Bruce Posner - 12 Essential Innovation Insights

For decades, researchers have published their findings about innovation in MIT Sloan Management Review. Here are a dozen of the best insights.

Bruce Posner and Martha E. Mangelsdorf

FALL 2017

Innovation is a perennial management challenge. Thats why, for decades, MIT Sloan Management Review has been publishing new research and insights about innovation from top researchers at business schools as well as from leading business executives and consultants.

For this article, we tapped into that knowledge base. We combed through our archives, looking for older articles with innovation insights that todays MIT SMR readers might have missed but that still retain wide relevance. We then winnowed down our list of articles and set out to distill 12 key innovation insights from the MIT SMR archives into a succinct format.

We present those selections here, in capsule form, so you can browse through them easily. But you can also dive deep into any of these articles; weve assembled all the articles mentioned at http://sloanreview.mit.edu/tag/essential-innovation-insights.

Innovation isnt just about developing new products or technologies. In a 2006 MIT SMR article Mohanbir Sawhney, Robert C. Wolcott, and Inigo Arroniz encouraged executives to think broadly about what types of innovation are possible. The authors noted that companies within the same industry tend to innovate along the same dimensions whether those dimensions are research and development (R&D), process innovations, or branding. Viewing innovation too narrowly, the authors pointed out, blinds companies to opportunities and leaves them vulnerable to competitors with broader perspectives. Sawhney, Wolcott, and Arroniz used examples such as Starbucks, which initially innovated not by producing a different product but instead by creating a different kind of customer experience what the company termed a third place for gathering that was between home and work.

Business innovation, the authors stressed, has to do with new value, not necessarily new things and comes in many flavors. The authors presented an innovation radar so companies can consider 12 different areas in which they might innovate ranging from method of value capture to operating processes to platforms. When a company identifies and pursues neglected innovation dimensions, it can change the basis of competition and leave other firms at a distinct disadvantage, the authors concluded.

Technological disruption is one way to upend a market, but it isnt the only way. For some companies, the secret, according to Constantinos Markides of London Business School, is to change the rules of the game.

In researching his 1997 article Markides studied more than 30 companies that had successfully attacked leaders in their industry without the benefit of a breakthrough technological innovation. The common element in such successes, Markides found, was that the attacker changed the rules of the game, a phenomenon he termed strategic innovation. For example, Southwest Airlines changed the rules of the airline industry when it chose to fly its planes point-to-point rather than through hub cities. Strategic innovation occurs, Markides wrote, when a company identifies gaps in the industry positioning map, decides to fill them, and the gaps grow to become the new mass market.

Markides offered a framework for thinking about strategic innovation thats grounded in three basic questions: Who are your customers? What products or services should you offer them? And how should you offer them? To change the rules of the game in their industry, Markides noted, companies can either redefine the business, redefine who their customers are, redefine what they offer customers, redefine how they do business, or start the strategic thinking process at a different point for example, the organizations unique capabilities.

Of course, coming up with new ideas for strategic innovation does not guarantee success. Its worth reemphasizing that coming up with new ideas is one thing; succeeding in the market is another, Markides wrote.

Breakthrough innovation projects necessarily involve a high degree of uncertainty, Mark P. Rice, Gina Colarelli OConnor, and Ronald Pierantozzi observed in their 2008 article, So, rather than try to apply disciplined planning techniques to such innovation projects, they proposed that companies focus on identifying and prioritizing the uncertainties that need resolution.

The authors developed a framework for turning uncertainty into learning by studying large innovation projects at 10 technology-intensive companies, including GE and IBM, over a period of seven years. They concluded that, in breakthrough projects where the shape of the future market has yet to be determined and where its unclear which applications will succeed, identifying milestones to achieve may not be the best approach. In such scenarios, Rice, OConnor, and Pierantozzi wrote, it is more reasonable and useful to identify and prioritize uncertainties that must be resolved, to define alternative approaches to exploring them, and to continually assess the value of cumulative learning compared to the costs incurred.

Rice, OConnor, and Pierantozzi suggested that companies develop what they call a learning plan to help teams examine four types of uncertainty: technical, market, organizational, and resource. Managers can use the process, the authors wrote, to uncover gaps in knowledge and create a record of what is known, to prioritize which uncertainties are most critical and propose alternative assumptions about the reality behind each uncertainty, and to find ways to test assumptions and resolve the uncertainties as quickly and inexpensively as possible.

The authors provided some helpful suggestions about how to apply their approach effectively. Rather than approaching the process in a linear fashion, they called for multiple passes, or learning loops, to allow teams to review results, clarify assumptions, and identify new tests to initiate. A critical aspect of the approach, they argued, is proper oversight by people with experience in highly uncertain projects. One risk of using people without such experience is that they may kill promising projects too early.

One of the most enduring axioms of business is that, irrespective of whether youre running a startup or an established company, it pays to be first to market. But as authors Gerald J. Tellis and Peter N. Golder explained in a 1996 article titled the case for entering the market before anyone else can be and often is overstated and distorted by the nature of the data. The authors pointed out that previous studies finding that pioneering companies gained an advantage had only surveyed surviving pioneers.

The authors studied the history of 50 consumer product categories and found that pioneering companies had a high failure rate: 47%. Importantly, the authors found that being a market pioneer was less advantageous from a market-share perspective than being what they called an early leader, one who enters the market after pioneers but becomes a leader in the markets early growth phase. Early leaders, the authors wrote, tend to have low failure rates and significantly higher market shares than pioneers.

Tellis and Golder found that the early leaders they studied excelled in comparison to pioneers on five factors. Early leaders had a vision of the mass market for the product; they persisted through business challenges; they were able to commit resources in line with their vision; they innovated relentlessly, even if it meant risking (or cannibalizing) their other products; and they leveraged their assets. In the disposable diaper market, for example, a well-reviewed product called Chux predated Procter & Gambles 1961 introduction of Pampers by decades. But P&G managed to leverage its technical and financial resources to build a position in the mass market. Likewise, in the U.S. market for light beer, several products predated the introduction of Miller Lite in the 1970s. To build market share for Miller Lite, its parent company was willing to spend heavily on advertising (something one of the market pioneers, Gablingers, didnt do).