There is an interview with Prith Banerjee, director of HP Labs, in the recent McKinsey Quarterly about how HP structures its research to achieve innovation. Four highlights below.

#1: Balance Different Business Needs Using a Portfolio

Managing innovation through a portfolio approach took HP Labs two years, Mr Banerjee. That’s not bad for a large company. The point of the portfolio was to balance the needs of business units with the long-term growth of the company depends on innovation.

Research is divided into three areas, each getting 1/3 emphasis.

1. Basic research that might “change the  state-of-play.” This work is given five to fifteen years.
2. Product  research that is tied to an existing product and has a time line of 6 months to 18 months.
3. Applied research blances the extremes of basic and applied research. This segment has business impact but has a longer time line of two to five years.

#2: Get Close to the End-user, who doesn’t live in America (“the next billion”)

HP has its seven labs around the world. The reason R&D is in India and not  Palo Alto isn’t because of the cost of labor. The reason is to bring the researchers close to the end-user. Researchers need to be part of the context they are developing for.  India has a billion people, 70% of whom have cell phones but only 5% of whom have a computer. Computers are comparatively expensive, Mr  Banerjee says, yet people can afford comparatively expensive items (scooters, TVs) if the items have a perceived value.  Computers are not perceived as valuable enough to own. Obviously, HP Labs would like to solve that problem and that’s why they have a location in India.

#3 Managers Must Create Incentives

Providing the right incentives and measuring the impact of R&D is difficult. Management’s task is to create incentives and not a list of goals from the top, which nobody listens too, Mr Banerjee said.

HP has a board in which researchers can pitch big, aspirational ideas. The board is composed of 1/3 lab directors, 1/3 technologists from across HP, and 1/3 business unit people. For an idea to get approved, the different groups have to align.

#4 Measuring impact with the $100 Test

Measuring impact of R&D doesn’t work if you try catalog every little item that got transferred to business units. Why? Too many little transfers get counted as successes. What to do? HP uses the $100 Test. Each CTO of a group is given $100. (I wonder if they actually get $100 for this game? ;) ) They are asked to allocate portions of the $100 to the technology transfers from R&D that had an impact.  Mr Banerjee’s examples was something that allows HP to solve digital printing problem would get $30, while some incremental that improves a laser jet printer would get $1.

Basic summary. Innovation depends walking the line between long-term and short-term objectives while giving line employees incentives to bring their passions to work.

(After free registration, a video and transcript of the interview can be found at the article McKinsey Quarterly.)

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