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Six internal sources of Innovation
End2End Innovation | Innovation Culture

6 Internal Sources Of Innovation

6 Internal Sources Of Innovation

Spotting efficient sources for different types of innovation is a challenge for innovation leaders. We took a closer look at the most important sources of innovation in large companies.

Digital Innovation Strategy: Internal Sources of Innovation

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The Leadership

Corporate Innovation Board, Chief Innovation Officer, or other senior executives

The strategy and the direction of innovation are set by a company’s top management. Yet, companies around the world are in the digital transition and face even larger leadership gaps. Today’s top management needs a completely different set of skills and expertise than in previous generations. Many organizations have not moved fast enough to develop digital leaders, provide a seat for decision-making to young leaders, and build new leadership models. Simply setting up an innovation department, and allocating money to it, does not create innovation. It is the management’s responsibility to make sure that innovation is grounded in the reality of the organization. The leadership should make sure to be a source for the overall drive, vision, and ambition of the organization with regard to innovation.

For example, the Chief Innovation Officer of Evonik Industries launched the global “Leading Innovation” initiative, which is aimed at managers and the company’s C-level. As a long-standing member of the management board, he knew first-hand that innovation at the board level had to become a more prominent topic. With this new initiative, Evonik managers now meet regularly to identify and manage innovation challenges, opportunities, and threats.

As the C-level executives set the direction for innovation, in a sense, they make the first step toward successful corporate innovation. The leadership’s attitude towards creating a safe space for innovation gives an incentive for employees to innovate. A good example is the case of Toyota, where the leadership encourages innovation by eliminating some of the pressure for short-run returns. Toyota’s decade-long investment in its brand Prius eventually resulted in creating a reputation for the company as a respected product innovator.

Centralized R&D Unit

R&D body that is centrally managed and financed by the company

A central R&D body is an effective source for transformational innovation. Technology-intensive large corporations such as Microsoft and IBM actively conduct basic research internally in dedicated research centers. According to the 2014 “Proven Paths to Innovation Success’” study conducted by PwC’s strategy team, companies are intended to raise the portion of their R&D budget for innovation from around 40 percent up to 60 percent for the outlook of the next 10 years. This source of innovation is responsible for adjacent and transformational innovation, while incremental innovation is usually done by each business unit’s employees as part of their daily jobs.

Wacker Chemie AG, a German-based corporation and one of the most research-intensive chemical companies in the world, conducts R&D at two levels: centrally at its own Corporate Research & Development department and locally within different business divisions. The Corporate R&D unit coordinates activities on a company-wide basis and keeps all product and process innovations transparent in an overarching project management system. Wacker furthermore honors the work of its researches with different Group-wide R&D awards. The Alexander Wacker Innovation Award recognizes outstanding work in the areas of product innovation, process innovation, and basic research.

Decentralized R&D Units

R&D units that are specific to different business levels or areas

Often large corporations that operate in multi-business scenes normally build for each business line a separate R&D body. As the innovation cycle and requirements for each business lines differ from each other, having a centralized R&D function does not make sense. In this case, each business line becomes a source of innovation. For example, in the consulting and financial services industry these within-unit R&D centers often foster different business lines that deal with market-specific regulations with a more individualized approach.

Due to differing customer needs across different markets, the French energy giant Schneider Electric created within-unit bodies for each line of business to manage its own R&D. The company tackles the digital transformation of energy management and automation across data centers and markets. At Wacker Chemie, business divisions conduct application-driven R&D collaborating with customers, scientific institutions, and universities. The German corporation furthermore founded several Wacker Academy locations that provide a platform for sharing industry-specific knowledge between experts, customers, and partners. 

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Innovation Labs

A joint platform for knowledge exchange at the interface of research and industry

This innovation source fosters the company to build an independent body with full-time employees from different business units. Innovation labs can leverage the resources of the core business such as capital, technology, partnership, channels, or existing markets with strong leadership support. Among big corporations, there is a sudden rise in following the trend of creating innovation labs. Companies as diverse as Delta Air Lines, Volkswagen, Marriott, Autodesk, Fidelity Investments, Vodafone, McKinsey, Wells Fargo, New York Times, Ikea, Cisco, Panasonic, Ford and Verizon accelerated the development of new innovation labs and initiatives with the hope to be prepared for what is coming next in global business disruption and transformation. Note that this source of innovation can be completely internal (only employees of the company are engaged) or mixed (both employees and external experts, startups collaborate).

Deutsche Bank has innovation labs in New York, Silicon Valley, London, and Berlin. The Deutsche Bank Labs link technology startups with the bank’s internal teams, allowing them to test products and solutions to meet their client’s needs. The labs assess and implement emerging technologies, and support the digital strategy of the bank.


Employees that drive their own innovation projects by leveraging the resources of the company

Another source that triggers innovation in large corporations is intrapreneurship. The latter is a relatively recent concept and refers to the case when an employee has entrepreneurial acumen and starts his/her own innovation project inside the company.

At Intuit, when an employee comes up with a product or business idea, the necessary resources are provided to create a prototype to test the hypothesis with just one customer who is a potential user of that product. If the customer likes the product and recommends it to others, then more prototypes are produced for a larger cohort of customers in order to collect more data.

In 2015, Lenovo started an intrapreneurship project named “the Dream Lab” to help business-driven employees in their startup projects. A jury of Lenovo executives and external investors chooses the most promising ideas during a roadshow, then the winning projects are awarded a four-month acceleration service by the Dream Lab. Successful projects are later either becoming part of Lenovo’s core business or functioning as independent ventures.

All employees

All staff members of the company with futuristic ideas

Companies are making innovation everyone’s job, even if they invest to create R&D centers and innovation labs. For many firms, the innovation agenda is now as much about the human capital investment as delivering new products and services. Innovation has become an integral part of interview and onboarding processes. Job candidates are often asked to offer innovation-oriented business concepts that produce growth.

A company’s employees together make up one of the biggest sources of new idea generation. Due to experience and knowledge within an industry and its related products, employees are often the most informed innovation source and can deliver thorough, insightful proposals for new products and services. Employees need to be encouraged to submit their proposals. Lack of proper technology and upward communication limit employees from making their voices heard. Specialized software for idea management helps to combine, expand, rate, and aggregate ideas and collaboratively make an idea selection.

Cisco ran a company-wide Innovate Everywhere Challenge aiming to capture disruptive venture ideas from its employees. After the first pilot round, Cisco started the second and the third challenge aiming to integrate the ideation challenge as part of its innovation management. As a result, 53% of all employees in 89 countries participated, nearly 800 ventures were submitted by about 1,600 employees, 62% of the participants formed teams, and 20 executives are sponsoring ventures with seed funds. The challenge was a great success and boosted disruptive thinking across all business units, functions, geographies, and grade levels.


All the sources of innovation mentioned above help companies to analyze and monitor their innovation portfolio with regard to strategic goals. As a result, adequate resources must be provided to the most beneficial innovation projects. Transparency is key when it comes to choosing the right innovation sources for this or that project; people in the company need to know how internal sources are selected, used, and who does what.

In our next article, you will learn all about the external innovation sources every innovation manager should know about.

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