Emerging Innovation in LATAM | INSITUM 2014

The state of innovation in Latin America

Emerging Innovation in LATAM2014

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The state of innovation in Latin America 3

Latin America is convinced that innovation is important… now it’s slowly learning to make it happen

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> About INSITUM


Innovation Through ResearchINSITUM is the leading innovation consulting firm in Latin America. We help organizations ideate, envision, and define solutions around new services, products, brands, and experiences that have a positive impact on society.

For over a decade INSITUM has been working with leading organizations across the world on key innovation challenges. Our innovation approach is centered on understanding and co-creating with the people who use, buy, distribute, sell, influence or interact with an offering.

Our geographic and cultural diversity, with more than 100 consultants and offices located in Chicago, Mexico City, Bogota, Lima, São Paulo and Buenos Aires, provides us with on-the-ground expertise to help organizations innovate based on a deep understanding of people.

If you want to know more about our services and the ways in which we can help increase your innovation capabilities in the Americas, get in touch.

[email protected]

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> Table of contents


Executive summary 12About this report 14Results 19Conclusions 51 Appendix 55

Latin America is one of the most dynamic and fastest growing regions in the world, though not all companies are poised to take advantage of this. Companies who proactively understand their context and innovate accordingly will always stay ahead of those who merely react to precarious and changing markets. We have seen some organizations embrace innovation, though many others still lag behind in this endeavor. In coming years, we believe more firms will step up their capacity and take advantage of the fruits that innovation can provide.

To understand the conditions around innovation in Latin America in detail, INSITUM conducted a qualitative and quantitative study. From this we have brought to light many of the contexts, barriers, needs and outcomes around innovation in Latin American organizations.

Some of the highlights of what we found include: > Companies embrace the concept of innovation widely and quite openly, but there is still a lot to do in terms of executing innovation efforts efficiently, with tangible results. The lack of an innovation culture and a lack of ‘expertise’ to enable processes to become capacities and implementation to flow smoothly are some of the main barriers hindering the innovation capacity development in the region. > Most companies are already convinced about the benefits of innovation, and are migrating from what we would call a Phase 0 (Why innovation?) to a Phase 1 (How to implement innovation?). This brings with it another set of challenges, opportunities and frustrations as companies shift their gears from ‘thinking’ to ‘doing.’

> Multinational firms with subsidiaries in Latin America seem to be far ahead of the local ‘Multilatinas’ in adapting innovation processes and methods within their organizations. Both types of companies are still hesitant to invest adequate resources towards innovation efforts, resulting in the search for ‘imaginative’ ways to garner the resources

> Executive Summary

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they need, such as redistributing resources from other areas (from market research, advertising or training) to support, complement or initiate innovation efforts.

> The main priority within organizations is the need to develop internal innovation capabilities, work processes and tools, and to develop a long-term innovation culture that is more open to trying new ideas, whether they work or not.

> Working for an innovative company has a ‘Halo Effect’ on employees and prospective employees; for this reason, working for innovative organizations becomes key to attract and retain talent, often in scarce or highly competitive labor markets.

> Many areas in organizations seem to embrace innovation initiatives. ‘Marketing’ seems to be the most active because: 1) its obsessive focus on ‘customer insights’ and 2) today marketing leaders often have the responsibility for the design of the product, service or customer experience where in the past they may have focused more on branding, communication and promotion efforts.

The results from this year’s innovation survey show there is a positive point of view and excitement around innovation, but Latin America still needs to create the right conditions for it to be widely supported and executed. Specifically, companies need to find ways to enable innovation cultures to coexist within the risk averse cultures of typical management, and to develop more expertise around innovation strategies, processes, and tools.

We seem to be on the right road, but in order to improve the innovation capacity and competitiveness of Latin American organizations, we need to double down on growing these capacities.

1How is innovation being implemented and utilized within the organization?

2What types of projects, resources and investments do organizations see as benefiting the most from innovation?

3What are the barriers to innovation within the organization? What are the motivations for making it work?

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What is the level of ‘expertise’ and preparedness of organizations to lead and implement innovation initiatives?

This report explores four key questions:

We conducted 25 face to face interviews and an online survey of more than 300 people in middle and top management from leading companies (sales of $50 million annually), across five countries and 20 different sectors. We believe that this is the most comprehensive study to date of the state of innovation in Latin American organizations.

About this reportInnovation has become a buzzword. Its meaning is ambiguous. Through overuse it has created confusion which can defeat its very purpose as a stated goal. In Latin America, the media is using the term more than ever, consultants apply different definitions to it, it is often misunderstood and companies are not using it as an effective marketing tool. We need clarity.

Participants

Human Resources 15%

R&D 15%

Marketing 35%

General Managers 35%

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What is innovation?The definition of innovation varies widely. For some it is a synonym for creativity, for others its meaning is more holistic, such as continuous improvement. In this first state of innovation study, we decided to let respondents interpret the term ‘innovation’ according to their personal definitions. Innovation is in the eye of the beholder. So, when reviewing these insights please consider that the definitions respondents use are multiple, and will likely change over time as the region changes.

InnovationIs in the eye of the beholder

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What is the state of innovation and the challenges ahead for Latin American countries?Conditions in many Latin American markets are now fertile for growth. There is a pervasive optimism, and many look forward to the future. However, uncertainty and risk have always been present and change has been a constant companion in the region.

Countries in Latin America have suffered for over 500 years from fluctuations and regional inequalities as some within the region are blessed (Venezuela’s oil and Chile’s copper deposits; Mexico’s proximity to the US), while others are in political and financial crisis, as Argentina and Venezuela are now.

While most of our countries share a common heritage, individual cultural idiosyncrasies are quite diverse.

For example, in general Brazilians feel much more optimistic, have higher self-esteem and are less tolerant of corruption. Mexicans by contrast, are pessimistic, have lower self-esteem and feel cynical about corruption. The economic policies throughout Latin America also vary widely, from open to completely closed – and everything in between.

In terms of organizations there is a mix of regional conglomerates that have become multinationals (now referred to as “Multilatinas”), multinational and local partnerships and, lately, new multinational entrants exploring the region for the first time.

Conditions are right for innovation to mature, but it will happen differently than in other parts of the world. Unfortunately, there is very little expertise or appreciation about innovation within large Latin American organizations, and most global innovation studies (i.e. BCG, PwC, IBM) consider only a few countries in the region, if at all. Some of these studies only consider the vision of the CEO, while in reality the CEO’s vision can vary widely from that of the management team.

INSITUM is the leading innovation consulting firm in Latin America. Its mission is to help the region’s leading companies become more competitive by promoting user-centered innovation. This study will provide detailed information on how companies are implementing innovation efforts inside their organizations. We believe these insights will help other Latin American companies become better innovators. If innovation is key to your organization, this study is key for you.


Latin America is one of the most dynamic regions in the world

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Results

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What initiatives around innovation are taking place?Just a few years ago innovation would have been described primarily as “developing new, differentiated products.” However, we now know that there are various types of innovation which can be leveraged by different functions (from marketing to finance) and can help meet a number of business objectives, transcending the traditional tasks of product development.

When asked about types of innovation respondents identified various areas in which investment in innovation is occurring. This speaks to an expanding application

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of innovation activities, away from new products and into other, less obvious areas, such as human resources, brand, processes or business models.

In response to the question “In what types of innovation has your company invested during the last 12 months?” it was clear that innovation in products (46%) is not exclusive, and other areas in which companies innovated included business models (45%) and processes (45%). With economies highly dependent on services (34%), it was surprising to see that particular area lagging behind. A respondent was frank enough to say “We have invested a lot in technology to make services work, but our priority has not been in designing those services with a user-centered approach, but instead on just making them work. You are measured by having a service up and running, not necessarily by how usable, easy or user-centered it is.”

In what types of innovation has your company invested during the last 12 months?


How would you distribute the number of innovation projects that your organization had in the last 12 months?

In other words, the mindset of many service-based organizations in the region is to make it work before you make it better. One positive takeaway was that a surprisingly high level of innovation efforts are being applied to intangible parts of the business, such as brand development and experience (26%), production processes (27%) and human resources, including attracting talent, designing the right incentives and developing innovation capabilities (27%).

When asked about which business goals innovation helps achieve (“How would you distribute the number of innovation projects that your organization had in the last 12 months?”), it is evident that most efforts were geared towards achieving efficiencies & decreasing costs (27%) as well as developing products / services / brands targeted to an

existing client base (26%), evidence that organizations in Latin America are eager to obtain efficiencies and to maximize opportunities that an existing client base present—the “low hanging fruit.” This is due in part to a continuous effort to prove the value of the innovation (in other words, ROII - Return on Innovation Investment). As expected, efforts devoted to disruptive innovation is a minimal (8%), indicating that most companies in the region are not considering disrupting markets... yet.

As one interviewee stated “[leadership] will naturally support [investing] in a project that aims to improve and reduce the cost of your operations… whereas selling [internally] a project that has some risk of not working out would require a gigantic effort.”

Achieving efficiencies

& decreasing costs

Developing products /

services / brands targeted

to our existing client base

Incremental innovation

focused on current offerings

and existing customers

Developing products /

services / brands targeted to

new customers

Disruptive innovation that

changes the rules of an industry

26%

18%

27%

8%

20%

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So, how many projects are companies considering ‘innovation projects’? Not many. We asked: “How many products or initiatives that you would consider innovative did your organization undertake in that last 12 months?”

About two thirds of the companies surveyed led between one and five initiatives. Many innovation projects are characterized by low complexity, high visibility and short-term

results, such as segmentation models, new processes, incremental changes or adapting existing products.

It should be noted that projects that focus on technology replacement, quality control or continuous improvement are currently being considered as ‘innovation projects’ by participants of this study.

8% 20+

2% 10-20

6% None

5% 8-10

15% 6-10


How many products or initiatives that you would consider innovative did your organi-zation undertake in that last 12 months? 33%

3-5

31% 1-2

Evidently Latin American organizations are quickly becoming more mature in regards to thinking about innovation outside the product, but currently focus these efforts to achieve more immediate, short-term results.

How is innovation being implemented? Is there a strategy behind it?There are many different models for structuring innovation within an organization, from a centralized function that controls every aspect of it to a widely distributed effort in which every division is responsible for its own innovation initiatives.

In organizations that are beginning their innovation efforts it is common to have a decentralized (and somewhat unfocused) structure in which responsibility is distributed. When asked: “From the following set of options, select the one that best describes how innovation is structured in your organization,”

we see that most companies have either a distributed responsibility where each division is responsible for its own innovation initiatives (26%) or a very focused area or person that supervises all innovation projects and reports to the CEO (24%). Other, less frequent, models have either a multidisciplinary committee (12%) or an innovation area that provides support to a specific division (12%).

However, when attempting to understand how these initiatives actually work there is a perceptible lack of structure and expertise. As some people revealed during interviews, “a lot of time we do [innovation] in order to claim ‘there, I did it’ so you end up doing some ethnographic [interviews] and you run a brainstorming afternoon. But at the end of the day each [brand division] does whatever they want .”

Interestingly, the least prevalent model is the one where the R&D area leads all innovation initiatives (8%). Finally, about 18% of organizations lack a structure that leads innovation efforts. As one interviewee put it,

From the following set of options, select the one that best describes how innovation is structured in your organization

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Each division is responsible for its own innovation initiatives

There is an area or person that supervises all innovation projects and reports to the CEO

There is a multidisciplinary committee

There is an innovation area that provides support to a specific division (i.e. Marketing)

The R&D area leads all innovation initiatives

There is no structure that leads innovation efforts

26%

24%

12%

12%

8%

18%

“it is amazing that a company this size does not have an area dedicated to innovation. We lack a vision of the process and internal networking around product and service innovation. The projects we end up doing are isolated and reactive [to what happens in the market.]”

Innovation can be a powerful approach to making a company even more successful, but only when included as part of a structured, overall corporate strategy. That must include guidelines for generating, selecting and prioritizing those innovation efforts. The most innovative companies in the world have a clearly defined vision for innovation and a set of priorities which guide their actions. However, in Latin America, we found that a substantial number of the companies we surveyed don’t have an innovation strategy (40%), meaning that innovation is still a grassroots, fragmented effort that is not part of a larger vision. While these initiatives remain isolated efforts without direction, there is opportunity to develop appropriate, viable plans that support the organization’s goals.

On the other hand, a substantial number of the companies that were surveyed claim to have an innovation strategy (47%). These companies have prioritized innovation and have committed time and talent to crafting their and communicating their innovation strategies. As an interviewee put it: “Our innovation area was created by request of our VP. With the support of an external innovation consulting firm we were able to structure the area to serve the needs of different business units.”

However, there is still work to be done in terms of communicating the strategy internally within the organization. A number of respondents confessed not knowing what their organization’s innovation strategy is all about (13%), a surprisingly high percentage given that our sample was composed mainly of people who had been involved in innovation projects. We believe innovation efforts could be much more effective if the innovation strategy was clearly communicated—mostly to those in the innovation function.

Has your company developed a corporate innovation strategy?”


40%47% 13%We do have an innovation strategy and I know it

We don’t have an innovation strategy / don’t know

We do have an innovation strategy but I don’t know what it is

26%

24%

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What level of priority do you perceive innovation to have inside your organization?

34%Sufficiently

important

41%One of various other priorities


We believe that the more widely an innovation strategy is communicated within an organization the better the results are likely to be. Employees are demanding this, just as they do with other functions such as marketing. One Senior Manager mentioned “We have ‘marketing plans’ which specify the action plan in terms of marketing, but we don’t have ‘innovation plans’... we should be able to present an ‘innovation plan’ every year just as we do with ‘marketing plans.’”

In order to understand more precisely the priority of innovation within an organization we asked: “What level of priority do you

perceive innovation to have inside your organization?” From a list of five different multiple choice answers, in a scale from high priority to low priority, we found out that most of our respondents think that innovation is one of various other priorities (41%), while a smaller percentage agree that innovations is sufficiently important (34%). Only a small number of respondents think innovation is the highest priority in the company (10%). This is supported by some of the comments we heard during interviews, such as “There are so many initiatives underway that we would need a specialized innovation team with management buy-in in order for it to be a priority.”

10%Highest priority in the company

10%Low priority

5%Not relevant

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What resources are being assigned to innovation?What distinguishes those organizations that actually ‘walk the talk’ is that human and material resources are assigned to innovation activities. The leading innovators assign people, time and resources to make innovation work, while the efforts of the least effective innovators are sporadic and fewer resources are allocated to innovation.

From our sample of leading companies, we discovered that a little over half do have dedicated people whose main responsibility is innovation (55%). There are few examples of the influence of global companies’ headquarters in creating the innovation function in their Latin American organizations: “We created the innovation area here in Brazil because our

company expects to see innovation emerging from all key countries.”

From those companies that do not have people dedicated to innovation (45%) the majority (59%) do not assign any human resources to innovation, not even with partial dedication. The opportunity exists to incorporate innovation on a structural level (i.e. design a new position such as an Innovation Leader) as well as role functions (i.e. assign ‘innovation’ as a KPI).

In many cases, the responsibility for innovation inside an organization is being created ‘bottom-up’, meaning that people are adding these responsibilities to their functions and proving their value progressively. In one case, a person accepted this fact “We currently have this position [‘insights and innovation manager’] because one person within market research included ‘innovation’ within his objectives. After the first year of working this way, HR decided to change his title and role to include innovation responsibilities.”

Does your organization have an area, group or individual dedicated to innovation?

55%We have dedicated people whose main responsibility is innovation

0% 0

26% 1-2

26% 3-5

21% 5-10

8% 10-20

7% 20-40

12% 40+

45%No people dedicated to innovation

59% 0

11% 1-2

13% 3-5

8% 5-10

6% 10-20

3% 20-40

0% 40+


In terms of budgets, what was most notable was the lack of awareness on the interviewee’s part of how much their organization devoted to innovation (34%). Innovation budgets are generally quite small relative to the annual sales of the companies surveyed, more than $50M USD. Responses spread between all budget ranges, with the majority assigning a budget of $200,000 - $500,000 (16%) or less than $100,000 (14%).

Clearly, innovation budgets are increasing. When asked about the yearly increases in innovation investment, the majority of organizations claimed having had more budget this year than in the previous year (36%), indicating that innovation is slowly paying off and proving its value, warranting increased investments year after year. Considering the economic environment of Latin America, this is significant. One interviewee expressed this by noting the importance of two key divisions

“When [innovation] projects started to pay off, that’s where they took us seriously and they started paying as much attention to us as to marketing.” A smaller percentage had the same budget as in the previous year (23%).

A small, but significant, percentage of organizations have either invested less this year than the previous year (13%) or have not invested at all (11%), indicating that top management is not convinced of the relevance of innovation, is not confident in ROII, or does not consider investment in innovation to be of strategic value.

What was the 2013 budget assigned to innovation projects?

How does your company’s 2013 innovation budget compare to the previous year budget?

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We repeatedly found that innovation is closely tied to marketing. There is a noticeable trend of shifting (or ‘channeling’) portions of marketing budgets devoted to activities such as advertising, PR or research into ‘innovation projects.’ In many cases this is motivated by two factors:

Marketing > Innovation projects

1The expanding responsibilities of the marketing function, which now includes the specification of the product or service in addition to its communication. One person described this as follows: “It is important to shout [communicate] but at the end of the day, if the product does not satisfy what people want, it does not matter how much you scream, they won’t buy it.”

2The difficulty of estimating the ROI of traditional marketing versus a more concrete ROI for innovation. A client in the consumer goods industry mentioned “[beginning 3 years ago] we have started to invest more and more in innovation by reducing our investment in more traditional ‘advertising.’”


What are the activities and responsibilities of in-house innovators?Not all organizations have people dedicated exclusively to innovation, but those who do have a range of responsibilities that encompass various activities. In order to understand what, exactly, ‘innovation leaders’ are doing inside organizations, we asked them to identify their main activities within the organization and to rank them by importance.

We noticed a higher priority is being placed on activities that are more strategic and less hands on, such as: making sure that the innovation

process is implemented correctly; bringing ideas from outside the company; importing consumer insights into the organization; or leading innovation projects. We saw that tasks that have to do more with communication (internal and external) such as increasing the organization’s sensibility towards innovation; sharing results with the outside world and other activities that bring them closer to projects such as consulting with projects; implementing open innovation programs; or organizing and coordinating internal programs were of lower priority.

It was difficult for participants to determine the degree of importance of the various activities within their organization. Our speculation is that each company prioritizes innovation needs within the context of their own business sector. As one participant put it “… really, all these activities are equally important. It is hard to say ‘this is key and this is not’ because if you really want innovation to happen, you need to [implement the activities] all simultaneously.”

What are the main activities of in-house innovators, in order of priority?

High priority

Medium priority

Low priority

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innovation process is

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projects

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> Sharing results with

the outside world

> Identifying external

innovation consultants

> Implementing open

innovation programs

> Consulting with projects

> Increasing the organization’s

sensibility towards innovation

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The main challenge for organizations is the need to develop their own innovation capabilities and culture.

How does it feel to be a game-changer inside an organization?We were interested in learning more about 1) the emotions and motivations

of innovation teams and 2) the positioning of this function

within an organization. We believe these two aspects correlate with the receptiveness of the organization to innovation. The better positioned the innovation team, the better the chance an organization would be open to change and innovation as a whole. Lower prioritization indicated a culture less receptive to innovation. We asked: “What do people in your organization really think about the innovation team?”

Responses were quite polarized. One set of people responded with positive views around the innovation team, stating that [the innovation team] is a team with good visibility and reputation within the organization (40%). On the other hand, the majority of respondents has negative opinions about the role of the innovation team. Some consider the team is not prepared to do the job well (37%), while others think its work is adding value (17%).

Upon further inquiry we noticed that innovation teams (or individual leaders) sometimes lack visibility and buy-in from senior management which are key to validate their efforts and self-esteem. One respondent said “sometimes it feels we are used more as an internal brand in order to position ourselves as an innovative company, but when we ask [senior management] for resources or budget it feels like we are their last priority.”

What do people in your organization really think about the innovation team?

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37%The team has no idea of what they are really doing

17%The team works well and makes an effort but it does not contribute to the growth of the company

6%The team has leaders, I would like to be part of the team as it really makes a difference within the organization

40%It is a team with good visibility and reputation within the organization

Another reason for these negative views has to do with the lack of the right metrics to measure the urgency and performance of innovation teams: “Sometimes [other areas] become jealous of us because they think we are not pressured to deliver the way they are. In a way they are right… we have not yet defined the success metrics for this area.”

However, the perceived external views of innovation had very little effect on the respondents’ emotions while working in innovation. We asked: “How does it make you feel to be part of innovation projects within your organization?” As expected, the positive feelings (i.e. excited, proud, valued) were much more prevalent than the negative (i.e. confused, punished, bored). Interestingly, this is indicative of the overall positive effect that

working on innovation projects has on people and the level of appreciation they feel from the company.

In fact, we discovered that this ‘halo effect’ not only affects employees’ feelings but also their perception of the overall organization, making talented people more attracted to ‘innovative’ organizations, considering similar conditions. When we asked: “Would you change jobs to a more innovative company, considering similar work conditions as the ones you have in your current company?” an extraordinarily majority of respondents answered yes (80%), evidence that, in addition to the obvious benefits it provides, the innovation capability of an organization is a key attraction and retention strategy for talent.


How does it make you feel to be part of innovation projects within your organization?

69% Excited

66% Proud

58% Valued

55%Important

53%Smart

52%Special

35%Confident

33%Entertained

15%Frustrated

7%Lost

6%Confused

3%Punished

2%Bored

Would you change jobs to a more innovative company, considering similar work conditions as the ones you have in your current company?”

NoYes 80% 20%

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What motivates and what discourages innovation inside organizations?The most innovative companies create and maintain a continuous pipeline of innovation projects, and the motivators for these projects that get started for varied reasons. Some emerge in a context of intense competition while others are designed to open up new markets. In this section we determine the primary motivations to start innovation projects in Latin American organizations. We asked: “How much do the following factors influence the start of innovation projects in your organization?”

While responses varied, the primary motivation is related to the desire to build relationships with customers (increase added value, improve the experience and satisfaction of my clients, increase market share; improve the quality of our products & services; growth). Interestingly, organizations are less likely to initiate projects for less ‘core’ objectives, such as using innovation as a defensive strategy, or to penetrate new geographical markets, or to look for operational efficiencies.

When asked about barriers to innovation respondents were quick to identify the lack of an innovation culture as the main barrier. This shows that organizations in Latin America are still working on creating an internal culture in which innovation can flourish. Other cultural barriers relate to a short-term vision and a risk averse culture, in addition to uncertainty over innovation’s benefits..

How much do the following factors influence the start of innovation projects in your organization?

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A trend we have noticed for the last five years is that innovation in Latin America is increasingly being led by the region itself, and less by corporate HQ. Because the region has a lot of potential and differs quite significantly from other regions (i.e. Europe, US), it deserves to be empowered to handle innovation projects locally. As one Innovation Director observed: “[before the crisis] all important initiatives were being ‘imported’ from HQ, they would send their consultants to do some exploratory research and organized a 3-day innovation workshop with us… then they would go back and we would never hear from them again. We felt ‘used.’ But nowadays, they involve us early on in the project, we help select the vendor, we end up playing a central role and we sometimes lead these [innovation] projects with little involvement from HQ—even when they [HQ] pay for it… we feel more empowered.”

Many studies have shown that the most effective innovation happens in organizations that not only prioritize it, but also when

create a culture that reduces the barriers to it. And there are few incentives to reduce the barriers in organizations in which the status quo remains successful. As the saying goes “If it ain’t broke, why fix it?” As one person commented: “…I know I have to do it [create an innovation culture] but what we’ve done in the past still works, we have good results, so why change?” When “we are market leaders, why should we do things differently?” is the mindset, change is less likely. We believe that in the future, increased competition will help change this mindset and encourage more innovation initiatives inside organizations.

And lastly, other less important barriers concern priorities and practical reasons such as difficulties to finance initiatives, lack of customer knowledge, and poor collaboration between areas. As one interviewee mentioned “[our culture] is that innovation is owned by the one who leads it, this is why there is not so much collaboration between areas. This is my priority but not theirs.”

What are the main barriers that discourage innovation initiatives in your organization?

Always

Frequently

Sometimes

Rarely

0 6030 9010 7040 10020 8050

Uncertainty over its benefit

We have not yet developed an innovation culture

Risk averse culture

Short-term vision

Innovation happens somewhere else (HQ)

Poor collaboration between areas

Decision makers have other priorities

Regulatory or internal compliance issues

Difficulty to finance initiatives

Lack of customer knowledge

How would you evaluate your organization’s innovation process?

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33%Each group does innovation with their own process

30%There is an informal and improvised process

30%It is a flexible, creative and collaborative process 27%

It is a user-centered process

41%The process adapts to each situation or need

Another important barrier to innovation effectiveness is the lack of a formal process that employees can follow, from ‘insights gathering’ to ‘implemented solution.’ We asked respondents to evaluate their innovation process, and we discovered that most organizations have developed an informal, intuitive and not particularly rigorous process to guide their projects. Most respondents agreed to the following statements: the process adapts to each situation or need (41%); each group does innovation with their own process (33%); there is an informal and improvised process (30%). However, the views around this process are generally positive: it is a flexible, creative and collaborative process (30%); it is a user-centered process (27%) and it is a fun and exciting process (23%). A smaller percentage of respondents use a traditional stage-gate process (21%) or don’t have an innovation process (19%) or have one on paper that does not quite work (18%).

Based on this we perceive that positions on innovation processes are polarized. On one end are those who have a process but see it as stiff and inflexible. One executive said “We have a robust process, but the mindset of people prevents understanding the logic behind it. They follow the process automatically and we don’t reach differentiated results… we need more expertise.”

On the other hand, most companies have a laissez-faire approach to innovation, leaving teams to do what they think best to meet their individual goals, without a guideline or a step-by-step innovation process. As another person said: “Projects arise with specific objectives in which we do creative exercises. Other than that there is no process at all.” This presents opportunities to help companies design ad-hoc innovation processes and customize them to the needs and strategic objectives of the organization.


23%It is a fun and ex-citing process

19%We don’t have an innovation process in my company

21%It is a traditional stage-gate process

18%There is a process on paper, but it doesn’t work for a company like this

10%Our process is stiff and inflexible

What skills do innovators have and which ones do they need to develop?The core of innovation development within any organization is people. If an organization has not developed the right skills and competences, all innovation efforts will be useless. We wanted to understand what skills people have and how they rank them in regards to their level of ‘expertise,’ classifying them into either a) we are the best in class; b) we are rookies or c) we lack those skills. We provided a closed list of skills important to innovation.

We found some skills that ranked first, although important for innovation, are more closely related to the world of Strategy and Management, such as strategic thinking, leadership, analysis, and execution. In second place, we find skills that are more particular to user-centered innovation, such as: empathy with consumers, sense of urgency, collaboration, imagination, curiosity and visual thinking. In third place are skills like people management, creativity and divergent thinking, and communication. Lastly, innovation theory and methods appears as the least widespread skill overall.

Interestingly, this self-evaluation recognized a basic expertise (we are rookies), and not a solid one (best in class), evidencing a lack of formal training to develop these skills within the organization. As we will see, this is one of the most significant weaknesses that organizations have with regards to innovation: developing the right talent.

How would you evaluate people in your organization across the following skills?

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We tried to be more explicit on this issue by asking a different question: “During the last 12 months, has your organization done any kind of training or workshop focused on building innovation capabilities of collaborators?”

A surprising majority responded “no” (52%) to this question, which highlights the fact that most leading organizations have not focused on providing their collaborators with any kind of formal training in innovation. However, we also found some companies which seem to know the importance of formal training and have provided either few (32%) or many (16%) training sessions in order to help build capabilities. These companies seem to have a well crafted vision for innovation and

are seriously committed to developing long-term capabilities. As one person put it “…we are not an innovative company and we don’t work in an innovative sector, but by investing in building my teams’ capabilities I believe we can change this reality.” Another participant mentioned: “It is not enough to read the latest book, [my team] won’t read it, so I have to make sure we provide a hands-on experience for them to learn about innovation.”

During the last 12 months, has your organization done any kind of training or workshop focused on building innovation capabilities of collaborators?


52%No

32%Yes,

1 or 2

16% Yes, many

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Sometimes an effective measure of expertise is to allow self-assessment and comparison. In this case, we asked respondents to evaluate their own innovation capabilities and compare them with those of their competitors. We asked: “Do you believe that your competitors have better innovation capabilities than your own organization?” Responses were almost evenly split between three choices: “no, my organization is better than theirs” (35%); “yes, my competition is better than us” (33%) and “we are equal” (32%).

If we consider the illusory superiority bias* it seems that our participants were quite critical in respect to their own organization. However, in some cases a positive viewpoint was well justified, as one of our interviewees mentioned: “Our [company] has been recognized as one of the most innovative companies in Brazil for the last few years, this is evidence that we are doing something well… we are definitely much better than our competitors.”

From those who recognize that the competition is better than them (33%), most of the evidence was based not on the success of the competition, but more on the lack of support from their own organization: “I am sure they don’t have the same problems we have, this is why they seem to be doing better.” Some people think both their own organization and the competition are below average in regards to innovation capabilities. Someone said: “We are both equally bad in innovation.”


* Illusory superiority is a cognitive bias that causes people to overestimate their positive qualities and abilities and to underestimate their negative qualities, relative to others (Wikipedia)

Do you believe that your competitors have better innovation capabilities than your own organization?

32% We are equal

33% Yes, my competition is better than us

35% No, my organizationis better than theirs

So what works well and what doesn’t when it comes to innovation?Most organizations have already begun their innovation journey. Some are further ahead and others lag behind, but the fact is that many companies have started and lessons have been learned. In this section we wanted to understand what is working and what is not. When compiling these responses, we realized people provided more varied ‘negative’ responses (things not working well) than ‘positive’ ones (things working well). Two thirds more, to be exact.

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Two thirds more

‘negative’ responses than ‘positive’ ones

THE ‘POSITIVE’The question was: “Which are the three things that work well in the way innovation is done within your organization?”

Responses were clustered according to the overarching theme to which they refer. On the positive side (things that work well) the main themes are:

TRUST, ENCOURAGEMENT

There is some support from other areas and from top management to do innovation projects, such as:> “We have the support from the

executive committee”> “We feel encouragement and support

from other areas when a project starts”> “We are visible”> “They support ideas”> “The CEO leads this area, which gives

us visibility and ‘immunity’”> “HQ is convinced of the need

to innovate continuously”

HALO EFFECT

All the positive attributes of innovation seem to benefit other areas, especially motivation and self esteem. Comments supporting this theme include:> “Helps our self esteem”> “Encourages a positive attitude”> “Attracts young talent with new ideas”> “People cooperate more when they

work in a ‘special’ innovation project”> “It helps others realize that the company

is doing things right and to see a clearer future”

> “We learn new things”> “Helps generate a stronger commitment

with the job”> “[In innovation projects] people from

different areas tend to work more closely”

A third positive theme that emerged was:

PROCESS

Despite the fact that very few respondents recognize having an established innovation process, some recognize that their process provides the support they need to reach actionable solutions. Some examples of positive recognition include:> “The process works well and

is well defined”> “New people can jump into the

process without the uncertainty we used to have before”

> “At least we know [a process] and we know how to execute it”

> “The process helped us stop doing crazy creativity sessions which most of the time led nowhere”

> “[My organization] does not punish failure”

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THE ‘NEGATIVE’Answers to the question “Which are the three things that don’t work well or that could be improved in the way innovation is done within your organization?” were much more varied and explicit. Again, we clustered the responses and established themes, such as:

LACK OF TALENT

Most respondents recognized a critical lack of experienced colleagues with innovation skills. Some claims included:> “It is hard to find people who are

experienced and trained in this topic”> “We don’t have the human talent

with expertise”> “We don’t have training on this theme”

LACK OF CLIENT-CENTRICITY

Not all organizations have embraced a people-centered approach:> “Our projects are not always

focused on the needs of our clients”> “We don´t have the time

to understand consumers”

SMALL BUDGETS

People did recognize that budgets exclusive to innovation are inadequate, forcing them to utilize resources from other areas:> “We end up doing things,

but we call them something else”> “There is this trick of using advertising

or research budget for innovation, nobody knows the difference”

> “Top management thinks ‘innovation’ is a cost, so I just say it’s marketing”

EXCESSIVE BUREAUCRACY

People recognize their organizations are not nimble enough to accommodate innovation processes:> “The process can be quite long and

bureaucratic, [it requires] a lot of steps and approvals to advance”

> We are used to working to protect the ‘core’ of the business, so anything new tends to find a lot of ‘why’s’”

NO CLEAR STRATEGY OR VISION

The lack of leadership and expertise is reflected in not having a guideline or well defined priorities:> “We don’t know what the

priorities are for innovation”> “Any project could be considered

as ‘innovation’ so the focus is diluted”

FOCUS ON THE URGENT AND SHORT TERM

A characteristic of the business environment and a context that does not support good planning:> “Poor planning and deadlines end

up rushing the process”> “Innovation is never part of the ‘urgent’”> “Nice to have”

NO INCENTIVES

Many people don’t see personal gain in embarking on risky, difficult and ambiguous innovation projects.> “We all like to do it, but unless you have

this responsibility in your evaluation, nobody will take the risk”

> “Too much risk and too little reward, better to stick with business as usual”


1CULTURE, COLLABORATION, THINKING: First and foremost in importance, solutions geared towards changing or evolving the culture of the company to make it more receptive to innovation. For example:

> “More liberty and less risk averse beliefs, more collaboration”

> “Force people to participate in the innovation area and to follow its processes”

> “Evangelize people with innovation concepts, design thinking and other techniques in order to change the culture”

> “Explain all about the term ‘innovation’ since it is misunderstood”

> “I would grow the innovation department, incorporating multidisciplinary profiles”

2TRAINING AND SKILL DEVELOPMENT: Also significant in other parts of the survey was the need provide people with formal training in innovation. For example:

> “In depth training by those knowledgeable on the process and the tools available to innovate”

> “Provide training on creativity at all levels within the organization”

> “Invest in training and processes”

> “Starting in the recruiting phase, screen people for their innovation potential”

> “Define in more detail the incentives and the way to measure your performance in terms of innovation”

How can Latin American organizations improve innovation?

Who better to answer this question than those working every day to encourage innovation? To understand what solutions might be implemented we asked: “If you could do only one thing to improve the innovation capability of your organization, what would you do?”

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3 PROCESS AND METHODOLOGY: Another important opportunity area for improving innovation effectiveness is designing the right innovation process. Some of their ideas included:

> “I would hire a specialist, a consultant to redesign the innovation process and to help us define the structure, the functions and responsibilities”

> “I would study the process and learn to use the tools available to innovate”

> “I would increase the speed and agility of our innovation process”

> “Just having something that we call process or guideline would be great, so people would stop doing what they want and calling it innovation”

4FINANCING AND BUDGET: One issue that was mentioned quite frequently in this study is the fact that some companies have small or non-existent budgets for innovation activities. Some of the ideas clustered under this theme included:

> “Create the budgets to implement projects and not just to generate ideas”

> “I would inform the President on the progress of projects so he is fully aware, to speed up decision making and ensure budgets are assigned”

> “I would assign resources to create an incubator that explores new business opportunities in a more controlled environment”

> “Include innovation within the strategic plan of the company, measuring its development and value to the organization”

Again, respondents were not short of ideas, but most of these ideas could be clustered around six major topics (order indicates relative importance measured in terms of frequency of mentions)


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Conclusions

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Innovation is without doubt a relevant and viable topic within Latin American organizations, but it exists in an uncertain and difficult context, and can be ambiguously prioritized. We believe this is due to the absence of a solid innovation culture, underdevelopment of fertile ground for the opportunities Latin America presents, and a lack of ‘expertise’ around this topic. Responsibility is shared, including academia, for not being able to produce ‘innovation experts’ in the region.*

On a positive note, companies are becoming more mature with respect to innovation and giving it the importance it deserves. Many companies have migrated from what we would call a Phase 0 (Why innovation?) to a Phase 1 (How to implement innovation?), though this brings with it another set of challenges, opportunities and frustrations as companies shift gears from ‘thinking’ to ‘doing.’ This means real budgets and efforts are required to make innovation work effectively. Some companies have been faster and better in adapting innovation processes and methods in their organization. Multinational firms with headquarters in other regions seem to be far ahead of local “multilatinas”, even though these, are quickly catching up. However, uncertainty is present in both types of companies, making them reticent to invest adequate resources in innovation. Some companies are highly self-critical and recognize their own inability to innovate effectively, but they have also found imaginative ways to make this work. For

example, by redistributing resources from other areas (such as market research, advertising or training) to support, complement or initiate innovation processes. Most companies still have homework to do. They recognize the importance of developing their own innovation capabilities, processes and tools focused beyond immediate and often temporary results, and of developing a long-term innovation culture that is more open to new ideas.

Many of the people we surveyed recognize that innovation has a ‘Halo Effect’ on employees and prospective employees, resulting in positive perceived attributes in terms of the culture, work environment and professional development opportunities. For this reason, an organization that is considered ‘innovative’ is much better positioned to attract and retain talent. Many areas within Latin American organizations are already making progress in innovation: Marketing, R&D, Strategy and—increasingly—Human Resources. Even though Marketing often has the most visibility in its efforts to assume responsibility for innovation, the Customer Insights area is usually best prepared to transform knowledge into specific and actionable solutions because innovation always starts from a user need.

We also noticed a trend of considering innovation as a complement to —and in some cases a replacement of – advertising/marketing activities. A majority of marketing leaders are reprioritizing their activities to focus on improving the product or service instead of just communicating its attributes.

*There are only a handful of programs focused on this topic in reputable Latin American universities

>


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Appendix

Methodology The research used two complementary approaches: quantitative and qualitative research

1QUANTITATIVE PHASE DATASET

The regional dataset is owned by INSITUM. It includes executives from national and multinational companies, innovation agencies, scholars, and non-governmental organizations. All participants we sampled work within the Latin American market. In Perú, an additional alumni dataset was provided by PAD - Escuela de Dirección de la Universidad de Piura.

SAMPLING

> Non-probability sample> Method of collecting data:

convenience sampling MODE

> Online survey> Questionnaire distributed and

managed through Survey Monkey> Total number of questions: 38,

of which 7 were open-ended questions> The survey was conducted from

October 15th, 2013 to December 15th, 2013

> The questionnaire was distributed in two languages: Spanish and Portuguese

> Filter requirement: to have work responsibilities within any Latin American countries

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2QUALITATIVE PHASETECHNIQUE

60-minute in-depth interviews: 70% face to face interviews, and 30% by phone

SAMPLE

> Interviews conducted in Brazil, Peru, Argentina, Mexico and Colombia

> Conducted 6-8 interviews per country > Interviewed executives from

multinational and multilatinas companies

> Interviews conducted between October 15th, 2013 and January 15th, 2014

> Typical positions were CEO, CMO, Innovation Director, Innovation Manager, Innovation Consultant, Brand or Product Manager and New Products Manager

CONFIDENTIALITY AGREEMENT

> A confidentiality agreement was signed. Names, positions and company are disclosed under the participant’s authorization


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Documents

Emerging Innovation in LATAM | INSITUM 2014