Article originally published in Pétrole & Gaz Informations #1837 (July / August 2015)

We’ve conducted interviews with several tens of innovation managers, from R&D, strategy, and marketing of big corporations for our recent book Innovation Intelligence. The verdict is clear: innovation requires creating a cognitive relation between a multitude of very distant knowledge domains at an ever increasing pace. In the digital era, access to the best state of knowledge and the best talents has never been easier. When searching for the proverbial needle in the haystack, the speed of the search is increasing, as well as the number and size of the haystacks. Intelligence is critical. Large corporate Oil & Gas players are organizing their response.

Three trends destabilizing large organizations

To avoid ambiguity, let’s first review what we mean by innovation. Marc Giget often gives the following definition: “An innovation consists of integrating the best state of knowledge into a creative product to improve the satisfaction of individuals.” This definition is quite good, because it features the three important points: knowledge, creative synthesis, and satisfaction of individuals. It is this task of creative synthesis that is becoming more and more complex to accomplish because of three key factors.

Trend #1: An inflation and fragmentation of knowledge: new knowledge is being generated at an accelerated rhythm (for instance, five million scientific papers are published every year). In addition to this, this new knowledge is created in a multitude of entities of which the average size is decreasing. Thus, it is faster today to pick from this knowledge that has already been created by others than to produce it yourself — it is the era of open innovation.

Trend #2: Increasing absorption of products into the sphere of commodities: as analyzed by the Japanese scholar Noriaki Kano, any innovative functionality that pleases customers will inevitably become a commodity. To maintain customer satisfaction, every company attempts to include complementary functionalities into their products. Products become more complex and even converge towards full service oriented packages: Michelin, as well as Rolls Royce don’t sell tires or reactors, but travelled kilometers and flown miles.

Trend #3: Increasing digitalization: the “Web barbarians” [2] (digital players such as Google, Apple, Facebook and Amazon, sometimes dubbed “Digital Barbarians” or “Web Barbarians” by analogy to the migrating people who, over several centuries, searched for the resources and lands they had lost in their regions of origin) analyze each industry, identify where the margins are located and the sources of inefficiency in the value chain. Thanks to digital, they bring order in this chain, they insert themselves in the client relationship and capture potential margins. These new players, who move with great speed, often overtake established players.

Innovation is today essentially an activity that consists in examining a multitude of knowledge components that are available in the outside world, to analyze them, to select a few and to combine them with elegance and effectiveness to answer the needs of customers. The act of innovation, in its most creative aspect, belongs more to art than to technology.

Let us see how an Oil & Gas multinational corporation reacts to this.

The Enco Dilemma: Organization Vs. Agility

This case study discusses an actual multinational from Oil & Gas. It is based on numerous interviews of various people involved in the group’s innovation activities, R&D and digital transition. In order to preserve the confidentiality of certain organizational and methodological aspects, we’ll name this multinational Enco.

Among the companies that we have met in various industrial sectors, Enco is a very interesting case. Over the past few years, among numerous initiatives to improve the company’s innovation performance, Enco created a Scientific Directorate at the corporate level and an Innovation Directorate in the its Marketing & Services branch. Enco has also reorganized its entire R&D organization. This multinational company is a prime example of a company in perpetual transformation and that, despite its large size (more than 100,000 employees around the world) has managed to be agile and cope with the diversity of its activities, the maturity of certain parts of its industry, and disruptions that can come from anywhere.

Despite its size and scope, Enco is under pressure from a number of recent trends, including the rise of China, new sources of energy, shale oil and gas, and the current oil crisis. In chapter four, we described three important trends that have affected companies: growth and fragmentation of knowledge, risk of product commoditization, and digital transformation. Enco is facing all of these trends. Like other companies, Enco must adjust the way it creates and accesses knowledge, as well as the way it integrates that knowledge. The company also needs to become more flexible, more agile, to meet increasingly volatile demand.

Challenge #1: Non-core technological renewal

Even if certain branches of Enco’s operate in a mature industry, there is a strong need for innovation to differentiate its products from the competition and thus sustain profits. New technological bricks must be continually introduced. The main challenge lies in the fact that some of these bricks of knowledge (digital technologies, biotechnologies, high-performance computing, nanotechnologies, drones, and others) are historically very far from Enco’s core business. Even if Enco does not develop most of these new technologies in-house, the company must know them well enough to select and guide their suppliers and partners.

Challenge #2: Acceleration of innovation cycles and real-time evolution of needs

According to the R&D Director of one of Enco’s branches, the main challenge that he is facing is not only the accelerating innovation cycles but also real-time evolution of the specifications. The following is a typical situation that he now encounters regularly but that did not exist ten years ago: The R&D department receives a request from the Marketing or Strategy department, an R&D team begins working on the request, and then before they reach the objective, the specifications of the request change!

In order to overcome these disruptive trends, Enco cannot take a one-size-fits-all approach to innovation. Let’s review briefly a number of initiatives that the company has put in place during the past few years.

Initiative #1: Corporate scientific direction

In 2006, Enco created the Scientific Directorate (DS) at the corporate level. One of the roles of the DS is to build medium- and long-term what-if scenarios predicting the effect on Enco of various potential disruptions. The following might be a what-if scenario: What would happen if Chinese growth fell from 7% to 3%? The DS is composed of a small team of Deputy Scientific Directors who each have a broad understanding of both the science and technology and the potential business applications. The DS has close interactions with the company’s branches, in terms of both technology and business. The DS is also focused on acquiring knowledge from outside the company: each year members of the DS team visit approximately 150 laboratories around the world. They also cultivate a network of external scientific advisors who act like small antennas deployed outside of the company — a sort of scout network. Real time access to new knowledge requires boots on the ground.

Initiative #2: Corporate expert network

Over the past few years, Enco has made significant progress in expert management. The leaders of Enco, like those in many other companies, felt that experts were the source of the problems. The vast majority of companies define an expert based on the recognition of the superior knowledge an expert holds compared to a non-expert. This definition is limiting, because it does not emphasize what the company can expect from the expert, and it does not provide criteria to evaluate the expert (since, by definition, the expert knows that field best). To avoid this “Guru effect”, at Enco, experts are now managed according to their defined role:

Develop knowledge: experts must develop new knowledge.

Transfer knowledge: experts are not guardians of their own knowledge temple; they must transfer the knowledge to others in the company.

Apply knowledge: experts are at the service of the company and must apply their expertise to support troubleshooting, strategic thinking, detection of opportunities, and other projects assigned by their managers

Initiative #3: Towards more open R&D and platforms?

The Management Committee of one of Enco’s branches has set the goal that the branch put ten disruptive products on the market by 2017. Ten new products is a lot, and 2017 is almost here. The R&D Manager of the branch is well aware that, given the tight timeframe and limited resources, the branch cannot do everything in-house. In 2014, the branch’s R&D department began a comprehensive review of the knowledge and technologies the team needs to master in order to succeed. The goal of this ongoing review is to decide which technologies can be safely outsourced and which ones are core so should remain in-house. There is also an ongoing strategic initiative to develop strong international partnerships with leading academic researchers.

Outsourcing some R&D would address the acceleration aspect; however, is would not address flexibility: Enco’s R&D Director admits that it needs to set up robust product platforms, like has been done in the automobile industry. Easier said than done.

Initiative #4: Toward a Chief Innovation Office?

Enco has created Innovation Offices in several of its branches. The main motivation for creating such teams was to accelerate time to market. The silos of a traditional company are at the root of inefficiencies, posing a mismatch between the organization’s structure and the fast-paced environment, and they are no longer sufficient to enable the company to compete with the faster and more agile newcomers. An Enco innovation team, composed of just a few individuals, plays the role of internal consultant: the team members benchmark existing innovation practices and make the results available to other entities (countries and business functions) within the branch. Aware that innovation is not a question of only technology but rather should pervade all functions of the company, the General Secretariat of the branch oversees the innovation team. Ideally, the innovation team would like each entity within the branch to develop its own innovation roadmap. To this end, the small innovation team has created a network of 170 correspondents in all areas of the branch. The ideal traits of these correspondents are curiosity and entrepreneurship. Their role is to animate and develop a culture of innovation deep inside the branch. This networking approach allows the innovation team to have an efficient and well-structured presence in all areas of the branch.

Initiative #5: Embracing and leveraging the digital revolution

The digital wave is both a disruptive factor and a powerful toolbox. To contain disruption, one of Enco’s branches created the Chief Digital Officer function in early 2012. Considering the pace at which things evolve these days, three years was a long time ago! Exploring this area early enough could, perhaps, prevent Enco from being disintermediated by digital barbarians.

On the toolbox side, let’s discuss Big Data. As we explained previously, one of the main challenges for the Enco branch was to put on the market new products (new mixtures of molecules) faster and faster. Today, experience and intuition enable Enco’s chemists to discover the right “recipe” of molecules for the company to obtain certain properties with its products. A large volume of data is generated at each step in the conception of a new recipe, but the data is not yet being analyzed systematically. Big Data could be used to accelerate the conception of new recipes: if the researchers could use models based on this data predict the performance of molecules, a lot of time would be saved.

Despite Enco’s many initiatives, its approach is still not optimal. Next we give a few examples for areas of improvement that will most likely be addressed by Enco in the future.

Improvement #1: Cultural change

The Innovation Director of one of Enco’s branches explained to us that it is still very hard for her innovation team to make the voice of innovation heard throughout the branch. Engineers still tend to think about technology and product before thinking about value for the client. This attitude probably results from the lack of a strong mandate from top management. The tone is always set by the top. You can be asked to think outside the box (for example, the head of the bitumen department thinking about connected roads), but if it is not part of the company’s culture, if it is not part of yours and your annual bonus does not depend on it, why bother?

Improvement #2: Adapting the pace of research to the fast pace of the market: toward product platforms?

We mentioned above the potential benefit from developing product platforms. However, the notion of a product platform fits complex systems such as planes and cars probably better than simple ones such as the chemical recipes of a lubricant. In the latter case, development is complex, but the result is simple. One approach may be to blend the fast screening techniques used in the pharmaceutical industry with platform-like shortcuts (perhaps pre-mixing of compounds), and then to incorporate a massive effort in data acquisition and modeling.

Improvement #3: Obtaining an integrated overview of knowledge in real-time

The main challenge concerns the gathering of integrated knowledge, ie of intelligence. We use the term “intelligence” in its Anglo-Saxon sense : the set of activities that collect, analyze and cross a large spectre of informations from a multitude of sources to extract guiding elements in view of a strategic decision or an operational action.Intelligence constitutes the vital fuel of innovation. It has always been an essential activity of a business, however it is practiced today in an increasingly complex environment. Most of our interviewees admitted that they and their teams are not yet very good at that game. They analyze patents, read scientific publications, watch for technology trends, analyze markets, analyze megatrends, and so forth. There are three main issues with their current approach to knowledge gathering. First, all of these tasks are led and conducted by separate teams in the company. The various knowledge-acquisition activities are not coordinated or integrated, therefore they do not feed innovation. Second, knowledge acquisition intrinsically suffers some loss in translation. For example, a request from the Innovation Director is summarized into keywords by the person in charge of the search. This person will most likely not have a full understanding of the question and what is really at stake. This person will not think about who the client is or who ultimately will benefit if the search is successful. Keyword searches return results that are then filtered and interpreted by the person in charge of the search. And last but not least, traditional knowledge searches rely on published data, which by definition is outdated; the outdated information is no longer sufficient, given the fast pace of knowledge renewal. The knowledge “market” is similar to a financial market: it is efficient, meaning that everybody has access to the same data. An anticipative and creative examination of all data is needed.

Conclusion

Enco was chosen as the introductory example for this chapter, because in some ways its approach to adapting its innovation process is mature, and yet it still has many challenges to address. It is interesting to note that despite Enco’s maturity regarding innovation organization, process, and tools, it has decided not to have a corporate-level Chief Innovation Office. Such a move could be a way to accelerate the change of culture. We have reported here the synthesis of the numerous case studies done across various industries for our book Innovation Intelligence (2015). The present study is representative of an Oil & Gas company with a good level of maturity in the management of innovation. In our book we discuss many other industries. Some are ahead of Oil & Gas in their development, and thus, rich with lessons.

Article originally published in Pétrole & Gaz Informations #1837 (July / August 2015)

Notes

[1] Innovation Intelligence; Albert Meige and Jacques P. M. Schmitt; prefaced by Marc Giget (President of the European Institute for Creative Strategies and Innovation), and by Jean-François Minster (SVP Scientific Development, Total). In this book, the authors provide an up-to-date overview of recent, disruptive trends that induce changes in the way large companies deal with innovation.

[2] The digital main players (Google, Apple, Facebook, Amazon, Uber, etc) are sometimes referred to as “Digital Barbarians” or “Barbarians of the Web”, by analogy to the migrating people who over several centuries, ie during the “Barbarian Invasions”, sought out resources and land they they lacked in their regions of origin.