Combine Culture, AI, And R&D To Drive Innovation Forward.
Balance Internal Expertise with External Collaboration to Navigate Slowing Economies and Rapid Technology Change.
Traditional Innovation Frameworks Fail in Post-Pandemic Reality
Organizations now face a pivotal moment not covered by traditional innovation rule books. New technology, particularly AI, offers rapid advances and creates new product possibilities. But supply chain complications, slower economic growth, and environmental concerns all have a drag effect.
Paul Nightingale, professor of strategy at the University of Sussex Business School, notes a fundamental shift: "There's been a change in how we think about innovation over the last decades. We used to think of innovation as something that simply emerged out of R&D. More recently we've recognized the importance of understanding user needs. So innovation isn't really R&D—it's design."
Companies need to collaborate in new ways. "Even a company like GSK will only do 1% of all the science in a particular area," Nightingale says. "They'll need to look outside. So a lot of R&D now isn't just to develop products and services, it's also to be able to understand and judge the quality of research conducted elsewhere."
Empowered Project Managers Navigate Political Infighting
3M's Post-it Note arose from one scientist's frustration with loose bookmarks and another's tacky glue without a purpose. The secret wasn't the literal glue, it was 3M's culture which promoted informal, unsanctioned innovation.
But innovation processes have to be managed. Nightingale explains this is partly about capturing value. "Lots of firms innovate, but they fail to capture the benefits of it and other firms come along and just copy them. Those two things, creating value and capturing value, collectively define the business model of the firm. And all of that needs to be managed and coordinated within firms."
Innovation within organizations creates internal winners and losers. "One of the most important drivers of success is having empowered project managers who use their elbows to force through major changes that industries and companies may not find easy to make," Nightingale says.
Unilever Uses AI to Calculate Ingredient Combinations at Scale
At Unilever, AI is now being used to calculate the best combination of ingredients. The company is even putting it to work to predict the taste and texture of new forms of mayonnaise, including devising a plant-based formula that's easier to squeeze out of the container. "Traditionally we did all of this by trial and error, with chefs cooking products," says Manfred Aben, head of R&D for Unilever's nutrition division. "We still do that today but now we also use these tools to find ingredients and new ways of processing."
When Unilever wanted to create a new bouillon cube with zero salt, it turned to AI. "Making a cube without salt is like building a house without bricks," says Aben. Instead of manually tinkering with different combinations, Unilever used AI to run simulated models for both taste and structure using millions of natural ingredients. The result: Knorr, Unilever's bouillon brand, recently hit the $5 billion milestone.
"The whole role of the product developer will change and AI will allow us to develop food products in completely new ways," says Aben. "It will come up with combinations of ingredients that we couldn't come up with ourselves." At Unilever, there are now more than 500 applications of AI across the company's business.
Nightingale acknowledges AI's potential, but with a warning: "AI is going to change things. But typically AI is the average of the internet. And that isn't enough. You need expertise. It's a tool, a complement rather than a replacement. It's like having a very, very hardworking, pretty clever research assistant who happens to be a pathological liar every now and then."
Microsoft Invested $13 Billion to Avoid Getting Left Behind
Companies that once relied on their own internal expertise can credit looking outward for much of their recent innovation. Take Microsoft, which for years shunned innovation partnerships. Yet starting in 2022, the technology giant made an aggressive foray into GenAI by investing in and partnering with OpenAI. The bold bet cost Microsoft $13 billion, but it allowed access to the most cutting-edge GenAI technology.
The move required a new, uncomfortable approach: recognizing that no one company, not even the biggest tech giants, has all needed expertise. "Companies don't want to get left behind with AI and now with GenAI," says Melissa Valentine, professor of management science at Stanford. "And most don't have all of the AI experts they need."
At 3M too, the focus has shifted from purely internal to external. "The kind of innovation that's needed now will require ecosystem partnerships and more radical collaboration than we've done before," says Jayshree Seth, 3M's chief science advocate.
Indian Clay Refrigerator Requires Zero Electricity
Navi Radjou, innovation and leadership advisor, points to emerging market innovation: "Like MacGyver, new entrants in emerging markets find ways to repurpose or reuse what they have in their hands. Rather than complain about lack of resources, frugal innovation teaches you to think like in martial arts—how do you transform adversity into opportunity?"
Take a farmer in India who developed a refrigerator made entirely of clay, no electricity required. In the West, similar examples are growing. Siemens embraced frugal innovation after years of operating in India and China, developing low-cost CT scanners that can be deployed with less energy than traditional machines. French automaker Renault has also learned from emerging markets, developing low-cost electric cars it sells globally.
In India, a unique ID system took the country rapidly from a largely cash-based society in 2009 to one in which 700 million citizens acquired secure ID for welfare benefits and online banking, with each unique ID costing only $1. This was a powerful collaboration between government and the private sector—and a highly frugal one.
R&D Spending Growth Slowed In 2023 Post-Pandemic
Economic pressure has impacted R&D budgets. Fresh analysis from Moody's shows that worldwide R&D spending in 2023 was lower than the growth rate in 2022. Post-pandemic belt-tightening is threatening the pace of innovation.
A 2024 study by the UK National Centre for Universities and Business found that public investment in R&D could stimulate private R&D investment by four times over the long term. The pharmaceutical industry invested 19% of total revenue into R&D in 2023, spending ahead of both software and ICT services sectors, which invested 14%.
Recommendations
Deploy empowered project managers who can force through major changes despite bureaucratic resistance and political infighting.
Use AI as complement rather than replacement—treat it like a hardworking research assistant that occasionally fabricates information requiring expert judgment to verify.
Build capacity for fluid organizational boundaries that spin up cross-functional external experts on demand for specific projects then disperse.
Adopt frugal innovation mindsets that transform resource constraints into competitive advantages through improvisation and repurposing.
Balance R&D investment protection from short-term shareholder pressure while maintaining intelligent, targeted spending on future-focused innovation.
Bottom Line: Innovation Requires Coordinated Management Across Multiple Vectors.
Organizations navigating slowing economies and rapid technological change cannot rely on traditional R&D-focused innovation frameworks alone. Success requires balancing internal culture that promotes informal experimentation with external collaboration through ecosystem partnerships. AI tools like those deployed by Unilever, with 500 applications across the business, expand the innovation toolbox but require human expertise to distinguish valuable output from fabrication. Microsoft's $13 billion OpenAI investment demonstrates that no company possesses all necessary expertise internally.
Empowered project managers must navigate political infighting to capture value from innovation, not just create it. Public R&D investment stimulates private investment at four-times return rates.
