Designing the value chain's innovation culture

Designing the value chain's innovation culture

Strengthening innovation in science and technology is essential if Thailand wants to move up the value chain from resource-driven growth, using low-cost labour and capital, to productivity-driven growth.

The National Science Technology and Innovation Policy Office (STI) has outlined strategies in its National STI Policy and Plan 2012-21 to help the country make the transition and escape the middle-income trap. In fact, the country has been in the lower-middle income club for more than 20 years and was only upgraded in 2011 to upper-middle income by the World Bank. With average per capita income of US$4,210 per year, Thailand is still far from achieving high-income status. (The World Bank defines upper-middle income as ranging from $3,976 to $12,275 and high-income $12,276 or more).

Innovation almost always tops the list of factors that ensure high and sustainable long-term growth. An innovative company or economy commands high productivity, measured by total factor productivity (TFP) in growth accounting and is thus competitive in the global market. Countries that have not been caught in the middle-income trap typically display high TFP growth spanning several decades, usually associated with their continued accent in the product cycle. Thailand certainly does not fit such a profile yet.

Thailand plans to:

Fincrease the number of researchers per 10,000 citizens to 25 from 9 now and allow existing researchers at public universities to work full-time at private firms; and

Fincrease research and development (R&D) spending from less than 0.25% of GDP or US$1.1 billion (far lower than Asean peers such as Singapore and Malaysia) to a respectable 2% of GDP over the next decade.

Investing in R&D infrastructure may be the necessary first step, but building a strong innovation ecosystem is not just a matter of inventing new products and services but nurturing the ability to convert ideas systematically into new offerings that alter the very context of business.

Innovation not only delivers sustainable long-term growth but also is an important value creator for any organisation's supply chain. In a survey by the Chief Supply Chain Officer Report, an overwhelming majority of supply chain executives voted innovation (in the form of new product/service introduction and new geographical market penetration) as one of the highest means of delivering value through any high-performing supply chain.

Prof Gary Hamel, an authority on innovation management, says many organisations are more geared to building up their talent pools and R&D infrastructure but give little thought to redesigning organisational structure to release "innovation DNA" across the board. Modern companies are structured around 20th-century hierarchy-based models that stress doing things with perfect replicability at ever-increasing scale and steadily increasing efficiency. These principles are inadequate to meet the challenges unleashed by the forces of digitisation and globalisation.

The new challenges are: how do we build organisations that are as nimble as change itself? How do we mobilise and monetise the imagination of every employee, every day? How do we create organisations that are highly innovative places to work? These challenges can't be met without reinventing the 100-year-old management model.

Prof Hamel is very clear on the outlines of the new 21st-century management model: decision-making will be more peer-based and collaborative; tools of creativity will be widely distributed in organisations. Ideas will compete on equal footing. Strategies will be built from bottom up. Power will be a function of competence rather than of position.

This innovative management design for value creation has been widely endorsed by most of the companies on Forbes magazine's list of the world's most innovative companies. Among them, Procter & Gamble (P&G) shares how it has been able to triple its innovation success through its BRAVE (Behaviours, Relationships, Attitudes, Values and Environment) strategy, which exemplifies a successful marriage between innovative organisation design and R&D resources.

Behaviours: The innovation programme is inspired by a drive to keep "delighting the consumer". All behaviours related to strategic thinking and implementation start and end with the consumer.

Relationships: Innovation is everyone's job both inside and outside the company. Through its "Connect+Develop" model, the company has broadened the horizon by looking at external sources for innovation in addition to the invent-it-ourselves model, using technology and networks to seek ideas for products.

Attitude: Senior leadership has an assertive attitude and pushes each category towards blended innovation, which layers revolutionary innovations on top of its commercial and sustaining innovations.

Values: P&G is all about "touching and improving lives and can't improve peoples' lives with the same solutions to the same problems. Thus, innovation matters a lot to its ability to fulfil its purpose.

Environment: The company remains committed to innovation, as this is "the primary driver of P&G's organic growth".

(The author would like to acknowledge Prof Gary Hamel's book 'The Future of Management', Harvard Business School Press.)


Kanishka Ghosh is a supply chain professional and independent writer. The Link is coordinated by Barry Elliott and Chris Catto-Smith CMC of the Institute of Management Consultants Thailand. It is intended to be an interactive forum for industry professionals. We welcome all input, questions, feedback and news at: Barry.Elliott@inslo.com
cattoc@cmcthailand.org

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