Innovation

Recent Supreme Court rulings have changed IP protections.

To understand how breakthroughs in creativity occur, managers must understand how most collaborations work.

How can companies design products and product lines to maximize profits? Out of all the potential configurations available to them, how should they decide which ones to offer? The authors have developed a framework for balancing the costs of developing and offering a rich line of products and services against customer demand for additional choice. Their methodology helps managers make informed decisions about which features to include in the product; which variations to include in a product line; and how the offerings should evolve with technology and competition. Using examples from the music, software and media industries and citing companies including Apple, Dell, Microsoft, The New York Times, and ESPN, the authors describe five basic types of product offerings: the _ la carte offering, the specialization offering, the all-in-one offering, the basic/premium offering, and the have-it-your-way offering. By highlighting how costs influence product design, they depart from the standard product-success metrics, such as revenue and market share, which are the main focus of most of the work on product bundling. The authors note that the decision to offer a product and how it is designed generally affects both the fixed costs and the marginal costs. They argue that product architects need to expand their definition of fixed and marginal costs beyond those that they typically track and account for to cover costs across the entire supply chain. Although some of these costs may be hard to quantify, they are often too significant to ignore.

Organizations can teach themselves to grow.

Innovation in developing markets has less to do with finding new customers than addressing issues of product acceptability, affordability, availability and awareness.

IBM discovered decades ago that adding programmers to a software project that was late did not help. Indeed, progress slowed even more. The "resource-driven mindset," sometimes known as "throw more money at the problem," is limited, the authors argue. Yet this mindset has so dominated the research agenda that it has clouded our consideration of many situations in which scarce resources (precisely because they are scarce) are desirable, potentially leading to breakthrough performance. Resource constraints fuel innovation in two ways: through entrepreneurial, social-network approaches to securing the missing funds or the required personnel, and because teams often produce better results as a direct result of the constraints. The human mind is most productive when restricted, the authors maintain. Limited -- or better focused -- by specific rules and constraints, we are more likely to recognize an unexpected idea. Witness the outcome of a Cold War-era race between General Electric and BMW teams to design adequately cooled jet engines. The U.S. team had a virtual blank check, used the most advanced materials and spent nearly twice as much as the Manhattan Project did. The German team, which had significantly less funding at its disposal, came up with a simple yet elegant design principle that remains in use to this day.

Conventional wisdom has it that most innovations eventually become commodities, bought on the basis of price and nothing else. Citing a quotation by a Columbia Business School professor that epitomizes that point of view -- "In the long run, everything is a toaster" -- the author uses the technological history of toast to persuasively undermine that notion. Drawing on the wisdom of economists Ronald Coase, Paul Samuelson, John Maynard Keynes and Adam Smith, he makes a historical case that commodity is not destiny, and uses brands such as Starbucks, Evian, Dasani, Scott Paper, Yahoo and Google, Hoover and Dyson to illustrate the point. The danger, he says, is that executives, entrepreneurs and investors may buy into the commodity designation far more often than they should, making the commodity ideology a self-fulfilling prophecy. Businesses that believe that today's breakthrough is tomorrow's toaster understandably fear rapidly diminishing returns from their innovation investments, and the economics of "good enough" innovation become good enough. The potential of ideas is inherently undervalued. Sustainable innovation opportunities are either missed or dismissed. Intense price competition, the author argues, may not signal the prolific presence of substitutable commodities but rather an arid absence of innovation. That signal, he says, should give a clear and present incentive for executives and entrepreneurs to innovate in order to differentiate; to identify hidden or untapped potential for new value creation.

A company's market value actually increases when its known rivals innovate.

Launching new ventures outside a corporation's core business is risky and failure-prone -- yet often perceived as vital to innovation and organic growth. Can investing in new ventures add value to a company despite the risks? To explore that question, the authors conducted an in-depth study of corporate venturing at Nokia Corp. between 1998 and 2002; the study included two years of dissertation research by one of the authors. The research yielded a number of lessons about corporate venturing. For example, Nokia discovered that looking at the success or failure of an individual project as a business was the wrong way to evaluate the effectiveness of the venturing program. Whether or not they succeeded as businesses, Nokia's corporate ventures often added important capabilities to the core business, such as familiarity with a new customer segment for the company. In fact, seemingly unrelated investments sometimes led to technologies that later benefited the company's core business. The authors conclude that, to extract value from corporate ventures, companies must use different management practices than in their established businesses, structure new ventures so that they don't face pressure to deliver immediate results, and emphasize learning. Although 70% of Nokia's corporate venturing investments during the period studied were either discontinued or completely divested, the capabilities and technologies developed nonetheless played an important role in helping the company's core businesses respond to change.

Innovation is typically a group effort, but how exactly do researchers collaborate with one another to innovate? To answer this question, the authors compiled a dataset identifying all co-authorship relationships of U.S. patent inventors from 1975 through 1999. That dataset revealed that the social network of innovators is a "small world," with various clusters of people interconnected by different "gatekeepers," individuals who bridge one group with another. Historically, engineers and scientists tended to work within local clusters of collaboration that were isolated within a company. Recently, though, people have become increasingly mobile, changing jobs with greater frequency, and these formerly isolated clusters have begun to interconnect into larger networks through which information flows more freely between companies. Such environments provide both strategic opportunity and potential threat: They can increase creativity within a company, but they also aid in the diffusion of creative knowledge to other firms through personnel and knowledge transfer. The trick, then, is to manage innovation in ways that exploit the opportunities while minimizing the risks.