The Glonnovation Phenomenon

by Dhiraj C. Rajaram    Feb 17, 2009

With increased globalization, corporations are using cheaper markets to execute commoditized services. The initial levers that have been pulled using globalization are on the cost-side. Corporations need to also recognize the tremendous benefits offshoring can provide to them on the revenue side. Glonnovation, the global delivery of R&D services, is a key lever that corporations can pull on the revenue side. Diverse industry verticals (pharmaceuticals, software, telecommunications, semiconductor) have started using various degrees of glonnovation to increase their return on innovation investment.

The following summarizes the typical view on how companies thought of increasing their innovation effectiveness.

*  Flexible ideation process linked to a clearly-defined strategy 
*  Effective process for the evaluation and selection of the right ideas 
*  Disciplined and ruthless project portfolio management 
*  Optimized product development organization with the right decision rights and incentives

There exists a school of thought in many leading companies that R&D is a black box. While most corporations are trying to extract the most out of their R&D investments, many CEOs, and even some CTOs, believe that this task is as much an art as it is a science. To them, R&D groups, due to the ambiguous and effervescent nature of their goals, are like monkeys throwing darts at a moving dartboard. A percentage of darts thrown find their mark on the dartboard. Corporations can maximize their return on R&D investment in either of the following ways:

a) By ensuring that more darts hit their target. This is achieved by better understanding the R&D black box - The do it better strategy

b) By throwing more darts for the same R&D investment - Global delivery of R&D services allows organizations to reduce the cost of throwing each dart; This effectively enables R&D groups to throw more darts - The do more strategy

The recent recession has forced corporations to severely tighten their R&D budgets. Take the case of the US software industry; overall, R&D spending by public US software companies is shrinking. In fact, in 2002 it fell by 2 percent, after having consistently grown at 15 percent annually since 1998. Moreover, R&D budgets are being consumed by ever-increasing maintenance-related activities. Many of the best and brightest programmers in the US, who are better suited to perform truly innovative work, are now being relegated to routine activities. A well-executed global delivery of R&D services can help their cause. By moving engineering prototyping activities to low cost/high talent countries such as India, companies can release an additional 20 to 30 percent of their R&D budget for new innovation. Furthermore, this allows countries to become centres of innovation excellence by constantly pushing the envelope for new innovation.
 
While global delivery of R&D services by itself will not provide a sustainable competitive advantage to corporations, it is like the latest swimsuit that every swimmer at the Olympics must wear to stay competitive. Having said that, some firms are going to be better than their peers at implementing glonnovation. To that extent, global delivery capabilities will provide marginal differentiation for companies.

The author is the CEO of Mu Sigma, an analytics outsourcing company (www.mu-sigma.com).