CAMBRIDGE, Mass., February 10, 2009 — An ongoing challenge for established companies is identifying breakthrough innovations before they get blindsided by competitors. This may be even more difficult today in this time of shrinking budgets and employee layoffs. However, research by MIT Sloan School of Management Visiting Professor Alan MacCormack shows that companies can quickly generate a diversity of ideas at low cost by designing a “radar.”
“When you look at firms' strategies for achieving breakthrough innovation, it is really about how to capitalize on a large pool of diverse ideas,” he said. A well-known example is Google, which allows its employees to spend a certain amount of time working on their own initiatives, thereby creating a source of diversity. MacCormack found that if companies can support this type of creativity and develop mechanisms to exploit the ideas that emerge, it will help them identify opportunities outside the current roadmap, away from their immediate focus.
While allocating a percentage of employees' time to generating diversity can be expensive, MacCormack's research shows that there are less costly strategies to help firms construct a radar for detecting new ideas. For example, firms might think about making small investments in university grants or start-up companies. “If you announce today that you are going to fund grants over the next few years, within a few weeks your mailbox will be full of proposals from professors and scientists interested in new technological opportunities,” MacCormack said. “Just reading those proposals will give you a richer source of information about what is going on in the world.”
Likewise, if a company announces it is interested in funding a number of corporate venturing deals with start-ups, in a few weeks it will begin receiving business plans from entrepreneurs looking at new commercial opportunities. “By reading these plans — even if the company doesn't actually fund them — it will garner information on the broader innovation landscape,” said MacCormack. “When you layer these strategies one on top of the other, you create a system that can detect signals by triangulating this information to reveal emerging spikes of interest. That's a lot cheaper than allocating a team of 100 people for two years to explore a possible breakthrough because the chances are it won't be ready for prime time yet.”
The key elements of a firm's radar will vary at each company. MacCormack said, “All firms have good ideas floating around inside them, and in the broader ecosystem in which they operate. The good firms are the ones who seek to collect those ideas, organize them, synthesize them and make decisions based upon them.”
MacCormack's work explores how firms can do this. “Someone must be in charge of spotting breakthrough opportunities, and you have to give them money to do it. But it can be a relatively small amount of your R&D budget. Think of it as insurance that if something arises, you will spot it more rapidly than your competition. If you look at a company like Intel, it spends billions of dollars on R&D, most of which goes on projects to execute roadmap technologies. Only a small percent is dedicated to the radar. But how much investment is enough? That is the critical strategic question that each firm must answer,” he said.
MacCormack noted that large established companies are particularly at risk of failure due to their lack of ability to see the next big thing. As firms grow and become successful, it's common for myopia to set in, impact top managers, and become embedded in organizational processes. Many of the improvement techniques used by firms such as six-sigma, quality circles, or statistical process control aim to eliminate variation and make processes more efficient at producing the products they make today. “Variation is often seen as the enemy,” he said. “But for breakthrough innovations, variation is your friend. In fact, it is the main objective.”
MacCormack added, “There are parts of the innovation process that can be systemized, but at its heart, innovation is about novelty. Managers need to understand what mechanisms will allow them to generate and sift through a pool of ideas, selecting those that are most attractive. It's not about doing what you do today better, but finding out what you should do tomorrow.”