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Department  Corporate  Management  &  Economics  

Controlling  

Paper  

Innovation  Controlling  
 

Written  by:         Felix  Albus  


          f.albus@zeppelin-­‐university.net  
Term:           Spring  Term  2010  
 
  2  

Table  of  Contents  


 

1.   Introduction....................................................................................................... 3  
 

2.   Creativity  vs.  Discipline ...................................................................................... 5  


 

3.   Innovation  Control  System ................................................................................ 6  


 

3.1   Measurement  of  innovation  performance .................................................. 7  

3.2   Innovation  Strategy ..................................................................................... 8  

3.3   Open  Innovation.......................................................................................... 8  

3.4   Idea  Portfolio  Management ........................................................................ 8  


 

4.0   Best  Practice .................................................................................................. 10  


 

5.0   The  Innovation  Controlling  process  at  a  glance............................................. 12  


 

Bibliography............................................................................................................ 14  
 

Table  of  figures ....................................................................................................... 14  


 

Copyright  Statement....................................................... Error!  Bookmark  not  defined.  

 
 
 
 
 
 
 
 
 
 
 
 
 
  3  

1.   Introduction  
 
 
The   global   economical   crisis   demonstrated   that   a   managerial   strategy,   which   aims  
to   secure   medium-­‐   and   long-­‐term   economic   growth,   has   to   be   driven   by   a   greater  
focus   on   innovation   than   before.   A   recent   search   of   the   database   of   the  
professional  networking  site  LinkedIn  found  that  nearly  25,000  members  had  the  
word  “innovation“  in  their  job  titles.1  This  makes  clear  that  innovation  is  not  just  a  
trend   word.   Improved   and   state-­‐of   the-­‐art   innovation   techniques   have   become  
tremendously   important   for   today’s   businesses   Specifically   those   innovation  
techniques   that   not   only   improve   on   existing   products   (incremental   innovations)  
but   also   create   fundamental   new   approaches   to   secure   a   competitive   edge   over  
the   contestants   in   the   long   run   (radical   innovations).2   Unfortunately   vast  
innovation  efforts  through  Research  and  Development  (R&D)  remain  to  be  one  of  
the   most   cost   driving   factors   for   the   majority   of   today’s   businesses.   This   is  
aggravated  by  the  fact  that  R&D  costs  rise  steadily  in  almost  every  industry  due  to  
shorter   product   lifecycles   (see   Graphic   1)   and   increasing   global   competition.   As  
many  markets  become  saturated  businesses  need  to  remain  dynamic  in  order  to  
shorten   their   innovation   cycles.   Accelerated   product   development   becomes   vital  
as   the   digitalization   of   business   and   increased   transparency   allows   for   an   ever-­‐
faster   imitation   of   products   and   services.   The   business   environment   itself   is  
changing   rapidly   due   to   new   players,   demanding   customers   and   emerging  
technologies.  To  be  competitive,  companies  realize  increasingly  that  they  will  not  
succeed   by   focusing   solely   on   product   innovations.   As   a   result,   innovation   in  
business   models   becomes   a   major   differentiating   success   factor.   The   ability   to  
adapt   the   business   model   in   terms   of   industry   model,   revenue   model   and  
enterprise  model,  requires  a  corporate  culture  that  embraces  constant  change  and  
incorporates  modifiable  systems  and  processes.3  The  challenge  for  an  Innovation  

                                                                                                               
1
Cf. Lohr (2010).
2
90% of all innovations are incremental product improvements. Only radical innovation projects
secure a long term competitive advantage.
3
Accenture Information (2010), p.7.
  4  

Controller   is   to   form   an   organization   that   allows   innovation   activities   to   be  


exercised  with  greater  efficiency  while  at  the  same  time  creativity  is  given  a  way  to  
flourish   (creativity   vs.   discipline).   New   solutions   need   to   be   found   on   how  
consistent   innovation   can   be   conciliated   with   tight   budgets   and   managerial   cost  
cuts.   One   of   the   most   promising   ideas   to   solve   this   dilemma   is   innovation  
controlling,   a   relatively   new   concept   that   tries   to   bring   convergence   to   two  
seemingly  contrary  departments,  Research  and  Development  and  Controlling.  

As  pointed  out  R&D  simultaneously  needs  to  excel  in  efficiency,  quality,  flexibility  
and   cost   effectiveness.   It   is   not   always   easy   to   put   the   contribution   of   R&D   in  
respect   to   the   company’s   success.   Therefore   new   performance   measurements,  
control   tools   and   product   development   activities   are   needed   to   better   scale   the  
effect   an   innovation   has   on   the   companies   performance   and   to   lead   the  
innovational  endeavors  of  R&D  into  the  right  direction.  

Compared  to  R&D  controlling  has  a  different,  sometimes  even  conflicting  function.  
It   supports   the   general   management   in   decision-­‐making   by   providing   a  
summarized   view   of   the   business’   core   processes.   Looking   at   the   relative  
contribution  to  the  creation  of  value  within  the  company  controlling  assesses  each  
process  in  terms  of  effectiveness  and  efficiency.  Consequently  the  main  goal  of  a  
controller   is   not   to   foster   creativity   but   to   secure   the   overall   profitability   of   the  
organization.  While  controlling  primarily  uses  mathematical  tools  to  describe  the  
performance   of   each   process   the   dilemma   with   measuring   innovation   and  
creativeness   is   that   the   value   of   a   potential   innovation   cannot   be   expressed   in  
numbers  simply  because  it  is  not  in  the  market  yet.    

Graphic 1: The Innovation Cycle today and in the past.


  5  

2.   Creativity  vs.  Discipline  

There   is   a   fundamental   paradox   when   it   comes   to   innovation.   The   growing  


complexity  of  modern  technologies  often  requires  large  teams  to  innovate  a  new  
product;  creativity  meanwhile  flourishes  best  among  empowered  individuals  who  
work   without   complex   hierarchies   in   small   units.   Big   Companies   with   sufficient  
scale   and   scope   encounter   this   paradox,   because   their   very   size   and   their   rigid  
hierarchies   often   inhibit   their   employee’s   creativity.   Startups   on   the   other   hand  
often   have   great   ideas   but   they   lack   the   discipline   organizational   excellence  
requires.  The  question  is  how  successful  innovators  reconcile  scale  discipline  and  
excellence   with   the   freedom   and   openness   inventors   need   to   work   creatively.4  
Given   the   necessity   of   control   over   the   innovation   process   R&D   first   and   foremost  
has  to  be  seen  as  a  social  system.  Innovation  and  creativity  are  inextricably  linked  
with   each   other   and   creativity   occurs   wherever   there   is   reach   of   play   fort   the  
people   who   invent.   However   the   technical   boundaries   in   which   innovation  
happens  have  to  be  clearly  defined  and  within  those  boundaries  there  has  to  be  as  
much  scope  for  development  as  possible  to  guarantee  that  creativity  flourishes.  

It  has  been  empirically  demonstrated  that  following  a  formal  development  process  


leads  to  increased  success.  Thus  describing  the  added  value  of  an  innovation  in  a  
way  that  goes  beyond  a  purely  managerial  approach  is  only  the  first  step  towards  
a   more   creative   and   efficient   innovation   process.   The   success   of   an   innovation  
largely   depends   on   a   target-­‐oriented   coordination   of   distinct   operations   across  
multiple   departments.5   This   means   that   there   has   to   be   enough   leeway   for  
creativity   and   fresh   ideas,   to   enable   the   free   development   of   innovating   forces,  
but   at   some   point   it   is   necessary   that   control   tools   are   in   place   to   monitor   the  
direction  in  which  innovational  efforts  are  heading  in  order  to  prevent  economic  
inefficiency,  cost  overruns  and  missed  deadlines.  The  perfect  equilibrium  between  
creativity   and   discipline   has   to   be   found.   It   largely   depends   on   the   leadership  
contingency   and   the   philosophy   of   a   company   where   this   equilibrium   is   located.  
                                                                                                               
4
Cf. Chu, F. (2002), p.1.
5
Cf. Litterkamp (2005), p.5.
  6  

Where   Apple   creates   creative   ideas   within   a   relatively   authoritarian   obedience  


Google  does  the  same  by  giving  its  employees  a  lot  of  freedom.  This  means  that  
both   creativity   and   discipline   need   to   be   implemented   in   the   same   time.   The   right  
mix   of   resource   efficient   and   creativity   enhancing   activities   has   to   be   found  
depending  on  the  corporate  culture  and  the  industry’s  dynamics.  

  CREATIVITY  
CULTURE  OF  DISCIPLINE   LOW   HIGH  
HIGH   Hierarchy   “Great  Organization”  
LOW   Bureaucracy   Startup  

Graphic 2: A Culture of both creativity and discipline creates great innovations.

3.   Innovation  Control  System  


 

A  meaningful  framework  for  the  governance  of  an  innovation  processes  within  the  
company’s   structures   should   always   include   an   innovation   strategy   (so   to   speak  
areas   of   strategic   focus   on   which   to   concentrate   innovation   efforts,   long   term  
commitment  and  a  product  roadmap)  and  Open  Innovation  activities  (outside-­‐in;  
idea  portfolio  management).6  

In   general   four   different   R&D   challenges   could   constitute   an   innovation   control  


system:   (a)   the   strategic   management   of   technologies,   (b)   idea   portfolio  
management,   (c)   project   management   and   (d)   innovation   performance  
measurement.7   Beside   these   areas   other   important   elements   influence   the  
innovation  performance  and  therefore,  need  to  be  monitored  as  well:  
 
 
 
                                                                                                               
6
Cf. TECTEM (2007), p.1.
7
Cf. TECTEM (2007), p.2.
  7  

• innovation  strategy,  
• open  innovation  activities,  
• radical  innovation  support,  
• innovation  culture  and  building  up  of  dynamic  capabilities,  
• balance  between  efficiency  and  effectiveness  and  
• organizational  structure  of  R&D.8  
 
The  following  paragraphs  will  elaborate  on  some  of  the  points  mentioned  above  
to   clarify   what   elements   and   activities   a   powerful   yet   efficient   innovation  
framework  requires.  

 
3.1   Measurement  of  innovation  performance  
 
Since   there   is   no   universal   way   to   measure   innovation   performance,   a   new   and  
individualized  system  of  innovation  performance  measurement  based  on  different  
methods,  which  vary  according  to  industry,  size  and  the  ambitions  of  a  company,  
are  the  only  solution  to  evaluate  and  subsequently  control  innovation.      

Measuring   the   innovation   performance   of   a   company   is   quite   difficult   primarily  


because  of  three  problems:  

• An   evaluation   solely   based   on   R&D   expenses   is   not   very   meaningful,  


because   there   are   many   other   factors   that   influence   the   ability   to  
innovate   (e.g.   how   effectively   have   the   available   resources   been  
allocated  or  how  creative  are  certain  ideas).  
 
• Due  to  the  time  lag  between  the  development  of  an  innovation  and  the  
release   to   the   market,   success   cannot   be   assessed   immediately   or  
could  also  be  ascribed  to  other  organizational  units,  such  as  marketing.  
 

 
                                                                                                               
8
Cf. TECTEM (2007), p.1.
  8  

3.2   Innovation  Strategy  

Part  of  what  makes  Innovation  Controlling  a  powerful  yet  not  easy  to  implement  
tool   is   that   it   requires   the   use   of   a   clear   innovation   strategy.   An   innovation  
strategy  phrases  the  role  innovation  practices  play  in  achieving  the  overall  goal  of  
the  company.  This  includes  a  “description  of  areas  of  strategic  focus  on  which  to  
concentrate   innovation   efforts,   a   clear   definition   of   innovation   goals,   long-­‐term  
commitment  and  a  product  roadmap.9  The  innovation  strategy  also  has  to  fit  the  
company’s  culture,  history  and  personality.    

3.3   Open  Innovation    


 

No  matter  how  efficient  and  cost  saving  a  powerful  innovation  strategy  might  be  
committing   own   R&D   efforts   remains   to   be   a   cost   intensive   business.   Open  
Innovation   activities   can   help   to   minimize   these   costs   and   therefore   should   be  
encouraged   by   an   Innovation   Controller   as   a   technique   to   cut   costs   while  
increasing  the  quality  of  the  innovational  outcomes.  

 
3.4   Idea  Portfolio  Management    
 

Due   to   restricted   resources   a   company   has   to   choose   which   horses   to   ride   to   be   a  


successful  market  leader.  One  of  the  tasks  of  Innovation  Controlling  is  to  identify  
those   technical   vectors   that   have   a   future   and   are   heading   up.   Technologies  
always   go   in   cycles,   choosing   wisely   means   to   choose   technologies   that   are   on   the  
upraise  sorting  out  those  which  might  have  potential  but  do  not  fit  the  strategic  
direction   of   impact   respectively   the   company’s   purpose.   This   process   can   be  
illustrated   as   a   funnel   (cf.   graphic   3).   A   lot   of   ideas   exist   but   only   a   few   of   them  
make   it   through   the   different   elimination   stages,   becoming   innovations,   until   they  
are  released  as  products  to  the  marketplace.  

                                                                                                               
9
Cf. TECTEM (2007), p.2.
  9  

After   choosing   which   projects   have   the   highest   potential   and   fit   the   company’s  
strategy   a   specific   amount   of   resources   has   to   be   allocated   to   every   innovation  
project.   These   resources   should   be   calculated   on   the   basis   of   the   expected  
proportion  the  project  contributes  to  the  overall  success  of  the  enterprise.  

Idea   portfolio   management   also   means   knowledge   management.   The   tracing   of  


coherences   within   the   organization   is   important   to   bundle   up   resources   and   to  
prevent   that   the   same   work   is   done   multiple   times   in   different   parts   of   the  
company.    

 
Graphic 3: The Innovation Funnel.

 
 
 
 
 
 
 
 
  10  

 
4.0   Best  Practice  
 
In  paragraph  3.1  it  has  been  pointed  out  that  due  to  complexity  and  incalculability  
of   an   innovation   there   is   no   universal   way   to   measure   innovation   performance.   In  
addition   to   that   every   industry   and   every   company   has   an   individual   innovation  
pace  and  philosophy  that  has  grown  over  years  and  reflects  the  very  culture  of  the  
enterprise   itself.   Therefore   there   cannot   be   a   general   implementation   guideline  
that   is   valid   for   every   single   business   case.   The   application   of   Innovation  
Controlling   requires   a   unique   implementation   process   in   virtually   every   single  
business   case.   Nevertheless   there   is   a   set   of   best   practices   in   Innovation  
Controlling   that   can   be   adapted   to   the   prerequisites   and   needs   of   an   individual  
company.    

A  definition  of  Controlling  says  that  it  accompanies  and  shapes  the  management  
process   in   target   setting,   planning   and   governance.   It   is   therefore   jointly  
responsible   for   the   achievement   of   the   company’s   objectives.10   Since   Innovation  
Management   itself   follows   this   operational   process,   initially   it   does   not  
differentiate   from   any   other   management   task.   In   the   beginning   an   innovation  
procedure,   just   like   any   other   business   process,   starts   with   a   clear   definition   of  
operative  and  strategic  market  objectives  written  down  in  business  plans  including  
methods  and  procedures  as  well  as  budgeting.  

The   specific   challenge   Innovation   Controlling   has   to   deal   with   is   that   business  
plans   for   innovation   projects   are   mostly   incalculable   and   inaccurate.   The  
calculation   of   both   expenses   and   earnings   as   well   as   the   unpredictability   of   the  
time  to  market  are  nearly  impossible  and  bear  a  lot  of  risks.  Looking  at  the  aviation  
industry   both   Boeing   and   Airbus   experienced   this   problem   first   hand   during   the  
development   process   of   their   new   A380   and   787   airliners.   Miscalculations   and  
wrongly  estimated  market  release  dates  caused  by  production  delays  drove  both  
companies  to  the  verge  of  bankruptcy.  This  example  also  shows  that  time  is  one  of    
 
                                                                                                               
10
Definition of Controlling, International Group of Controlling (IGC)
  11  

the   most   important   success   factors.   The   time   it   takes   to   develop   a   product,   which  
really   satisfies   the   needs   of   the   costumers   and   bring   this   product   to   the  
marketplace  influences  four  essential  key  factors,  which  sometimes  oppose  each  
other:11  

(a)  faster  processes  and  quality  of  the  product  or  process:  

The  faster  the  development  process  of  the  finalized  product  the  shorter  is  the  time  
to  market.  Shortening  the  development  process  not  only  saves  costs  but  due  to  a  l  
technological   lead   also   results   in   a   much   better   competitiveness   compared   to  
other   applicants.   On   the   other   hand   a   faster   development   process   and   shorter  
time   to   market   in   most   cases   cause   more   immature   products,   because   of  
insufficient   testing   or   mistakes   in   the   product   design   itself.   This   creates   high  
consequential   costs   for   warranty   demands   and   the   change   of   the   production  
design.  

(b)  lower  production  costs  and  calculated    profit:  

The  longer  it  takes  to  finish  the  development  of  a  product  the  higher  will  be  the  
costs.   This   influences   the   price   per   unit   and   therefore   the   sales   figures,   because  
increasing   development   costs   have   to   be   allocated   to   the   price   of   the   product.   On  
the   other   hand   well-­‐engineered   product   will   have   lower   production   costs   which  
have  the  opposite  effect  on  the  price  and  hence  on  the  profit  

The   solution   to   these   problems   and   therefore   the   task   of   Innovation   Controlling   is  
to   adapt   the   business   plan   of   an   innovational   effort  at   regular   intervals   and   where  
appropriate   deviate   corresponding   measures   like   further   endorsement   or  
cancellation.  

 
 
                                                                                                               
11
Cf. Wildemann (2009), p. 8-11.
  12  

5.0   The  Innovation  Controlling  process  at  a  glance    


 
Innovation   Controlling   is   the   link   between   Research   and   Development   and  
Controlling.   The   following   graphic   illustrates   the   tasks   of   Innovation   Controlling  
during  a  generalized  innovation  process:  

Graphic 4: Generalized processes of Innovation Controlling.

 
As   shown   in   the   graphic   Innovation   Controlling   can   be   separated   into   four   core  
processes.   Initially   there   is   support   for   project   selection   and   selection   of   the  
technological  direction  of  impact.  For  an  ongoing  success  a  new  innovation  project  
has  to  fit  the  company’s  current  product  portfolio  and  future  roadmap,  because  in  
most   cases   a   range   of   contiguous   products   is   being   produced,   which   should   not  
overlap  (cf.  section  4.4,  Idea  Portfolio  Management).12  

The   second   process   of   Innovation   Controlling   is   project   planning.   The   innovation  


should   follow   a   clear   innovation   strategy   (cf.   section   4.2,   innovation   strategy).   It   is  
vital   that   the   adherence   of   the   goals   established   in   this   strategy   is   assessed   at  
regular  intervals  to  change  the  resources  allocated  to  the  innovation  process  of  a  
certain   product   if   necessary.   Therefore   during   the   project   planning   phase   a  

                                                                                                               
12
Cf. Wildemann (2009), p.5.
  13  

timetable   of   milestones   is   being   set   and   an   analysis   showing   different   outcomes  


can  be  done.13  

The   third   process   is   project   management.   Innovation   Controlling   accompanies  


R&D   while   the   project   is   conducted.   It   advises   the   management   to   take   actions  
whenever   the   fragile   balance   between   discipline   creativity   (cf.   section   3,   creativity  
vs.  discipline)  begins  to  totter.14  

Lastly   the   fourth   process   evaluates   the   project’s   success   taking   into   account   the  
marketplace  success  and  cost-­‐effectiveness  considerations.15  

The   tools   used   to   accomplish   the   processes   described   cannot   be   named   in   this  
general  approach  because  they  vary  depending  on  the  nature  of  the  company  and  
the  innovation  itself.  The  corporate  culture,  Open  Innovation  activities  and  other  
variables  need  to  be  taken  into  account  to  choose  the  right  tools  for  each  one  of  
the  processes.  

Even  though  Innovation  Controlling  remains  to  be  a  vague  concept  and  has  to  be  
adapted   to   the   needs   and   premises   of   every   single   business   case   it   is   a   vital  
instrument   to   close   the   gab   between   the   Controlling   and   R&D   branches   and  
integrate   both   structures.   The   Controller   is   forced   to   widen   his   view   by   being  
exposed   to   the   requisitions   successful   innovation   requires   while   R&D   is   effectively  
compelled  to  focus  on  the  essential.  The  Controller  has  to  have  an  overview  over  
the  company  and  is  used  to  work  with  absolute  or  predictive  figures,  but  putting  
innovation  into  numbers  is  not  an  easy  task.  This  work  illustrated  that  successful  
innovation   depends   on   creativity   as   well   as   on   control   and   the   practices   described  
here   can   help   to   evaluate   innovation   performance,   streamline   the   innovation  
process   and   evaluate   the   outcomes.   Just   like   successful   Innovation   Controlling  
cannot   remain   static   and   has   to   adapt   to   meet   the   needs   of   modern   business  
procedures.    

                                                                                                               
13
Cf. Wildemann (2009), p.15.
14
Cf. Wildemann (2009), p.18.
15
Cf. Wildemann (2009), p.19.
  14  

Bibliography  
 
 
Lohr  Steve  (2010),  The  NYT  August  14th  2010:  Innovate,  Yes,  but  Make  it  Practical.  
http://www.nytimes.com/2010/08/15/business/15unboxed.html?_r=1  
 
Accenture  Information  2015  –  Reforming  the  Paradigm  (2010).  
 
Chu,  F.  (2004),  The  Innovation  Paradox:  Reconciling  Creativity  &  Discipline  -­‐  How  
Winning  Organizations  Combine  Inspiration  With  Perspiration.  

Littkemann,  Jörn  (2005),  Innovationscontrolling,  1.  Auflage,  Verlag  Vahlen.


 
TECTEM  Transfer  Center  for  Technology  Management  (2007),  University  St.Gallen  
(2007),  Innovation  Controlling  -­‐  Possibilities  to  Enhance  R&D  Performance.  
 
Wildemann,   Horst   (2009),   Innovationscontrolling,   Leitfaden   zur   Selektion,  
Planung,  Steuerung  und  Erfolgsmessung  von  F&E  Projekten  (Präsentation).  
 
Innovationsmanagement  und  –Controlling.  
(http://www.rechnungswesen-­‐office.de)  
 
 

Table  of  figures  


 
Graphic  1, Innovation Cycle today and in the past: Wildemann  (2009),  p.9.  

Graphic  2,  A Culture of creativity and discipline: Chu,  F.  (2002),  p.1.  

Graphic  3,  The Innovation Funnel: Source unknown.  

Graphic  4,  Processes of Innovation Controlling:  Wildemann  (2009),  p.5.  

 
 
 

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