $50 billion on R&D last year. For that sum, they could buy the entire US biotech industry, excluding the top five companies. Yet, 3/4 of all new approved drugs approved came from small biotech labs. Clearly, big R&D is quite broken — and perhaps even dysfunctional.
• R&D departments to R&D partner implementation conduits. When ideas flow fast, companies can’t hope to master every skill set and knowledge niche. That’s why increasingly, they are turning to outsiders for insight and ideas. Enter the innovation-transfer partner: an organization that links innovative thinkers to those with a need for such insight. Take Bioline Israel : “….the company operates as a clinical bridge between drug researchers and inventors, and large pharmaceutical companies interested in purchasing viable new therapies: (Jerusalem Post, January 2009.) Expect this model to flow into every other industry quickly because of sheer complexity of fast knowledge! You want a business for the future? Think innovation brokering!
• hidden innovation to public innovation. In the “old days” — say, one or two years ago — companies use to innovate secretly, carefully, and cautiously. Increasingly, organizations are willing to put their ideas out to the public at large, in order to get open, honest feedback on what they are doing right and what they are doing wrong. Consider McDonald’s — it’s D10 store in the airport in Sydney, Australia, is being used as a public innovation space.

The audience at the conference was representative of a broad swathe of Fortune 500 companies. I think my overview might have freaked them out to a degree: but we can’t deny the reality of this fast-paced shift in the source of innovation. My advise was to accept the transition, and begin to shift how you think about the source of new insight, and begin to adjust your corporate planning accordingly.

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• Visit the 2009 PDMA conference web site.