Urenio Watch Watch: Innovation

Global Innovation Networks

Innovation has become increasingly global, and over 75% of new research and development (R&D) sites planned over the next three years will be established in China and India, according to a recent survey on global R&D networks jointly conducted by INSEAD and Booz Allen Hamilton.

However, while many companies are growing their R&D networks and increasing the number of sites outside their home countries, few have the internal capabilities in place to run these networks efficiently and effectively.

Booz Allen, a management consulting firm, and INSEAD, a leading business school, surveyed 186 companies around the world to learn about their experience configuring and managing global innovation networks, the effect of R&D dispersion on the cost and speed of innovation and approaches to finding new knowledge. Participants represent 19 countries and 17 industry sectors with a combined annual R&D spending in 2004 of US $76 billion, representing nearly 20% of the global total for all corporations.

Key findings of the study include:

  • As innovation globalizes, it is moving East. Over the past 30 years, the share of R&D sites outside companies� headquarters markets has increased�from 45% in 1975 to 66% in 2004. The relative share of R&D sites by location has been shifting towards China and India, who together accounted for 3.4% of foreign sites in 1990, increasing to 13.9% by 2004.
  • The location of R&D sites is driven by unique skills and capabilities as well as markets across the globe. The survey found that future R&D sites in the developed world of Western Europe, the U.S. and Japan will be selected primarily because they offer proximity to technology or research clusters, access to markets or customers and access to a qualified workforce.
  • Most companies are still struggling to establish the new organization needed to manage and integrate global innovation activities. Although companies are increasingly building international networks of R&D facilities, few regularly review these networks to ensure they are efficient and integrated.

Based on the survey findings, Booz Allen developed a few general recommendations for managing a global R&D network:

  • Centralize decision making on project portfolio to take advantage of the power of the global network.
  • Standardize systems, processes and the organizational structure throughout the innovation network, so time isn�t lost trying to understand how other sites operate.
  • Develop a diverse set of global managers from all backgrounds and allow them to make adjustments for national and cultural circumstances that may affect efficient operations.

Too many companies have set up a global innovation network without capturing its full value

said Kevin Dehoff, Vice President of Booz Allen.

The companies that efficiently manage their R&D network will gain a significant competitive advantage.