Emerson Electric’s Approach to Dealing with Innovation
Emerson Electric is a darn big company. It has 140,000 employees and $22.5 billion in annual sales coming from 60 business units. They had a goal for these units that a third of sales should come from products released in the last 5 years, but according to BusinessWeek, there going a step further by segmenting their new product sales a bit more into the following 4 categories:
- Minor improvements
- Major improvements
- Products that are new lines for the business
- Products that are new to the world
There is nothing very revolutionary about Emerson’s approach except that they’ve actually done it. Many organizations talk about disruptive vs incremental innovation and will say they don’t do enough disruptive ’stuff’. What is great about Emerson is that they’ve put a metric around innovation which their business units must aspire to - 1/3 of revenue from products in the last five years.
Their added detail around how they’ll categorize this innovation allows them to manage their innovation efforts as a portfolio. For example, we’re doing lots in the minor improvements category but not spending enough on bigger risk, higher reward new to the world products. By doing this, they can adapt their resource allocation decisions in a way that provides a balance amongst their innovation efforts and provides a more thoughtful way to achieve their 1/3 of revenue from new products goal.
Even without this nuanced look at innovation, Emerson’s willingness to put a hard metric against innovation in their unit goals is commendable.
