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


Here Comes Hyperinnovation

But contrary to management mantras, the speed and cost-reduction benefits of iterative capital are not the ultimate destinies of these digital media; they are just the beginnings of the journey. Indeed, speed and cost reduction are what these modeling media turn into commodities. Just as spreadsheet software like Lotus 1-2-3 and Microsoft Excel commoditized financial modeling, digital design media commoditize cycle time compression. Everyone reaps the benefits of faster development cycles. That's inevitable. So the ultimate goal isn't innovating ever faster at lower cost; it's getting greater value from time and monies saved. Precisely what happens to competitive advantage as cycle-time differences between rival firms narrow and their innovation offerings hit the market at comparable times? Even worse, what happens when development cycles go faster than customers are ready, willing, or able to absorb?

As the rate of hyperinnovation accelerates, the gating factor shifts from the speed of the innovator to the speed of the adopter. The economics of hyperinnovation effectively dictate that hyperinnovators will have to collaborate with customers, not just to customize, but to facilitate the adoption of the innovation. Iterative capital becomes a shared resource, enabling shared creation. Hyperinnovators need hyperadopters.

So hyperinnovation has speed limits. Speed for the sake of speed is as valueless as innovation for the sake of innovation. That's not business; that's self-indulgence. The challenge is to treat the economic virtues of speed, cycle-time compression, and their concomitant savings less as ultimate ends and more as creative means.

That means hyperinnovative executives will need to look to all manner of methodologies to manage their hyperinnovation portfolio investments. The same quantitative techniques that investment managers use to manage their portfolio investments will surely be assimilated by hyperinnovators. Modern Portfolio Theory, with its rich brew of quantitative techniques to measure risk and reward, will be adopted and adapted by innovation investors.

An automobile company, for example, will consider how much iterative capital should be invested in improving a car's handling, its interior, its weight, its safety features, its performance, etc. Each category might be analogized to an "asset class" with its own "beta" or level of volatility. The hyperinnovation portfolio manager will also explore how much iterative capital should be invested in integrating these disparate features. What are the acceptable risks? What are the trade-offs?

No doubt, innovators will soon be managing options and futures based on iterative capital much as financiers now do with financial capital. "Real options," like Internal Rate of Return and Discounted Cash Flow, is becoming a tool to weigh R&D investments. The perspectives offered by iterative capital would allow an even more rigorous and robust options analysis of innovations.

Great wealth poses as many risks as it does opportunities. Great wealth forces both individuals and institutions to reevaluate what kind of impact they want to have. Hyperinnovation, above all else, concerns the future impact of innovation on the global marketplace. The tools to manage hyperinnovation and the iterative capital that fuels it represent a mission-critical opportunity for organizations worldwide to boost their chances of success. Squandering iterative capital is like burning money. Tomorrow's hyperinnovators will need to be as innovative with their iterative capital portfolio management techniques as they will be in creating hyperinnovative products and service offerings.

Reprint No. 01108

Michael Schrage, [email protected]
Michael Schrage is codirector of the MIT Media Lab’s e-Markets Initiative and a senior adviser to the MIT Security Studies program. Mr Schrage is the author of Serious Play: How the World’s Best Companies Simulate to Innovate (Harvard Business School Press, 1999).
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