I am responsible for driving the research and development (R&D) agenda for a €27 billion global specialist in energy management and automation. My key challenge is to find the most efficient and agile way to foster innovation.
Every business wants to be “innovative.” But it takes more than new ideas or even new products to merit that label. In my experience, it takes a concerted effort to identify emerging trends and evolving customer concerns. It requires shifting your focus from products to customer outcomes. It entails collaboration, not only internally but also externally, through partnerships with other organizations. Finally, it requires a disciplined product development process.
Identifying the most important trends
Just as no man is an island, no company is innovative in a vacuum. Innovation is born in the context of changing technology, business, and consumer trends. One trend that no one can ignore now is digitalization. The world is far more digitized and connected than it was at the start of the millennium, and new forms of connecting and consuming information continue to emerge.
Another significant trend is the way computing is done, with many businesses rapidly moving their IT operations to the cloud. Now they can be more mobile, have easy access to analytics, and build better relationship internally among the company’s teams as well as externally with partners and customers.
The cloud is a good example of another trend, the transition from selling products to selling services related to products. The key aspect of this new direction is that maintaining a successful relationship between businesses and their customers is tightly tied to customer outcomes. The customers of cloud services don’t just buy software but also subscribe to software as a service, platform as a service, infrastructure as a service, security as a service, and others. Across industries, the trend is to view customers not just as a relationship formed in a single transaction but also as an ongoing relationship that emanates from the purchase of a desired customer outcome that the company will deliver.
Outcome-based services
The confluence of these trends informs the approach Schneider Electric takes in advancing innovation by focusing on desired customer outcomes. We have literally hundreds of products in each of the industries and market segments we serve. But we are not product-driven so much as customer-driven. When we sell a circuit breaker or a smart electric panel, we think about how it is going to serve the customer. That is, we think about what the product enables in the context in which it will be used. What we’re really selling is not an electric part but a guarantee of a better outcome. That outcome might be achieving 30% lower energy costs, getting the light just right, or maintaining the ideal temperature.
Outcome-based services are all about the customer experience and the role the company plays in that experience. So it’s not just cloud service providers who are now in the “as a service” business but also everyone who sells the means to a customer’s desired end. This kind of responsiveness can be extended not just to business customers but to the individuals they serve with a type of personalization that was unimaginable before the advent of digitalization and mobile connection.
For example, Schneider Electric has developed ways to make energy management, light settings, and interior climate adapt to the requirements of the occupants of a building without constant manual adjustments. Instead of entering settings on each light switch or vent, a person can control the interior environment either through devices in the building or remotely, via apps on a smartphone. Plus these systems are built with self-learning tools that note the movements of occupants and adjusts the settings accordingly. That’s a win-win scenario with minimized energy consumption for maximized comfort.
Schneider partners with its business customers to provide the type of environment that most perfectly meets the energy, lighting, and heating needs of the occupants. In the case of our partnership with Hilton, for example, the goal is to allow hotel guests to have the temperature and lighting they prefer in their rooms. That makes it possible for the hotel to surprise and delight their guests, who find their room environments set just the way they want them.
Another example of how digitalization enables a focus on customer outcomes is the use of IoT-based solutions by utility companies. Leveraging the consumption data gathered from smart meters, the utilities can offer their customers recommendations for ways to save on their energy bills, taking into consideration their specific needs and environment. Technology is ushering in a truly personalized future.
Technology anticipation and investment horizons
Realizing the potential of new technologies and capitalizing on new insights into customers’ desired outcomes takes a lot of work and planning. The core of our approach is what we call “technology anticipation.” We track emerging technologies that we think will be important for us in the future. Every year, we put together an internal report on these technologies in order to educate the company’s technology and engineering leaders and help them keep up with the latest potentially disruptive technologies out there. Technology anticipation also helps company leaders make better decisions about how much investment to allocate into different areas of R&D.
We have three categories for investment in innovation. “Horizon One” refers to investment in our core or the same type of products and solutions we already offer. “Horizon Two” investment explores ways of leveraging our existing offerings into an adjacent space. “Horizon Three” investments involve an anticipated movement into new markets, new offers, and new products. This latter category is the one associated with disruptive or game-changing breakthroughs. Following best practices for investment allocation, we allocate 70 percent of resources to Horizon One development, 20 percent to Horizon Two, and 10 percent to Horizon Three.
But there’s more to planning than categorizing. It is also important to make efficient use of the people in R&D. That’s why we leverage platforms to optimize results and increase efficiency among the R&D team members.
In a large company like Schneider, there are literally thousands of projects going on simultaneously, in a number of R&D sites around the world. We wouldn’t want to have researchers in Shanghai duplicating the same research done by a team in Denmark. But without communication between them, that could happen all too easily.
To avoid the potential for wasteful replication of effort and to increase collaboration and agility, we bring together the teams scattered around the globe. By having them share their work on a common platform, we don’t end up reinventing the wheel ten different ways. We can invent it once and come up with ten different applications for it. That way we make the most effective use of our in-house brain power.
The concept of open innovation
To really unleash the potential of innovation, however, you have to reach out to find creative, new ideas and not restrict yourself to your own organization. While we have a lot of smart, talented people in-house, we recognize that we can deliver innovation much faster if we take advantage of what’s going on outside Schneider – at startups, vendors, suppliers, and universities. That’s why we’ve been driving open innovation, the positive face of “not invented here.”
Our open innovation program has representatives from each of our key businesses. They come up with strategies for what to look for, identify strategic gaps, and work with possible existing solutions. We look into relevant university research projects and engage with other companies, including startups. Our partnership with other companies extends to three levels of engagement:
- Working jointly to bring a solution to customers, typically through a joint venture.
- Investing in startups through Aster Capital, our in-house investment arm.
- Acquiring companies when we determine that there is value in making them part of the Schneider family.
Reaching beyond a business’ boundaries does not mean letting go of the necessary limits to keep R&D within set budgets. Setting limits in terms of time, expense, and personnel allocated for a particular project is essential to keeping results on track.
That’s why it’s important to scope R&D projects and come up with a realistic estimate of the money, time, and people each project requires. If we aren’t disciplined about this process, inevitably the project will go over budget and miss its deadlines, particularly if developers start adding features for possible future needs.
The solution to that problem is to take a minimalist approach and build the absolute minimum needed for a workable product. Then you proceed to testing it with customers. Only after that stage should you go on to add more features. This DevOps approach, well-known in the software field, is equally applicable to hardware. Talk to customers, find out their needs, and then create specifications for the project without over-engineering the product. You make your prototype and then make the product better and better based on the feedback.
That’s how you innovate with efficiency and agility. This multi-faceted approach isn’t always easy, as I would be the first to admit. But given the payoff of effective innovation, it’s an approach worth striving for.
This blog post by Prith originally appeared on CTO Straight Talk – The Secret to Agile and Efficient Innovation.
