In business, great ideas are potential profits, and innovation a route to competitive advantage. The challenge is taking promising practices, wherever they emerge, disseminating the knowledge associated with those practices, and getting it to the people and places in the organisation where it can make a difference.
My work with colleagues Constance Helfat and Gianmario Verona takes a closer look at this issue.
We show that, with new processes and technologies at least, rather than directing implementation from distance, it pays to take the innovation experts to the people using the processes and technologies.
The transformative power of innovation is clear from corporate history. Novel insights can reshape the competitive landscape of entire industries in favour of the original innovator. That's as true for Spotify today, dominating audio streaming by deploying AI, machine learning and big data, as it was for Ford in the early 1900s, using interchangeable parts, the assembly line and mass production to revolutionise car manufacturing.
Game changing innovation can come from a variety of sources in an organisation's ecosystem, especially when firms embrace the principles of open innovation. Yet all too often, whether they originate from an R&D centre, skunkworks, project team or individual, promising practices struggle to gain traction.
A common issue is that the knowledge that needs transferring may be tacit, bound up with the experiences and insights of individuals. Codifying and passing on this type of knowledge is difficult. Moving the individual to where their know-how is needed, whether that's a team, project or country unit, seems an obvious solution.
But with limited research on this topic it's hard to know how successful such a strategy would be. Is it an effective way to increase the adoption of new technologies? What factors might be relevant to the success of such a transfer? Given the costs attached to moving experienced individuals within organisations, it's important to understand under what conditions and in what situations a business might benefit most from such a move.
We were able to investigate these questions using data provided by one of the largest oil companies in the world. With data from over 33,000 engineer assignments, and the company's adoption of innovative technologies during more than 7100 well drilling projects, we created a dataset of 3,208 observations covering the years 2004 to 2012. Each observation being an engineer's job assignment at a single organisational unit.
This enabled us to assess how the innovation experience of the unit and engineer, independently and combined, affected performance. We gauged an engineer's expertise with innovative technologies by taking the number of innovative well technologies they were exposed to on previous assignments in the company.
For the unit we looked at the number of innovative well technologies used at least once during an engineer’s assignment. Performance was measured using data on well drilling costs per metre, on the basis that adopting productive technologies leads to lower costs.
Our findings offer some interesting insights into maximising the benefits of innovation throughout a business.
The results underline the benefits of implementing innovation. Both the use of new technologies by the unit and innovation experience of engineers were independently associated with substantially lower drilling costs. Each additional use of an innovative technology by the unit was associated with a 15.4% reduction in costs – savings of some US$44.7m given the average total drilling cost. While an engineer's experience of an innovative technology was linked to a 4.2% decrease in cost per metre, or US$12.2m.
More surprisingly, though, in terms of the innovation experience value-added overall, the combined engineer-unit effect differed considerably depending on the circumstances at the unit. The strongest combined boost to performance occurred when a unit was introducing a technology for the first time.
By itself, a unit's introduction of a new technology was associated with additional drilling costs. But add an engineer with new technology experience to the mix and the outcome became positive in performance terms, lowering drilling costs. It suggests that the more exposure to innovative technologies an engineer has, the more likely they can help implement a technology the unit is unfamiliar with.
Furthermore, in situations where the unit was adopting a technology it already had some experience of, the positive effect from the engineer-unit interaction disappeared. On the face of it then, transferring knowledge by transferring people seems to work best when an innovation is being tried for the first time.
This was not the only lesson, though. A series of interviews with engineers and managers highlighted several other relevant factors.
It's easy to underestimate the challenge of overcoming organisational resistance to new technologies, for example. Our conversations with the oil company employees show the importance of having people on the ground, willing to engage with innovation, and having push factors for trying out new practices.
This might mean situations where people have worked on earlier generations of a technology, or where a local team has a problem it's unable to solve with the technology at its disposal.
The oil company we studied ran programmes linking central R&D with field engineers who had relevant operational and research experience, keeping them updated on the latest technology developments. It also rotated researchers through field units, creating a more formal framework for promoting new technologies and assessing the needs of the units.
A second point emerged around funding innovation. Innovation associated costs can be a major barrier to implementation. It's not just the time and money wasted on technologies that don't deliver their objectives. Failed attempts to deploy new technology can prove a significant drag on performance. For the field units, making the wrong technology call could mean shutting down an active well, costing millions. Understandably, there may be some reluctance to risk trying new methods.
Internal innovation venture funds or grants are one way to ease project trial financing. Another more market led solution is allowing larger projects to subsidise experimentation in smaller projects that share similar challenges. Both sides benefit. The smaller project gets to apply new technologies it couldn't afford otherwise. The larger project can assess the merits of new technologies without betting the business.
A final observation relates to the value of a physical presence on the ground. In an increasingly virtual world some might question whether physical redeployment is needed at all. Perhaps innovation experts could pass on experience via video conferencing, for example, a cheaper and more easily scalable innovation distribution route.
However, my conversations with managers in different industries make me sceptical that this would work. Structured, time-controlled, virtual communication is no substitute for the in-person small talk and informal interaction that so often paves the way for problem solving.
Our research shows that transferring people with innovation experience can be an effective strategy for disseminating promising practices and embedding them in an organisation's operations. At the same time, it suggests that to get the best outcome from such a move, organisations must pay attention to a number of other factors connected to the transfer.
Get it right, though, and the odds of benefiting from innovation improve considerably.
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