Research brief, 2019.

With £25 billion per year in sales, BT runs four separate business groups – Consumer, Enterprise, Global, and Openreach which houses a cluster of new services and ventures focused on pervasive networks (IoT, integrated digital home services, and a wide range of additional new applications) – and a fifth peer group, “BT Technology” – which runs as a blend of a shared-services organization and strategic R&D organization, headed by Howard Watson. The Technology group includes a head of R&D and the BT Chief Information Officer.

Each of the other four business groups allocate their own funds for incremental innovation and short-cycle R&D projects close to their customers, often internally engaging parts of the Technology group’s innovation program (see the BT chart below).

The heads of the business groups negotiate annually for high-level funding for each group, with a blend of similarly top-designated funds for the Technology group as an equal peer of the other four, and a planned and budgeted – but not guaranteed – contribution from each of the four to the Technology group to be finally allocated on a project-by-project basis as each year unfolds.

Jan-Marc Frangos, long-time Managing Director of External Innovation for BT, reported up to the head of the Technology group. Frangos built an innovation workflow over the past decade that engages internal clients and external resources and has a budget to support a global staff of 200, as well as ad hoc funding Frangos negotiates for with operating groups throughout each year.

Frangos explains: “If you look at this process chart, you can see that more than half our total investment of people, time and energy went into selling internally. 

“Making sure that the operating business leaders at BT knew what was coming out of the firm’s technology development, knew the layers we added in the innovation programs by making them solutions, solving real problems for existing and emerging markets, and getting that uptake among the people across this large global enterprise who could actually do something with the outstanding tools that we invent and build.”

An earlier approach at BT – Measuring “Innovation Dividend”

Paul Excell, Chief Customer Innovation Officer for UK’s telecom giant BT Group until 2012, explained to ILO that at BT he focused on what he calls the “Innovation Dividend” – the net financial contribution, eight quarters out, of each discrete R&D effort,  in his communications to his board and his CEO.

 “On the internal side, I simply must demonstrate that the money spent by my group has value, eight quarters out. That’s the innovation dividend: based on the products that made it to market roughly eight quarters ago, what’s the operating earnings difference that was made, compared to what our operating earnings would have been had we done no R&D in that period, and brought nothing to market.

“At any given moment, we can say that about eight quarters ago, we were spending roughly at a $40 million annual rate in my group, and that that contributed about $1 billion in net new sales, and maybe $200 million in earnings.  I needed that number to tell a compelling story to my colleagues and bosses.

 “But there was also an important use within our group’s strategy. What I want to see is whether there is a distinguishing character of the individual efforts that have had the greatest innovation dividend, and then do more projects like that.

 “So I wanted to use that lagging indicator to group discrete R&D efforts in the top-, middle- and lower-contributing groups, and then find whether I can see that the top ones share important characteristics, so that we can cluster newer efforts in that area.”