Research and development organizations today face many challenges. Key among these
is an apparent dilemma - how do you connect your activities to the market so that you
develop products and services that customers need, while at the same time fostering
innovation so you can develop offerings that are outside customers' experience?
It would be rash to claim that there is an easy answer to this. However, many years of
experience at Xerox has taught us that there are ways to balance near and long-term
requirements, and that a climate of innovation is essential to achieving both objectives.
A history of innovation
The title of this article contains the words "Managing Innovation," but in some ways that is
a contradiction in terms. For example, innovation often results from the confluence of
inventions in connected domains. The outcome of putting these inventions together is an
innovation, but we all know it is hard to plan for this sort of synergy.
Vision is also an essential ingredient for innovation - and that can't be managed,
either. As long ago as 1956 the head of research at Xerox (then still called the Haloid
Company) wrote to the chairman saying, "Mechanical printers have apparently reached their
practical limits. Some kind of electro-optical output using the xerographic process is an
urgent need." This vision was not achievable at the time; it pre-dated the laser, and the
first electronic printers did not appear for another 20 years. Nevertheless, it set the
scene for subsequent work, in the same way that Alan Kay's vision of the Dynabook in the
1970's did for laptops.
Xerox's tradition of innovation is widely known, ranging from advances in basic physics
through to technologies that have had an immediate impact on the way people work. These
developments have reached the market in many different ways - through Xerox itself or
through the many companies that Xerox people formed or which were spun out. Over the
years, we have learned important lessons about how to manage this process and achieve
a balance between fostering creativity and realizing financial returns.
Turning innovation into value
Innovation has several objectives: It can sustain a leadership position in a core market,
it can prepare a company for success in new markets, and it can be used as a defense against
disruptive technologies. Equally, as I indicated above, there are many channels to market for
innovation.
At Xerox, we can depict these different parameters in a simple matrix that acts as a
vehicle for framing our strategy. One axis of this matrix is based on the way we might
deliver innovation to market, while the other reflects the impact of the development;
is it primarily exploitative (doing things better) or transformative (doing things
differently)? We use different management techniques in each quadrant, techniques
that range from investment decisions to controlling intellectual property.
Sustaining core businesses
The Xerox core business of printing and copying is now a mature one, with a number of
companies competing for market share. In such an environment, technology is a key
contributor to success, driving trends to better performance, smaller size, lower cost
and improved functionality, such as color. Such advances can result in product
differentiation, but this is always likely to be short-lived, as competitors work
around patents or develop alternative technologies. Innovating processes rather than
technologies can sometimes achieve more sustainable advantage. With product lifecycles
shortening, improving time to market through concurrent working and knowledge sharing
is a vital ingredient for success.
At Xerox, our corporate R&D function achieves this core business focus by being directly
connected to business teams through a process known as "contracting." Through this
process - which accounts for about 40 percent of our funding - we identify and meet near-term
market requirements.
The remainder of our funding is not contracted, but rather allocated by the corporation.
Some of this is used to sustain the core business in the longer term, in the three- to
eight-year timeframe and on more basic technology research. An important third portion
supports work on new and disruptive technologies.
Disruptive opportunities
A company's business is always under threat from outside developments. The secret is to
anticipate what form these might take, where they might come from and the impact they
would have. If done well it's a form of corporate judo, turning a threat into an opportunity.
We categorize threats to our business in three different ways:
- Disruptive developments that may over time replace the current core technology base. An example might be a marking technology such as solid ink printing that would dislodge xerography's dominance. We pursue a number of research avenues into alternative marking systems, on the grounds that if there were a better technology out there, we would be well advised to find it first.
- Disruptions that would render a paradigm central to our business obsolete, such as a technology that makes printing out documents unnecessary. While we think the paperless office is a chimera, we are actively researching alternative media, such as electric paper, that could introduce radical new ways of working.
- Developments that change our business model, making our current approach to the market less attractive to customers. An example would be means of servicing devices remotely over a network without the need for a technician to visit. Again, this has been an active area of development for us for a number of years.
It is rare for a disruptive technology to emerge in isolation; few companies have the skills
and breadth of experience necessary for that. More often such developments come about by
connecting skills and knowledge from a number of different backgrounds. Because of this, much
of our work on managing disruptive technologies is carried out in pre-competitive consortia.
We are working, for example, with Dow Chemical and Motorola on printed organic electronics - a
new way of developing circuitry that involves the use of plastics rather then silicon. Such
partnerships not only pool experience but share risks as well.
Creating new businesses
The generation of new business is at once the most attractive and the most challenging
aspect of any research program. Opportunities can arise because of technical advances or
through emerging market requirements, but very often it takes a combination of the two.
As with so much in life, timing is everything.
At any one time, there are many apparent business opportunities in the Xerox R&D portfolio.
We have developed a lightweight process that identifies the most promising of these and starts
them off down a path that takes them through business concept development, business demonstration
and finally into business incubation.
At each stage of the process, we test the opportunity against a number of progressively more
stringent criteria, which act as filters, starting from simple market sizing and evaluation of
our intellectual property position through to more rigorous financial analyses and assessment
of any likely competition.
If the opportunity reaches the business incubation phase, then there are different choices for
its route to market. It's important to make the right decision here, because there is rarely
a second chance. Whichever choice is made, however, we involve users in evaluating the potential
of the technology in question. That gives us important feedback on functionality, and allows
us time to focus the offering on real market requirements. Just as important, it adds to our
corporate knowledge about how technology and people interact - a theme that has been at the
heart of Xerox research for over 40 years.
If the opportunity falls within the domain of a Xerox business group, then that is the
preferred option. The group might either be a traditional product group, or one focused
on new business spaces, such as Xerox Global Services. If this route is not suitable,
then there are business units within the Xerox Innovation Group, the R&D parent organization,
that can take the opportunity further. Finally, if it is decided that the opportunity falls
outside Xerox's strategic intent, then we will either license the intellectual property to
third parties or explore a spinout.
We use spinouts as a means of raising funds for further business development and to
leverage the strengths of partners. Spinouts carry intellectual property with them;
the value of this can be difficult to assess at an early stage, but it is probably
true to say that most companies have undervalued it.
Extracting value from investments
This article explores just a few of the many aspects of managing R&D and innovation in Xerox.
In a changing world one thing is certain - this is an area that is only going to grow more
complex. Nevertheless, the rewards of success are great. By achieving the right balance
between our core markets and new businesses, we can derive much more value from our
research and technology investments and prepare the corporation for success in new
businesses.
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