How does innovation work?
10 MAY 2020
The term “innovation” may well conceal the biggest black box in the business world. Every company wants to be innovative, but only a few manage to remain innovative for decades.
The term “innovation” may well conceal the biggest black box in the business world. Every company wants to be innovative, but only a few manage to remain innovative for decades. After all, nobody has yet identified the universal formula for innovation. But there certainly are a number of fundamental, indispensable guidelines for innovative companies, and Merck KGaA, Darmstadt, Germany takes its bearings from these.
Innovate or die
In the long term, growth and prosperity depend on new products and methods that generate added value, specifically by being innovative. Developing such products and methods is one of the key challenges for companies – and a crucial competitive factor. And we as a society certainly rely on innovation. Addressing global challenges such as climate change, population growth and scarce natural resources requires new smart technologies. For example, to keep the digital revolution from becoming the planet’s largest energy guzzler, our Electronics business sector is developing innovative materials for increasingly efficient microchips – with increasingly greater computer power.
Most current economic theories do not answer these questions. However, this does not mean that innovations must be left to chance. The crucial factor for an organization’s innovative power is that its managers foster their employees’ inventiveness and entrepreneurial spirit, encouraging them to be creative and think outside the box. Having the right corporate strategy is important, but above all, innovation depends on having the right culture.
Provide motivation and freedom to act
Management consultants McKinsey published a study identifying a number of characteristics that are common to especially innovative companies. Many of these success factors are quite similar to the features that underpin innovation at Merck KGaA, Darmstadt, Germany. The main ingredient for success is readily apparent: people. Companies that strive for innovation must provide an environment where their employees are actively involved, with room to grow. They must create a culture that is both challenging and rewarding – a culture that encourages people to be curious, to formulate ideas and put them into practice. First and foremost, this requires a fundamental openness to new approaches and ways of thinking. In practice, it means providing the resources to support new ideas, even if at first glance they seem risky.
This not only increases the actual autonomy of employees, but also boosts the sense of freedom throughout the organization. And precisely this freedom is the lifeblood of innovation. No matter how important strategic priorities and clearly defined corporate goals may be, innovations cannot happen without creative freedom and autonomous decision making. Here at Merck KGaA, Darmstadt, Germany, for example, our Innospire initiative gives all our employees a platform where they can bring ideas for new products, services and business models directly to us. The best ideas can be further developed in our innovation center and fleshed out into professional business plans in a guided process.
However, it is not enough for companies to focus on the development phase of innovations; they must also appropriately manage the results. First of all, keeping employees motivated means ensuring that their engagement is rewarded regardless of the final outcome. Innovation projects do fail – indeed, they fail fairly often. Projects that fall short of the hoped-for result must not be regarded as defeats. Exercising curiosity and taking a new approach always entails a degree of risk. What is needed is constructive management of failures and a genuine culture of learning from errors, in which employees are always encouraged to take calculated risks.
From idea to product
Having the right corporate culture is crucial, but this alone does not suffice. Being an innovative company also means having the right strategy. A key finding of the McKinsey study is that innovative companies view growth from products developed in-house as an integral component of their strategy. As a leading science and technology company, we at Merck KGaA, Darmstadt, Germany know that we must continually develop new products to create added value for our customers. And this requires systematic innovation management. Therefore, each of our three business sectors pursues a clearly defined strategic approach to innovation, in order to advance the development of new products and successfully bring them to market.
Furthermore, companies should define clear and distinct fields of innovation in which they intend to advance. Here, in particular, they must identify relevant problems and fully understand which technologies could be used to solve them. The framework in which we are active is defined by current megatrends. But it is our customers who determine the areas of innovation where we ultimately put our focus. Their current and future needs are what matter most to us. For example, Electronics focuses on the megatrend of digitalization. Here, our customers expect tailor-made solutions that allow for the production of increasingly complex microchips and displays, both now and in the future.
Furthermore, successful innovators manage to transform ideas into sustainable business models. At Electronics, our Strategy and Transformation unit works closely with our CTO Office to support innovation projects throughout the entire process – from brainstorming through incubation to establishing sustainable business models. The last step also requires innovation, because traditional models such as € per gram are increasingly becoming obsolete. What matters to our customers are higher performance, reliability and minimal risk – and these values can be represented much better in tailor-made business models.
In the Innovation Center we opened in Darmstadt in 2018, we are also pursuing cross-sectoral innovation projects. The Innovation Center offers our employees an optimal environment for turning ideas into practical applications. The freedom and openness essential for innovation are fostered not only by the appropriate culture, but also by the physical work environment. The Innovation Center’s architecture and interior design are intended to support open dialogue and collaboration.
Openness and collaboration
This brings us to the next success factor for innovation: collaboration – both internal and external. On the one hand, companies must cultivate a culture of collaboration and exchange of knowledge, offering employees effective platforms for networking and interdisciplinary cooperation. At the same time, our innovation processes must also welcome external input. We can no longer afford to pour the entire innovation budget into our own development departments.
Merck KGaA, Darmstadt, Germany has a huge international network of customers, research institutions and startups, and we work closely with them as we develop new products. For example, a crucial foundation for our innovative power in the electronics industry is our proximity to customers – most clearly evident in the high number of joint research and development programs. In turn, with our Accelerator program we support selected startups and offer them access to our Innovation Center. Our goal is to identify technology trends early on, network the startups with our business sectors, and ideally win them as partners in a long-term cooperation.
To some degree, this enables us to deliberately foster the innovative power of companies – through a strategically defined innovation portfolio, a broad network of business partners and above all a modern corporate culture. After all, innovation is primarily not about products, but about people. This calls for curiosity, the right balance between autonomy and organization, and a little willingness to take risks.