INNOVATION BEST PRACTICES — Dr. Long's Writing Portfolio

Dr. Christopher Long

INNOVATION BEST PRACTICES:

A CASE STUDY OF BP

With increasing awareness of climate change and public demand for regulations, energy companies are pursuing renewable energy sources (MarketLine Industry Profile: Global Oil & Gas, 2017). Due to the high level of competition in this sector, energy companies such as BP are increasing their research into this field and are looking for new forms of disruptive innovation (MarketLine Industry Profile: Global Oil & Gas, 2017). Going forward, should BP wish to launch a disruptive innovation, it should learn some of the best practices used by other industry leaders and how they can be applied to fit its overall strategy.

Best Practice: Institute an Innovation Strategy and Framework

Corporations with large innovation budgets and global networks should have constructs that funnel creative ideas through a filter and evaluate them based on their feasibility, practicality, and potential. Procter and Gamble (P&G) uses what they call a "New-Growth Factory" and, as such, was able to increase innovation projects to meet revenue goals of 15% to 50% (Brown & Anthony, 2011). P&G's framework calls for seven groups, each with outside consultants teaching new ways of thinking and what practices can inhibit disruptive approaches (Brown & Anthony, 2011). The process was further refined in 2008 when the company dropped small projects with less potential and instead applied those resources to projects with more significant potential, primarily focusing on transformational-sustaining innovations that create new benefits for existing products (Brown & Anthony, 2011).

Another way companies can funnel innovative ideas is by categorizing these ideas, and Shell takes this approach with their "Game Changer" strategy (Ramirez, Roodhart, & Manders, 2011). The "Game Changer" process channels ideas into "domains" of similar ideas; the idea goes through four steps, each time being evaluated to see if it meets Shell's criteria for value, timing, novelty, and business alignment (Ramirez et al., 2011). Corporations with multiple business segments can benefit from instituting innovation strategies and frameworks like Shell and P&G to help streamline their innovation programs.

Best practice: Virtual Communities

Virtual communities are increasing in popularity because they allow companies to connect personnel spread across the globe on one network (Schroder & Holzle, 2010). Companies should take advantage of these networks and create virtual communities (VC) to assist with innovation efforts. While VCs offer a unique opportunity, a few approaches will help increase the likelihood of these initiatives being more successful. VCs and online forums tend to generate positive attention early on, but that attention usually tends to dissipate quickly; innovation efforts need to consider this and find a way to keep members coming back (Birkinshaw, Bouquet, & Barsoux, 2011). Glaxo Smith Kline's (GSK) Spark Network allowed the company to connect selected members across the globe on one network; GSK was able to keep the attention of the participants by inviting some members to executive innovation sessions and by even hosting a convention where the top innovative idea received full commercialization (Birkinshaw & Robbins, 2010). Online forums and communities help to generate information, but this information should be focused on; external forums will help solve technological problems, whereas internal forums utilize a greater understanding of internal problems (Birkinshaw et al., 2011). Companies should take advantage of the capabilities VCs offer while taking steps to ensure the success of the networks and using external and internal forums appropriately in ways that are conducive to the company's innovation goals.

Best practice: Culture

Companies must establish a culture of innovation that encourages all people to put forth ideas while encouraging executive buy-in. People want their ideas heard, and being heard can sometimes be incentive enough for innovation projects (Birkinshaw et al., 2011). Diversity is critical in global innovation efforts; some types of knowledge are difficult to absorb virtually; personnel with multicultural experience can help to bridge the understanding of local context and how it translates to applicability for the company (Wilson & Doz, 2011). People with multicultural backgrounds tend to adapt and grasp new concepts faster than those without this background; Clay Christensen states that business leaders are 35% more likely to come up with innovative ideas if they live in another country (Wilson & Doz, 2011; Murray, 2011). When looking at how the company views innovation, neither a top-down nor bottom-up approach is more successful than the other; both are required to create a positive culture that supports innovation (Birkinshaw et al., 2011). Companies need to support bottom-up initiatives with executive engagement; executive sponsorship will help good ideas survive evaluation processes (Birkinshaw et al., 2011). Companies need to consider people when creating an innovation strategy; a positive culture that embraces diversity, executive sponsorship of bottom-up ideas, and recognizing the self-rewarding nature of initiative will help companies succeed with their innovation efforts.

Best Practice: Reducing Bias

Biases can significantly influence decision-making, leading to over-reliance on a single piece of data, rejection of information that contradicts preconceived notions, and excessive caution (Kahneman, Lovallo, & Sibony, 2011). Organizations must address these biases in their innovation programs, particularly when evaluating and selecting projects for additional funding, further research, or commercialization. To mitigate biases, the evaluation phase should involve multiple layers that allow for more than one review, using evaluators with diverse backgrounds and regularly cycling through new members. Kahneman et al. (2011) argue that decision-making quality control should be a collective effort, rather than relying on a single executive to approve or disprove projects continually. Personnel and executives on evaluation boards should use a formalized checklist and maintain complete transparency throughout the evaluation process.

Best Practice: Use Risk Appropriately

Business leaders need to learn how to leverage risk when taking an innovation project to full commercialization. Risk can impact a business model in various ways but can also be part of a competitive advantage. One-way companies can reduce the risk of production delays by moving their manufacturing facilities closer to their markets (Giotra & Netessine, 2011). Spanish clothing retailer Zara was able to reduce the turnaround of a new product line from 12 months to 2 weeks by using manufacturing facilities close to their market (Giotra & Netessine, 2011) and reducing the risk associated with having to forecast 12 months out offsets the higher cost of using these facilities compared to less expensive overseas facilities (Giotra & Netessine, 2011). Risk can also be passed on to the consumer by rewriting the contract, or the company can accept more risk by determining it is in their best interest to manage it themselves (Giotra & Netessine, 2011). LiveOps passed the risk of underutilization with its workforce to employees by allowing some of them to work remotely; Rolls-Royce added maintenance risk by charging airlines by flight hours (Giotra & Netessine, 2011). These examples show how organizations can mitigate, remove, and add risk as part of a competitive strategy. Organizations need to have an appropriate plan for using risk when taking innovation to full commercialization.

Best Practice: Sustainable Innovation

All innovation projects should be evaluated to ensure they meet the acceptable environmental, social, and financial responsibility criteria. The environmental aspect will focus on conserving resources and reducing energy consumption; the social aspect covers corporate decision effects on society and stakeholders, while financial responsibility focuses on shareholder value (Nguyen & Slater, 2010). Current innovation evaluation assessment covers the technical and financial aspects but needs to cover the environmental and social aspects to a sufficient degree if they even do at all (Vavra, Munzarova, Bednarikova, & Ehlova, 2011). Sustainable innovations offer a variety of advantages; for example, Walmart reduced their packaging by 5% and saved themselves and their suppliers $11 Billion (as cited by Nguyen & Slater,2010). Adding environmental and social responsibility criteria to evaluation can be part of a strategy to move an organization toward becoming more sustainable. Nguyen and Slater (2010) point out that most businesses reluctantly move towards sustainability, and sometimes, this reluctance can project a negative public image. In 2005, Exxon was an influential critic of climate change, and a year later, the company reversed its position by donating $100 million to a climate change project.

Evaluation of BP Plc Innovation Practices

BP Plc is a multinational energy company that deals primarily with refining, manufacturing, and transporting crude oil, natural gas, and biofuels (MarketLine Company Profile: BP Plc, 2019). For the fiscal year of 2018, the company reported revenue exceeding $298,756 million, an increase of 24.4% from the previous year (MarketLine Company Profile: BP Plc, 2019). BP is currently researching bio-isobutanol, a more efficient renewable biofuel than ethanol (MarketLine Company Profile: BP Plc, 2019). Current environmental regulations are prompting world governments to invest in renewable energy. However, forms of energy production such as solar or wind are less efficient than fossil fuels and have relatively high switching costs (MarketLine Industry Profile: Global Oil & Gas, 2017). Biofuels are more efficient than wind or solar, and the switching cost is much lower, making biofuels a lucrative investment (MarketLine Industry Profile: Global Oil & Gas, 2017). Given the potential of biofuels, low switching costs, increase in government regulations, and the reality that fossil fuel reserves will decline, biofuels can potentially disrupt the oil and gas industry (MarketLine Industry Profile: Global Oil & Gas, 2017).

BP's Innovation Framework

BP's Engineering and Production Technology group (EPT) introduced an innovation process in 2000 that allowed ideas from across the group to be submitted and evaluated (Brown & Markham, 2007). The group is overseen by a board of internal members, one administrator, and one external expert to help guide the process; the board consists of several members recommended to the Vice President of EPT by their peers (Brown & Markham, 2007). Senior management supports the board and tasks them with delivering results in innovation concerning business transformation, revenue growth, cost reductions, and health, safety, and environment (Brown & Markham, 2007). In order to keep fresh perspectives and invite new ideas, the boards cycle through new members (Brown & Markham, 2007). The innovation process has EPT personnel submit ideas for approval; some will receive total funding and partial funding for further research, or the idea will be rejected (Brown & Markham, 2007). Throughout the process, the boards will mentor and advise EPT personnel on what their project may be lacking or what they can do to increase the chances of approval (Brown & Markham, 2007).

Recommendation

BP has an innovation construct with its EPT division to help funnel ideas and evaluate them to see which has the highest potential (Brown & Markham, 2007). While its R&D budget has increased since last year, this innovation construct should extend to multiple business segments, both upstream and downstream (BP Annual Report, 2019). Innovation is not exclusive to EPT; other divisions can benefit from using similar innovation constructs to refine day-to-day processes, administrative organization, and business strategies.

BP's Knowledge Management and Virtual Communities

BP relies on several virtual communities to connect its global operations and share knowledge between each operation (Grant, 2013). The company uses several databases to submit after-action reviews, which has helped tremendously to overhaul its safety programs (Grant, 2013). BP heavily relies on Virtual Teamworking, a program that allows users to connect via webcam for virtual face-to-face conversations; the company has since expanded this program to all its business units (Grant, 2013). BP also utilizes a program called "BP Connect" to establish a way for employees from multiple business units to connect; the program allows users to create their content and thus encourages engagement through this capability (Grant, 2013).

Recommendation

BP heavily relies on virtual communities to connect its day-to-day operations; using these established networks, the company could expand its innovation practices to all business units (Grant, 2013). With the BP Connect network, the company should consider a similar concept that GSK used with Spark; the Sparke Network allowed smaller brands with less potential to still receive attention from innovators (Birkinshaw & Robbins, 2010). Applying the Spark concept to BP Connect would allow for valuable ideas that would otherwise be overlooked to be explored while connecting and engaging personnel from multiple business segments.

BP's Global Research Network

BP takes innovation seriously; its R&D budget for 2017 was $391 million and grew to $429 million in 2018 (MarketLine Company Profile: BP Plc, 2019: BP Annual Report, 2018). This budget includes several initiatives that help bolster BP's global research network, which allowed for several joint ventures and partnerships (BP Research & Partnerships, 2019). In 2012, the company set up the BP International Center for Advanced Materials (BP-ICAM); the program partners with students and researchers at the University of Manchester, the University of Cambridge, Imperial College London, and the University of Illinois at Urbana-Champaign (BP Research & Partnerships, 2019). BP's energy innovation laboratory (EIL) partners with the Chinese Academy of Science, Dalian Institute of Chemistry and Physics, to research advanced chemical techniques (BP Research & Partnerships, 2019). BP also created the Carbon Mitigation Initiative, which partners with Princeton University to research and develop new technologies and processes to help mitigate carbon emissions from fossil fuels (BP Research & Partnerships, 2019). These research partnerships help expand BP's global network and help the company embrace diversity by utilizing several university partnerships worldwide.

Recommendation

BP should continue to partner with universities worldwide to grow this network further by expanding its research partnerships and looking more into new green energy solutions. The Carbon Mitigation Initiatives does this to an extent. However, the company should consider taking this a step further and prioritize researching more into biofuels and technologies that will reduce the switching costs of these fuels (BP Research & Partnerships, 2019). Further research into switching costs of biofuels will play into BP's overall renewable energy strategy. The company's joint investment with Dupont in bio-isobutanol could be a disruptive innovation; BP should research technologies that reduce the switching cost and create a shaping strategy to encourage buy-in from both consumers and business partners to pursue this new renewable energy source (MarketLine Industry Profile: Global Oil & Gas, 2017).

Conclusion

BP should consider three innovation practices: instituting an innovation construct, establishing virtual communities, and embracing an innovation culture through diversity. The company has established an innovation framework for its EPT division; however, other business segments could use a similar framework for innovation (Brown & Markham, 2007). The company heavily relies on virtual communities for its day-to-day operations; the BP Connect community should embrace GSK's Spark concept by providing a means to capture innovative ideas that are not currently a company priority but could still be valuable (Birkinshaw & Robbins, 2010). Finally, BP can continue to embrace a culture of innovation by expanding its research partnerships to include more research into biofuels and technologies that reduce associated switching costs.

References

Birkinshaw, J., Bouquet, C., & Barsoux, J. (2011). The 5 myths of innovation. MIT Sloan Management Review, 52(2), 43-50. Retrieved from http://library.capella.edu/loginqurl=https%3A%2F%2Fsearch.proquest.com%2Fdocview%2F845235466%3Faccountid%3D27965

Birkinshaw, J., & Robbins, P. (2010). Ideas at Work: Sparkling Innovation. Business Strategy Review, 21(2), 07-11. Retrieved from https://doi-org.library.capella.edu/10.1111/j.1467-8616.2010.00655.x

Brown, B., & Anthony, S. D. (2011, 06). How P&G tripled its innovation success rate. Harvard Business Review, 89, 64-72. Retrieved from http://library.capella.edu/loginqurl=https%3A%2F%2Fsearch.proquest.com%2Fdocview%2F871764250%3Faccountid%3D27965

Brown, C., & Markham, S. (2007). Innovation Learning at Bp. Research Technology Management, 50(3), 9–14. Retrieved from https://doi-org.library.capella.edu/10.1080/08956308.2007.11657435

BP Annual Report. (2018) Retrieved from https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/investors/bp-annual-report-and-form-20f-2018.pdf

BP Research and Partnerships. (2019). Retrieved from https://www.bp.com/en/global/corporate/what-we-do/technology-at-bp/research-and-partnerships.html

Grant, R. M. (2013). The Development of Knowledge Management in the Oil and Gas Industry. Universia Business Review, (40), 92–125. Retrieved from http://search.ebscohost.com.library.capella.edu/login.aspx?direct=true&db=bth&AN=91677624&site=bsi-live&scope=site

Kahneman, D., Lovallo, D., & Sibony, O. (2011). Before You Make That Big Decision.. Harvard Business Review, 89(6), 50–60. Retrieved from http://search.ebscohost.com.library.capella.edu/login.aspx?direct=true&db=bth&AN=60781382&site=bsi-live&scope=site

MarketLine Company Profile: BP Plc. (2019). BP Plc MarketLine Company Profile (pp. 1–84). Retrieved from http://search.ebscohost.com.library.capella.edu/login.aspx?direct=true&db=bth&AN=137287565&site=bsi-live&scope=site

MarketLine Industry Profile: Global Oil & Gas. (2017). Oil & Gas Industry Profile: Global, 1–38. Retrieved from http://search.ebscohost.com.library.capella.edu/login.aspx?direct=true&db=bth&AN=128129484&site=bsi-live&scope=site 0.1108/10878571111095367

Ramírez, R., Roodhart, L., & Manders, W. (2011). How Shell's domains link innovation and strategy. Long Range Planning, 44(4), 250–270. Retrieved from https://doi.org/10.1016/j.lrp.2011.04.003

Schröder, A., & Hölzle, K. (2010). Virtual Communities for Innovation: Influence Factors and Impact on Company Innovation. Creativity & Innovation Management, 19(3), 257–268. Retrieved from https://doi-org.library.capella.edu/10.1111/j.1467-8691.2010.00567.x

Vavra, J., Munzarova, S., Bednarikova, M., & Ehlova, Z. (2011). Sustainable Aspects of Innovations. Economics & Management, 16, 621–627. Retrieved from http://search.ebscohost.com.library.capella.edu/login.aspx?direct=true&db=bth&AN=61822045&site=ehost-live&scope=site

Wilson, K., & Doz, Y. L. (2011). Agile innovation: A footprint balancing distance and immersion. California Management Review, 53(2), 6–26. Retrieved from https://doi-org.library.capella.edu/10.1525/cmr.2011.53.2.6