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Saturday, November 11, 2006

Innovation : Need For A New Mindset

Peter Drucker once laid out what he saw as the three ingredients of the discipline of innovation: focus on mission, define significant results, and do rigorous assessment. What looks seemingly simple are amongst the most difficult things that organizations can hope to achieve. Just came across this interesting interview with Innosight’s Mark Johnson. He believes the most important piece that needs to be in place is having a common language and a common way to frame innovation. That allows groups to collaborate in a way that allow innovation to happen given that they think about it in the same way. All too often different groups speak a different language of innovation. When that happens there’s what’s called an absorptive capacity issue – knowledge transfer which is so important for innovation to take place doesn’t happen because the fundamental language is so different between units. Quite true – many large organizations are blind to the fact that the reported innovation in various business lines hardly appeal to the whole organization – many disbelieve the innovation reported by other groups as these are generally hailed as respective leader’s showmanship. On the other hand, as Clayton Christensen observed, a small company can disrupt the market and gain an advantage against a much larger competitor with a revolutionary new product. This happens a lot on the tech industry. Many startups try to develop "giant-killer" technologies and once they are proven technically and in the marketplace they are bought up by the larger company or one of its competitors.
William Baumol once brought out that most of the private sector expenditure on research and development is attributable to very large corporations. These corporations emply scientists and engineers, personnel characteristically highly educated and technically erudite. But, despite this concentration of knowledge, talent, and expenditure in these major enterprises, an examination of the list of revolutionary technological breakthroughs since the onset of the Industrial Revolution suggests that they were contributed in overwhelming proportion by independent inventors and small, newly founded enterprises, not by major firms. Finally, and intriguingly, a review of the biographies of the most celebrated of these innovators shows, in a surprising share of these cases, a most remarkable absence of rigorous technical training and, in many cases, little education at all. In these changing times, one can’t overlook the impact that Internet can bring on the innovation process itself. Larger companies need to go beyond thinking of just depending exclusively on their own internal resources for ideas and competitive advantages. The large dose of cheap capital and private equity funding, abundant talent dispersion – all these are making size of the corporation a relatively minor factor in harnessing innovation. Ironically organizations that are run the conventional way – essentially one those built for scale make things so inflexible that innovation becomes a PR issue more than anything else. Competitive forces across industries clearly point to the fact that the pressure on growth push the innovation cycles to be shorter and one that need to be achieved at lesser costs. A portfolio management approach would clearly suggest that innovation involving a set of partners and startups may be the best approach for organizations.

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