Innovation

The importance of implementing best management practices is widely understood. However, the authors argue, best practice alone is not enough. They use examples of three high-performing companies to show that those companies not only use standard best practices but also embrace internally developed idiosyncratic "signature processes" that reflect the history and values of the organization and executive team. Such "signature processes" -- a daily morning meeting of senior executives at the Royal Bank of Scotland Group, an easily reconfigured organizational structure at Nokia that involves modular teams and a "peer assist" program where business-unit heads help one another at BP Plc -- help drive high performance because they engender passion and energy within an organization. The mechanisms by which signature processes develop differ from those associated with best-practice ideas, however. The latter are often adapted from shared knowledge originating outside the company, whereas signature processes start with the values that internal executives champion.

The authors' research suggests that a variety of traps that forestall innovation can be avoided by, paradoxically, placing boundaries on innovation activity. In an environment without boundaries, say the authors, there is no context for shared interpretation or common expectations. Boundaries, on the other hand, act not as constraints but as aids to defining innovation needs and producing useful outputs that business units can exploit. Smartly placed constraints actually act as enablers of innovation by making it more palatable and execution friendly and giving it traction in the competition for corporate attention and resources. Drawing on their research, the authors offer several scenarios of "boundaries in use." They describe how Shell makes the radical legitimate by making it thematically relevant to core business, how Nokia restricts its innovation efforts to business-unit strategies and environmental turbulence, how Air Products focuses on ideas that leverage operational capabilities, how Siemens focuses on innovation potential that crosses products and businesses, and how IDEO's work with Texas Health Resources reframes the customer experience to anchor solutions in new ways.

Some techniques seem to drive new product development better than others.

Measuring learning instead of short-term results is key.

Markets develop according to the specific paths by which innovations in a given field occur.

Consumer-centered product design is an emerging best practice in many industries, particularly those characterized by practical products that hold no emotional appeal; or in which competition is based on increasingly less profitable attempts to cut cost or improve performance; or in which once distinctive products are becoming commoditized; or in which there is little room left for product innovation. Among the best practitioners, design is understood to be a core activity conferring competitive advantage by bringing to light the emotional meaning products and services have, or could have, for consumers and extracting the high value of such emotional connections. The authors discuss how companies such as Master Lock, Procter & ; Gamble, BMW and Cambridge SoundWorks have employed design research -- including the use of multidisciplinary teams and a variety of ethnographic and psychophysiological techniques -- to build organizationwide identification with the customers' needs and aspirations, keeping everyone's eyes on the same prize.

The author argues that the dominant challenge for the innovative firm may not be to command marketplace premiums for its innovation, but to strategically identify and opportunistically exploit subsidies for that innovation. For example, Microsoft's final stage of Windows 95 development was effectively subsidized to the tune of $900 million when the company drew upon a highly valuable technical population to test and help improve the quality of its new operating system. An innovation subsidy is the deliberate contributionof a business resource -- money, time, information, expertise, personnel or equipment -- in support of the development of a novel offering with no explicit expectation of a financial return. It is not, however, an outright donation or favor but rather the cost-effective bartering of resources by individuals and institutions that amounts to a gray-market mechanism for mitigating risk. (The article offers other subsidy scenarios referring to Gillette, 3M, IBM. Goldman Sachs and Citigroup.) The core differences in perceived and real risk among economic entities represent the richest source of ideas for opportunistic innovation subsidies. Such scenarios are clearly not merely about money, but about creating and managing relationships that tap the resources of a company's savviest customers. In the management of innovation risk, social capital can be as valuable as financial capital. Seeking out the innovation subsidy challenges firms to rethink the underlying economic relationships between their customers and suppliers.

A robust economy isn’t as far out of reach as some may think.

The conventional planning process does not work for strategic experiments that are truly bleeding edge. Nevertheless, many companies cling to what they know & #8212; planning that holds managers responsible for numbers. But that is not practical for entering completely new territory, when numbers are essentially pulled out of a hat and their underlying assumptions rarely revisited. A better approach to planning comes from researchers at Dartmouth College’s Tuck School of Business. It emphasizes learning instead of numbers, and it draws on in-depth studies of such companies as New York Times Digital, Thomson Corp., Corning and Analog Devices. Their approach, theory-focused planning, diverges from conventional planning in six critical ways. Companies that use it concentrate on a few critical unknowns instead of the usual horde of details in conventional plans; they focus on the theory underlining the predictions rather than the predictions themselves; they look for trends rather than numerical benchmarks; they review the plan often, in response to important new data, instead of annually; in that review, they consider the experiment over time instead of just for the current period; and they emphasize leading indicators rather than financials. Companies still hold managers of strategic experiments responsible for performance, but performance is gauged according to how quickly managers learn from new data. To be successful in uncharted waters, the ability to learn from experience is paramount.

Disruptive innovation has usually been considered by established businesses as an attack that must be met through defensive measures. And indeed, disruptive technologies and business models have toppled many established industry leaders and will likely continue to do so. The real story behind disruptive innovation, however, is not one of destruction, but of its opposite: In every industry changed by disruption, the net effect has been total market growth. Moreover, disruption can be a powerful avenue for growth through new market discovery for incumbents as well as for upstarts. There are several keys to the successful navigation of this growth path. The first is recognizing that disruption is not an immediate phenomenon -- it can take years and even decades before the upstart business encroaches heavily on the established market. The second is finding the new customers who are eager to be served by the disruption. The third key is building an organization that is capable of serving the new customers. The author explains each aspect in detail, drawing on extensive research involving online newspapers, minicomputers, cardiology and semiconductors.