The business advantages of scale and scope are widely recognized, but large, global enterprises often fail to fully realize them when it comes to innovation.
Innovations that are developed in one geographic region or business unit — new products to delight customers, new HR policies to attract and retain talent, new production processes that drive efficiency gains — too often stay within them instead of being disseminated across the enterprise.
Consider the experience of a global consumer packaged goods company and three of its regional business units. (Innosight was an advisor to the company). Region 1 had developed a new brand targeted at younger consumers, who were increasingly seeking healthier products. Region 2 had changed its production processes in ways that increased profitability. And Region 3 had developed new sustainability-focused business models. For reasons we’ve seen time and again, regions that could have imported these innovations dismissed them, or worse, were simply unaware of them, as they innovated in silos.
Not everything needs to scale globally. Local innovations for local markets matter. But there are meaningful downsides of not scaling the great many innovations that are born locally but do have significant global potential. These include lost revenues, since a new product originating in one region could be sold to customers in others, and higher costs since teams around the world often end up duplicating (or triplicating, or quadruplicating) investments in solving common problems. The CEO of McDonald’s, Chris Kempczinski, highlighted this in a recent memo, in which he noted that insufficient collaboration across regions meant that “we are trying to solve the same problems multiple times, aren’t always sharing ideas, and can be slow to innovate.”
Other disadvantages arising from insufficient global scaling are less obvious but also really matter. When regional businesses that started out with similar product portfolios don’t share innovations and instead evolve in isolation of one another, those portfolios become more divergent over time. This leads to a proliferation of product lines, which makes it more difficult for the corporate center to optimally allocate resources, and for shareholders to value the company and understand its growth prospects.
There are three common obstacles to scaling innovations from one to many markets. To illustrate both the obstacles and the solutions for overcoming them we’ll use the case of a global retail bank, which Innosight advised.
Fallacies about Local Uniqueness
Though every region is different, local leaders tend to overestimate the singularity of their markets, their customers, and the conditions under which they operate. But often, new products and other innovations — and the capabilities and learnings that come from their development — are much more transferable than they assume, in particular when they are aligned with innovation priorities that are shared across regions. An innovation priority, or “strategic focus area,” is essentially a broad hunting ground for innovation. At the consumer goods company, for example, one innovation priority was the packaging, which led to specific innovations in materials and size and format.
Let’s turn to the bank. One of its regional units had made significant investments in developing a digital mortgage-application platform that further automated its mortgage-application process to make it faster and more consumer friendly. Though mortgages were an important product line across regions, most were reluctant to consider adopting this innovation, contending that the distinct ways that mortgages were regulated within their individual markets made it unfeasible.
Regulatory frameworks do vary from country to country, of course, but not in ways that precluded this innovation from being widely adopted, since the implementation of the platform could be adapted to address differences in regulatory requirements in each market, much in the same way that existing mortgage-application processes were customized to local markets. What’s more, the platform was consistent with innovation priorities shared across regions, including digitizing and improving customer experiences across existing product journeys and increasing the profitability of mortgage lending.
To overcome this obstacle, the bank’s central corporate strategy team facilitated a process to identify common innovation priorities across regions. First, regions were asked to define their individual innovation priorities in a standard way (for example, “new ecommerce payment and financing solutions”), identify the associated target customer segment, the customer problems to be addressed, and the broad types of technologies and capabilities required. Each of the bank’s four regions defined between five and 10 innovation priorities.
The corporate strategy team then facilitated a series of discussions among senior leaders of each region to compare and identify commonalities in their innovation priorities. This surfaced multiple priorities that were shared across all four regions. In addition to those related to the mortgage-application platform, they included the development of new mobile-only products for millennial and Generation Z consumers and the reduction of call centre use and wait times.
Innovations aligned with those priorities could then be identified as sharable, no matter where they originated. Awareness of common innovation priorities among teams across regions also led communities of practice among designers and product developers to emerge organically. These convened regularly to exchange ideas, disseminate learning, and co-create new innovations consistent with those shared priorities.
Misaligned Incentives and Culture
Various formal and informal disincentives are another obstacle to scaling innovations. For example, regional leaders’ bonuses are typically based on their own unit’s P&L performance, which can make them reluctant to spend time, energy, and resources on exporting an innovation that will benefit another region. Conversely, a “not invented here” mindset can make managers reluctant to import externally generated ideas.
The bank’s bonus plans significantly penalized local leaders who missed ambitious profitability targets. This made them reluctant to dedicate resources to exporting innovations. In addition, a “not invented here” mindset was widespread — from regional leaders who wanted to prove their ability to innovate independently to developers who preferred to write their own code rather than use the software developed by peers in other regions.
To address these issues, the bank offered P&L relief to regions on a case-by-case basis, allowing them to deviate from profitability targets without risking their bonuses so that they could invest their own resources into scaling innovations for the benefit of other regions. It also established a central fund and team to support global scaling efforts.
Regions that were developing innovations that could address shared priorities were invited to submit short “global scaling resource requests” that summarized the additional investments required to scale them to other regions beyond just their own. The request could be to cover the cost of building a product in a way that made it operable across global technology environments, for example, or the team hours required to train and support users in other regions and the potential in-year P&L tradeoffs or broader operational challenges that would result.
A global scaling committee, comprised of corporate C-suite leaders and central strategy and finance executives, decided which requests to approve. Most resource requests submitted to scale innovations that addressed shared priorities were approved.
The bank’s corporate leaders also tried to change attitudes by publicly celebrating both managers who shared their region’s innovations and those who adopted those created by others. They spotlighted global scaling initiatives in all-day quarterly business-review sessions attended by top regional executives, where exporting and importing regions jointly discussed the innovations and the process of scaling them. The bank’s leaders also highlighted such innovations and the teams involved in these efforts in company newsletters.
Finally, the bank’s leaders encouraged and frequently reminded regional managers to ask themselves a series of questions before dismissing potential innovations developed by other regions. They included:
- Could we better serve the customers we have or seek by adopting this innovation?
- If the innovation isn’t specific to one or more of our local circumstances — for example, if it has been developed in the context of a different technological, regulatory, or competitive environment, or requires a means of production or distribution that we lack — could it be adapted?
- And might we be guilty of having a “not invented here” mindset if our first instinct is to dismiss this innovation?
Lack of Transparency
As we mentioned, one major reason that business units don’t share innovations and instead often duplicate efforts is a lack of awareness of what one another has developed or is undertaking. One way to address this is by creating a central mechanism that makes it easy for regions to share knowledge of their innovation pursuits from their earliest stages.
Consider one innovation priority shared by all the bank’s regions that we mentioned: developing mobile-only products for millennials. Innovations consistent with this priority across regions included distinct payment, savings, and investment products; new product features like roundup savings and cashback and rewards; innovations to streamline customer journeys within mobile-only apps, and integration with budgeting and bill-splitting tools that appealed to the millennial audience. But regions lacked awareness of each other’s efforts and were in some instances even duplicating spend on development of the same things.
The bank addressed this issue in two ways: by establishing the process for identifying common innovation priorities across regions that we previously described and by instituting an innovation-portfolio-management system to profile and track innovations. Regions were required to enter into the IT system a description of each innovation project, including the associated innovation priority, the target customer segment, its revenue potential, and anticipated investment requirements.
Beyond supporting global scaling, the system helped each region better understand and manage its own innovation pipeline. When it surfaced instances of regions unknowingly duplicating each other’s efforts, they were able to collaborate and pool their insights, development capabilities, and data assets.
Too many global enterprises don’t make the most of local innovations. By systematically overcoming the obstacles to scaling them, they can spread them much faster and more effectively and generate a much higher return on their innovation investments.
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