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Managing innovation in a post-recession economy requires new approaches, different tools, and a reconfigured mindset.
We're not quite ready to exhale, but the whiff of a major recession in retreat is getting pretty strong. Particularly for technology companies where constant innovation makes the difference between life and death, the receding gloom is reigniting creative fires. The emerging product-creation strategies, however, don't look the way they used to. That's because the business innovation model has changed.
Today, nearly 80 years after his death, Thomas Edison remains the icon of American invention. He deserves it. With more than a thousand patents to his name and credit for some of the best product ideas ever created, the Wizard of Menlo Park stands out as a giant.
He invented not only the phonograph, movie camera, and light bulb but also an orderly innovation-management process—the forerunner of today's corporate research and development department. Idea generation, concept development, feasibility studies, and product development, testing, and launch were distinct phases in that process.
Although Edison believed, as a matter of principle, that all of his inventions should have practical uses, he did have his share of spectacular and costly misses. Pricey pre-cast cement homes, DC dynamos, and bizarre electrical devices designed to communicate with the dead were among his more noteworthy failures. Even his successes were often misdirected. Yet marketplace flops were just another part of the creative process, and the companies he created to exploit those inventions were simply folded whenever they failed to gain traction.
For some companies, until fairly recently, product failure remained an option—not the preferred one, of course, but a survivable one. Yet the crash of 2008 and the advance of product globalization, novel business models, competition from nontraditional sources, and time compression—which affect every aspect of a product's life cycle—conspired to reduce companies' appetite for risk.
To minimize those risks while optimizing their daily operations, many companies adopted management techniques such as Six Sigma, designed to reduce the unknowns, limit the uncertainties, and as much as possible, eliminate the risks of business operations. Yet risk is an inherent element of new product development, and squeezing it out can kill innovation. So instead of trying to innovate on their own, many companies now wait for startups to innovate—and then acquire them. That's a workable strategy. But it's not necessarily the only one.
Another is to think about investment on a portfolio basis rather than an individual product basis. The uncertainties inherent in breakthrough innovation projects mean that most simply won't pan out. The technology doesn't work. The market has changed, etc. The statistics are depressing. According to PRTM, a management consulting firm in Waltham, Mass., half the R&D investments never bear fruit. And half the projects that do get launched fail, according to Gartner (IT), a research and analysis firm in Stamford, Conn. To counter the risks, product companies have taken a page from the venture capitalist book by managing a number of incremental and breakthrough innovation projects within a single portfolio. If they're good at it, they'll be able to spot failures early and kill them, before they've invested too much money. Many of Edison's projects never saw black ink, either, but by bankrolling an entire portfolio, some of them made money, and a few of them made a lot.
The fundamental problem with the Edison R&D model, however, is that its inventive work was essentially isolated from prospective customers, on one end, and from the company's own business units on the other. It was, in effect, a standalone, skunk-works function not tethered to any commercial mother ship. Moving inventions from the lab to the factory and then to the marketplace was always a struggle.
What was missing were cross-functional teams capable of shepherding lab projects through from wishful musings to tangible merchandise. So today, instead of tightly restricted admission to the product development process, an open innovation model has emerged involving not only representatives from each of the company's internal departments but also its customers, suppliers, channel partners, and other stakeholders.
Applying that model effectively can help improve the hit rate, compress the time to market, increase customer intimacy, and ease the transition of projects through to commercialization. But it also raises the noise level associated with managing requirements and can force product executives to make investment decisions based on only a surface familiarity with each project.
Fortunately, advanced technologies are now available to help in virtually every phase of the innovation management process. These powerful tools can help increase the transparency for each project, improve interactions among the different interests around the table, and guide investment decisions by their fit with overall corporate strategy.
But unlike the mindset that marked the prerecession economy, this emerging model of product development is tilted less toward creating big breakthroughs than it is toward incremental innovation, sometimes in combination with elements of new discovery. Its success requires the right blend of skills, technologies, tools, and processes. But it doesn't take a massive development organization to get there. If it did, there wouldn't be a Silicon Valley. A three-person business working in a garage can have essentially the same processes as a $100 million company.
Today, as the Great Recession recedes into history, the model of innovators detached from the enterprise whose business they were created to advance is also fading away. Its lessons:
Apply a portfolio, rather than product-by-product, approach to R&D investment.
Invest in a mix of incremental and breakthrough innovations.
Link the development process transparently with its internal and external stakeholders.
Engage cross-functional teams in collaboration.
Provide visibility for all stakeholders to establish traceable decision-making.
Employ technologies and operational strategies for end-to-end innovation management.
Keep company road maps and product strategies aligned in real time.