This article originally appeared in Forbes.com
Innovation is a top priority for most companies, especially in technology, pharmaceuticals, telecommunications and other industries with rapidly evolving product designs. But fewer than one in four executives surveyed by Bain & Company believe their companies are effective at innovating. Why do so many see their companies flailing in this critical capability?
The culprit is often complexity—not in the design of products, which are necessarily sophisticated and intricate in these industries. Rather, it’s unwanted complexity in the organization and its processes that can cripple a company’s ability to innovate and grow profitably. We typically see this kind of complexity across three broad areas:
Portfolio complexity hinders top-line growth. Companies with too many projects in their R&D portfolio spread their investment too thin across many opportunities. They don’t have the discipline to kill off bad bets early, or they fail to cull the portfolio periodically so that they can invest more in high-potential projects.
Organizational complexity suffocates innovation and drives away critical talent. When there are too many middle managers, or teams are fragmented across sites all over the world, decisions can take too long. If this stalls promising projects, the best people scramble for the door.
Development-process complexity leads to missed market windows. Companies that spend too much effort managing their legacy portfolio or their overhead processes can overlook new opportunities in the marketplace.
Of course, no one sets out to hobble their R&D group with convoluted organizational structures or complicated development processes. But over time, as companies grow through acquisitions, or as pressure mounts to increase revenues, complexity creeps in.
Some companies avoid these traps by maintaining a disciplined focus and finding ways to simplify their R&D organizations. Others that have lost their way may require a more transformative approach to return them to innovative leadership. To get there, they need to confront the critical issues in each of the three areas most vulnerable to complexity.
For example, to dial back portfolio complexity, companies can review their innovation roadmap and make sure it’s aligned with the company’s long-term goals. Simplifying the roadmap restarts a virtuous cycle of focus and successful delivery—building momentum and restoring confidence in the R&D team.
A classic example was Steve Jobs’ return to Apple in 1997. At that time, the company was crippled with complexity, and sales had fallen 30% in the last quarter of 1996. Jobs cut 70% of the product line and focused the company on four products that represented a clearly defined and differentiated core. That focus enabled a repeatable R&D innovation model that defined Apple’s success in the years since with the iPod, iPhone and iPad.
Simplifying the R&D organization’s structure itself starts with the right team, one that’s committed to making the necessary changes. This may require new leaders with a new vision for the product line and the organization. It may also require matching the R&D organization structure to the newly streamlined portfolio.
Companies transforming their R&D also renew the discipline in their development processes and infrastructure. They instill greater clarity and accountability, and fewer decision points and decision makers. After Alan Mulally took the reins at Ford Motor Company, he put in place a more rigorous business plan review process that accelerated decision making and improved accountability for performance. Ford also reduced the number of vehicle platforms globally, from more than 40 to fewer than 15 in just three years. Simplification in Ford’s R&D program contributed to the company’s rebound in the years 2007–2012.
Reducing complexity in R&D takes time. It requires patience and persistence. But it can deliver enormous value for a company’s shareholders through improved innovation, shorter time to market and higher product quality. In our experience, less complexity leads to lower operating expenses and higher productivity, as much as 15% to 20% improvement over time. In some cases, the savings generated by early successes can offset the costs of subsequent efforts, allowing the transformation to fund itself.
Kayvan Ardalan is a partner with Bain & Company in Los Angeles, where he is a leader in the firm’s global R&D/Product Development practice. Asit Goel is a Bain partner in Palo Alto and the leader of the firm’s North American R&D/Product Development practice. Chris Brahm is a partner in Bain’s San Francisco office; he leads the firm’s Technology practice in North America.