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sts.components.contact.mr.placeholder Sebastian Webel
Mr. Sebastian Webel

Editor-in-Chief

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Pictures of the Future
The Magazine for Research and Innovation
 

Innovations

Key Ingredients for Successful Innovations: Unusual Ideas and Good Funding

Successful companies have a clearly defined innovation strategy and deal with innovation in the same way they handle other well-established corporate processes.

13 years ago, Professor Henry Chesbrough from the University of California, Berkeley, coined the term “open innovation” to describe the process that companies can use to counter increasing competitive pressures and ever-shorter product lifecycles. Chesbrough was himself an innovator — his “invention” is today an important management strategy for successful companies.

Open innovation is based on the assumption that customer-friendly products and services are no longer created only in research and development departments. On the contrary, a wide variety of corporate units have to collaborate with customers, suppliers, scientific organizations, and even competitors. So instead of simply utilizing internal capacity, companies are integrating external expertise for the development of innovations.The promise of this concept is demonstrated by the international innovation study conducted by the auditing and consulting firm Pricewaterhouse Coopers (PwC). According to this study, successful companies have a clearly defined innovation strategy and deal with innovation in the same way they handle other well-established corporate processes. Such companies strive to create an especially high share of radical and groundbreaking innovations, use a wide variety of innovative business models, and increasingly cooperate with partners. On the whole, they grow more quickly and generate more sales than other companies. In coming years, the most innovative companies want to grow almost twice as fast as the average firm and three times faster than latecomers in innovation..

German companies are self-confident with regard to their innovation and growth strategy. However, they mainly focus on products. According to PwC, this focus is too strong from an open innovation standpoint, which could mean that they might not be able to keep up with international competition.

The Most Innovative Company Worldwide

Another factor that slows down innovation in Germany is that companies are unwilling to take the risk of turning new ideas into feasible concepts that are then launched on the market — with the aim of eventually making money. “In the past, this meant that German inventions such as video recorders and MP3 players made their way into living rooms and pockets around the world from the American market,” states Professor Peter Schmieder, who directs a master’s program for business management and entrepreneurship at the Deggendorf Institute of Technology (DIT), northeast of Munich, Germany. American companies perform noticeably well. For example, the Boston Consulting Group (BCG) ranks the world’s most innovative companies in its annual innovation report. Apple has topped the list since 2005, and is followed in 2015 by Google, Tesla Motors and Microsoft. Although innovations now serve as growth drivers and sales accelerators in all industries and regions, technology and telecommunications companies do best, with 17 of the top 50 businesses being companies from these sectors.

In addition, the automotive industry is particularly striking. Four automotive companies are on the top ten list. Tesla Motors is ranked third, after the company was listed for the first time in 2013 (number 41) and ranked as number 7 in 2014. The traditional automotive manufacturers Toyota, BMW and Daimler take the places 6, 7 and 10. Tesla Motors, not a classic automotive company, also shows that the combination of technology and telecommunications with a classic industry is particularly innovative.

German Automaker Volkswagen Invests 13.5 Billion US Dollars in Research and Development

That expenditures on research and development do not necessarily translate into innovative prowess is demonstrated by comparison with the list of companies that spend the most money on R&D. The latter list is in 2016 headed by the German automaker Volkswagen ($13.2 billion), which only comes in 35th in the ranking of innovative companies. By contrast, the most innovative company, Apple, invests “only” $8.1 billion in R&D.However, high expenditures on research and development do not necessarily translate into innovative prowess. Although traditional R&D work is important, funding is also needed for unusual ideas. This assessment is confirmed by Carsten Kratz, CEO of the Boston Consulting Group (BCG) for Germany and Austria. “Continuously improving existing business models suffices less and less nowadays,” he says. “On the contrary, you also need innovations with a disruptive force in order to be among the top companies in a sector.”

High expenditures on research and development do not necessarily translate into innovative prowess.

Disruptive innovations turn existing business models, products, and process completely upside down. Companies in Silicon Valley seem to have a special sense for such innovations. However, this Californian region’s stability and strength is not only due to innovative ideas, but also to venture capitalists. According to critics, the problem in Germany is that innovators can attract start-up capital, but they rarely obtain follow-up funding, which is much more important. By contrast, venture capitalists in Silicon Valley are able to turn a crazy idea into a successful team of programmers, The New Yorker stated in May 2015. This is demonstrated by companies such as Apple, Microsoft, Starbucks, Home Depot, Whole Foods Market, and JetBlue, all of which received venture capital. What’s more, The New Yorker pointed out that venture capitalists in Silicon Valley know that real innovation doesn’t follow any set pattern. The future always turns out differently than expected. Although many people once thought that flying cars would be a future innovation, we instead got smartphones and the Internet. Who could have predicted these developments?

Gitta Rohling