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 / Winter 2003 / Issue 33(originally published by Booz & Company)


Best Business Books 2003: Innovation

Take the example of Design Continuum, a product-design firm located in Newton, Mass. Despite its resume of innovative products, Design Continuum “invents” remarkably little. Rather, it pulls together knowledge from its divergent experiences to form compelling new solutions to various problems. When Reebok retained the firm to design a new athletic shoe, Design Continuum drew upon its prior work with medical IV bags to develop an inflatable air bladder for ankle support and comfort. IV bags were certainly not new to the medical industry, but they were quite new to the shoe business. Design Continuum bridged the two worlds to create a novel solution.

Hargadon holds that it is not enough simply to apply disparate ideas to new solutions — it is then necessary to build communities of support around those solutions. This insight is important and arises again in other works. Inventing is only the first step in innovating. If innovation is to take root, many parties must embrace it along the way. People must be willing to let go of their current thinking and incorporate the new ideas into their own work. To effect changes, it is critical to build support among those constituencies necessary for the changes’ adoption and success. Consequently, organizational skills and structure are key assets in innovation.

These collectives and communities are directly affected by the organizations and cultures in which they arise. If you don’t have an organization and culture that encourage risk taking — and that accept the failures that frequently result — then you are likely to fall prey to the “safer” dominant logic. In order to innovate, according to Hargadon, it is best to start by opening up your company, and in particular your researchers and developers, to outside thinking. This stands in stark contrast to the classic monolithic research efforts like those of AT&T’s Bell Labs.

In Open Innovation, Henry Chesbrough carries this idea even further. He defines the old methods of research and innovation as “closed” and asserts that the future of innovation lies in being “open” to the diffusion of ideas and knowledge that lie outside your company.

Chesbrough offers a compelling set of reasons for the necessity of the move to open innovation. The closed paradigm of innovation reflected a very different business environment — one where the boundaries between industries seemed impermeable to outside ideas because there was little apparent overlap between the products and core competencies of each. What could research in the pharmaceutical industry have in common with research in the electronics industry? Large, vertically integrated companies were able to reap the value of their internal research within their siloed business models. They could hire the best talent in their industry, manage the speed and timing of their inventions, direct those innovations toward their customers’ stated needs, and realize the full value of those innovations through aggressive intellectual property protection and captive markets. Bell Labs is an excellent example of just such a closed innovation paradigm, one that worked successfully for decades.

Toward the Open Paradigm
But something happened in the last 20 years that undermines the closed innovation model for the majority of businesses, which no longer can rely on vertical integration and captive markets to harvest their internal breakthroughs. The conditions favoring closed innovation have been eroded by the increasing mobility of talent, the influx of venture capital, the abundance of entrepreneurial startups, and the increasing importance of university research. The resulting network of communications and talent has created strange bedfellows, like genetics and microelectronics, which have been melded in microchips designed for use in the diagnosis of cancers.

Chesbrough points out that this erosion calls into question the closed model of innovation. When the best minds in your company can easily leave to found a new business with venture capital, you quickly discover that your company no longer has a monopoly on the best ideas, no matter how much you spend on R&D. When you find that the newly minted Ph.D.s you were relying on to inject your company with state-of-the-art thinking are instead happier to pursue their university projects at upstart competitors, you become acutely aware that the fortress you have built to lock your innovations inside actually may be keeping the best ideas out. Sure, the threat from startups may be momentarily abated, but that is a consequence of the current business cycle — not the ultimate trend of the underlying market dynamics.

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