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 / First Quarter 2001 / Issue 22(originally published by Booz & Company)


Here Comes Hyperinnovation

  • Spend all their cycles on speed to come to market in half the time?
  • Spend their cycles on improvements and come to market with a product that is 50 percent "better" after 10 months?
  • Spend their cycles on cost reduction to be able to cut prices by 30 percent?
  • Spend all 10 cycles on the ideal blend of speed, price, and quality? Just what is that optimal blend? Why?
  • Bet a couple of cycles on an intriguing but risky enhancement?
  • Use a few cycles to test an alternate design approach?
  • Save three cycles to keep the development costs down?
  • Take those 10 cycles to develop an entirely new product concept?

There are no inherently right answers. Even worse, these hypothetical alternatives are far too simplistic. They lack the pain and menace that managers confront when hard organizational choices have to be made. Iterative capital investments, just like financial capital investments and human capital investments, create political and cultural conflicts for organizations.

For example, the development team has to decide whether to use those extra iterative cycles to focus on particular product features or specific cost reductions. Allocating the new cycles can create rifts: Should design get three; manufacturing get three; marketing get three; and the remaining one be held in reserve for emergencies? Perhaps the product manager should "own" the cycles budget. Deciding when key customers and suppliers can be brought in to help spend cycles is unclear. Some innovation champions may want them there at the very beginning. A more conservative management may prefer to hold their participation until the end. It's also possible that doubling the number of cycles will have no impact at all on the way the firm manages its design relationships with suppliers and customers.

In truth, productively spending iterative capital may prove a greater management challenge than successfully investing new money. Iterative capital isn't as fungible as cash, but the ability to model, simulate, and prototype more options in less time ultimately must become a different organizing principle for managing value creation.

No doubt, many organizations will unhappily discover a "Parkinson's Law of Prototyping" in which, instead of work expanding to fill the time available, endless iterations of prototypes and simulations soak up time like sponges, while offering little but diminishing returns. That's a legitimate concern. The problem recalls the consumer product pathology of the 1980s, when mass marketers spun off flanker products and line extensions from existing brands. The vast majority of these marginal innovations did a better job of (briefly) capturing shelf space than of capturing either market share or profitability. They proved to be managerial distractions rather than meaningful brand equity investments.

So iterative capital raises economic questions that diligent hyperinnovators have to answer: Is the 50th iteration of a prototype or simulation dramatically more valuable than the 35th? The 60th? The 110th? Or are the insights and information gleaned marginal? How does the organization know? Do the design discussions fundamentally shift? Or do they simply become more refined? Do design assumptions harden? Or do they become less constraining as the cost of testing them shrinks? Those questions are neither hypothetical nor simple. They are at the center of management's most important decision: Are we creating value, or are we just messing around?

Managing Hyperinnovation
When the ability to generate a thousand iterations is but keystrokes away, hyperinnovators must become hypereditors. They have to establish priorities, filters, and screens that signal the onset of diminishing returns. Organizations hyperinnovating in the area of speed-to-market will surely have different diminishing return criteria than firms seeking to be the lowest-cost provider of innovative features and functionality.
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