WHY AN ECONOMIC CRISIS COULD BE THE RIGHT TIME FOR COMPANIES TO ENGAGE IN ‘DISRUPTIVE INNOVATION’

1호 (2008년 1월)

A version of this article was originally published by Knowledge at Wharton
 
What will happen to innovation -- the advance of progressive ideas in science, technology and business -- now that the world economy is in a tailspin? The conventional wisdom might suggest that business, government and academia will be less willing to embrace the risk-taking and short-term costs that come with the territory of innovating.
 
Yet Paul J.H. Schoemaker, research director for the Mack Center for Technological Innovation, suggests that, for some companies, the economic crisis can actually provide an innovation platform.
 
"The crisis has multiple impacts," Schoemaker says. "Loss of revenue and profit will at first instill a cost cutting mentality, which is not good for innovation. But if the patient is bleeding you need to stop that first. Then, however, a phase starts where leaders ask which parts of their business model are weak (and perhaps unsustainable) and that, in turn, can lead to restructuring and reinvention."
 
He also cautions against too much caution -- over-reliance on incremental innovation versus transformative, or "disruptive," innovation. In innovation circles, the two have come to be differentiated as "little i" and "Big I" innovation. "The largest gains in business come from more daring innovations that challenge the paradigm and the organization," Schoemaker says.
 
So just how does an entrepreneur or business go about being "disruptive?" How does one convince investors or top brass of a radical idea's worth?
 
One person who knows something about bringing disruptive innovations to market is Jeong Kim, president of Bell Labs at Alcatel-Lucent and a successful tech entrepreneur. Among the most critical assets one can possess, he says, is company-wide recognition that disruptive innovation is actually important. In a company that's already successful -- or one with layers of bureaucracy that hinder new ideas -- this can prove difficult. The firm also must commit itself to research.
 
Furthermore, it is not enough to simply have brilliant engineers. Without competent management on the business side, the most elegant technology can wind up on the scrap heap of business history, or even worse, usurped by a competitor: "Disruptive innovation is not sufficient," says Kim. "You can (cite) numerous examples of companies that came up with (new) technology but eventually were displaced by somebody else."
 
In the innovator's lingo, these "somebody elses" are known as "fast followers" -- that is, companies with better funding or sharper management who were able to exploit a technology more quickly and effectively in the marketplace than the original creator. "You like to be the first to develop technologies," Kim says. "But the more flexible, the more innovative in terms of business model that the company is, the longer you can maintain advantage."
 
That point gives rise to the question: What is the best business model for fostering innovation? As it turns out, numerous decision-making tools exist to help firms systematically manage an innovation program, says Schoemaker.
 
According to Schoemaker, when it comes to innovating, the analogy is to firing a shotgun, not a rifle. Given the high failure rate of innovative projects, companies are smart to develop an array of possible situations and contingencies, rather than pin all their hopes on one plan. "Sticking to our knitting" might appear to be a sound business cliche -- it worked for a lot of companies that survived the dot.com era. But Schoemaker and other innovation gurus advocate looking at areas adjacent to one's main business as fertile soil for innovative breakthroughs. Old-fashioned, linear approaches that rely on standard measurement schemes are often outdated if relied upon solely.
 
Outsourcing of innovation could turn out to be the wave of the not-so-distant future. "Particularly in the pharmaceutical area, there has been a focus on how firms acquire innovation that has been undertaken by small, privately funded firms such as biotech startups," Wharton management professor Mary Benner says. "It may be that the locus of much really radical innovation is shifting outside of the large organizations to small start-ups."
 
That points to a "big trend" emerging in product development, so called "Open Innovation," according to Wharton marketing professor George S. Day. Open Innovation, also known as "crowdsourcing," entails collaborating with partners to solve business problems.
 
The archetype of that model is Waltham, Mass.-based InnoCentive. It matches corporate "seekers" who have science, engineering and business problems with amateur "solvers" worldwide. The "solvers" then compete -- for bragging rights and often token rewards -- to provide the best answers to the corporate problems.
 
For firms that want the "secret sauce" to always come from in-house, previous success can present a huge roadblock to innovation, according to Kim. The problem is that success creates a virtual construct, a paradigm of "How to Do Things," inside of which new thinking cannot flourish. Kim calls it "The Curse of Knowledge." Cross-discipline teaming "is one way of breaking the Curse of Knowledge," he says. Another is "experience pairing," or matching a senior employee with an individual who has considerably less experience, but a fresh perspective on how to solve problems.
 
Not even storied Bell Labs, it seems, is immune from the pressure to produce quickly exploitable technology. In a shock to the science world, Alcatel-Lucent all but shuttered its funding for the Lab's basic physics research over the summer. Company officials said the move was done to align the Lab more closely with the parent company's commercial pursuits in wireless, optics, networking and computer science. Or, as Alcatel-Lucent spokesman Peter Benedict told Wired Magazine in August, "In the new innovation model, research needs to keep addressing the needs of the mother company."
 
Basic research investigates the most fundamental of scientific questions and has no direct commercial application. At the same time, it has laid the groundwork for most of the modern technological conveniences we enjoy today, including commercial aviation, the GPS system and lasers.
 
"You have to make an investment in capital, human knowledge and networking," says Kim. "That's the way to get ahead."
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