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12 Essential Innovation Insights
Technology Briefing |
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TranscriptInnovation is a perennial management challenge. That's why, for decades, MIT Sloan Management Review has been publishing new research and insights about innovation - from top researchers at business schools as well as from leading business executives and consultants. Recently MIT Sloan Management Review tapped into its deep "knowledge base" looking for crucial innovation insights that today's managers might have missed. Innovation Insight 1: Innovation isn't necessarily about new things; it's about new value. Innovation isn't just about developing new products or technologies. The authors encouraged executives to think broadly about what types of innovation are possible. They noted that companies within the same industry "tend to innovate along the same dimensions" - whether those dimensions are research and development (R&D), process innovations, or branding. Viewing innovation too narrowly, the authors pointed out, "blinds companies to opportunities and leaves them vulnerable to competitors with broader perspectives." Sawhney, Wolcott, and Arroniz used examples such as Starbucks, which initially innovated not by producing a different product but instead by creating a different kind of customer experience - what the company termed a "third place" for gathering that was between home and work. Business innovation, the authors stressed, has to do with new value, not necessarily new things - and comes in many flavors. The authors presented an "innovation radar" so companies can consider twelve different areas in which they might innovate - ranging from method of value capture to operating processes to platforms. "When a company identifies and pursues neglected innovation dimensions, it can change the basis of competition and leave other firms at a distinct disadvantage," the authors concluded. Innovation Insight 2: Challenge competitors by playing a different game. Technological disruption is one way to upend a market, but it isn't the only way. For some companies, the secret, according to Constantinos Markides of London Business School, is to change the rules of the game. In researching his 1997 article "Strategic Innovation," Markides studied more than thirty companies that had successfully attacked leaders in their industry without the benefit of a breakthrough technological innovation. The common element in such successes, Markides found, was that the attacker changed the rules of the game, a phenomenon he termed "strategic innovation." For example, Southwest Airlines changed the rules of the airline industry when it chose to fly its planes point-to-point rather than through hub cities. "Strategic innovation occurs," Markides wrote, "when a company identifies gaps in the industry positioning map, decides to fill them, and the gaps grow to become the new mass market." Markides offered a framework for thinking about strategic innovation that's grounded in three basic questions: Who are your customers? What products or services should you offer them? And how should you offer them? To change the rules of the game in their industry, Markides noted, companies can either redefine the business, redefine who their customers are, redefine what they offer customers, redefine how they do business, or start the strategic thinking process at a different point - for example, the organization's unique capabilities. Of course, coming up with new ideas for strategic innovation does not guarantee success. As Markides wrote, "It's worth reemphasizing that coming up with new ideas is one thing; succeeding in the market is another." Innovation Insight 3: Focus on identifying and resolving uncertainties in innovation projects. Mark P. Rice, Gina Colarelli O'Connor, and Ronald Pierantozzi observed in their 2008 MIT Sloan Management Review article, called "Implementing a Learning Plan to Counter Project Uncertainty" that breakthrough innovation projects necessarily involve a high degree of uncertainty. So, rather than try to apply disciplined planning techniques to such innovation projects, they proposed that companies focus on identifying and prioritizing the uncertainties that need resolution. The authors developed a framework for turning uncertainty into learning by studying large innovation projects at ten technology-intensive companies, including GE and IBM, over a period of seven years. They concluded that, in breakthrough projects where the shape of the future market has yet to be determined and where it's unclear which applications will succeed, identifying milestones to achieve may not be the best approach. "In such scenarios," Rice, O'Connor, and Pierantozzi wrote, "it is more reasonable and useful to identify and prioritize uncertainties that must be resolved, to define alternative approaches to exploring them, and to continually assess the value of cumulative learning compared to the costs incurred." Rice, O'Connor, and Pierantozzi suggested that companies develop what they call a "learning plan" to help teams examine four types of uncertainty: technical, market, organizational, and resource. Managers can use the process, the authors wrote, "to uncover gaps in knowledge and create a record of what is known, to prioritize which uncertainties are most critical and propose alternative assumptions about the reality behind each uncertainty, and to find ways to test assumptions and resolve the uncertainties as quickly and inexpensively as possible." The authors provided some helpful suggestions about how to apply their approach effectively. Rather than approaching the process in a linear fashion, they called for multiple passes, or "learning loops," to allow teams to review results, clarify assumptions, and identify new tests to initiate. A critical aspect of the approach, they argued, is proper oversight by people with experience in highly uncertain projects. One risk of using people without such experience is that they may kill promising projects too early. Innovation Insight 4: Remember that being first to market is no guarantee of success. One of the most enduring axioms of business is that, irrespective of whether you're running a startup or an established company, it pays to be first to market. But as authors Gerald J. Tellis and Peter N. Golder explained in a 1996 MIT Sloan Management Review article titled "First to Market, First to Fail? Real Causes of Enduring Market Leadership," the case for entering the market before anyone else can be - and often is - overstated and distorted by the nature of the data. The authors pointed out that previous studies which found that pioneering companies gained an advantage had only surveyed surviving pioneers. The authors studied the history of fifty consumer product categories and found that pioneering companies had a high failure rate: 47 percent. Importantly, the authors found that being a market pioneer was less advantageous from a market-share perspective than being what they called an early leader, one who enters the market after pioneers but becomes a leader in the market's early growth phase. Early leaders, the authors wrote, tend to have low failure rates and significantly higher market shares than pioneers. Tellis and Golder found that the early leaders they studied excelled in comparison to pioneers on five factors. Early leaders had a "vision of the mass market" for the product; they persisted through business challenges; they were able to commit resources in line with their vision; they innovated relentlessly, even if it meant risking (cannibalizing) their other products; and they leveraged their assets. In the disposable diaper market, for example, a well-reviewed product called Chux predated Procter & Gamble's 1961 introduction of Pampers by decades. But P&G managed to leverage its technical and financial resources to build a position in the mass market. Likewise, in the U.S. market for light beer, several products predated the introduction of Miller Lite in the 1970s. To build market share for Miller Lite, its parent company was willing to spend heavily on advertising (something one of the market pioneers, Gablinger's, didn't do). The takeaway, Tellis and Golder concluded, isn't that it's better to be a follower than a pioneer. It's that paying attention to the five leadership factors will have more impact on long-term success than whether or not you enter the market first. "Being first," they wrote, "does not automatically endow an advantage; it only provides an opportunity." Innovation Insight 5: Let your customers develop your next product. When developing new products, how do you determine what customers want and what they need? This, of course, is a classic challenge, one that managers have labored over for many years. But in a 1977 article titled "Has a Customer Already Developed Your Next Product?" Eric A. von Hippel of the MIT Sloan School of Management pointed out that many companies fail to take into account critical information that's available to them. In studying manufacturers of scientific instruments and process equipment, von Hippel identified a pattern: "Most of the innovative products commercialized in those industries were invented, prototyped, and used in the field by innovative users before equipment or instrument manufacturing firms offered them commercially." Von Hippel found further that "the manufacturer who takes advantage of user efforts needs only to contribute product engineering work to obtain a first-to-market product innovation." Users are willing to do innovation work and provide valuable information, von Hippel wrote, if they need the new product "as much as or more than you do." This can save companies a good deal of money. A big challenge, though, is convincing internal people to accept the validity of information and ideas that come from the outside. Von Hippel further explored the "user innovation" theme in subsequent MIT SMR articles, including "The Age of the Consumer-Innovator," which he coauthored with Susumu Ogawa and Jeroen P.J. de Jong in 2011. In that article, von Hippel, Ogawa, and de Jong reported on new national surveys finding that individual consumers play an important role in both creating and modifying products. What's more, the authors noted, advances in areas such as computer-aided design tools and 3D printing mean that "consumers should realize that it is getting progressively easier to design and make what they want for themselves." Businesses, von Hippel, Ogawa, and de Jong advised, "need to think about how to reorganize their product development systems to efficiently accept and build upon prototypes developed by users." Innovation Insight 6: Think of innovation as a process of creating new combinations of elements - with results that have a highly skewed distribution. In a fascinating 2007 MIT Sloan Management Review article titled "Breakthroughs and the 'Long Tail' of Innovation," Lee Fleming explored the dynamics of invention. Defining invention as a "new combination of components, ideas, or processes," he explained that invention samples show an extremely skewed distribution, with the vast majority of inventions being useless, a few having some value, and only a very few representing breakthroughs. As a result, Fleming argued that if companies want to achieve breakthroughs they should:
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