Saturday, March 26, 2005
Outsourcing Innovation and Solving the Innovator's Dilemna
This Business Week article discusses Outsourcing Innovation: "First came manufacturing. Now companies are farming out R&D to cut costs and get new products to market faster. Are they going too far? ... (with) the next step in outsourcing -- of innovation itself. "
"Underlying this trend is a growing consensus that more innovation is vital -- but that current R&D spending isn't yielding enough bang for the buck .. The result is a rethinking of the structure of the modern corporation. What, specifically, has to be done in-house anymore? At a minimum, most leading Western companies are turning toward a new model of innovation, one that employs global networks of partners. These can include U.S. chipmakers, Taiwanese engineers, Indian software developers, and Chinese factories.
When the whole chain works in sync, there can be a dramatic leap in the speed and efficiency of product development.
The downside of getting the balance wrong, however, can be steep. Start with the danger of fostering new competitors. ...The key, execs say, is to guard some sustainable competitive advantage, whether it's control over the latest technologies, the look and feel of new products, or the customer relationship. "You have to draw a line," says Motorola CEO Edward J. Zander. At Motorola, "core intellectual property is above it, and commodity technology is below."
Who will ultimately profit most from the outsourcing of innovation isn't clear. The early evidence suggests that today's Western titans can remain leaders by orchestrating global innovation networks. Yet if they lose their technology edge and their touch with customers, they could be tomorrow's great shrinking conglomerates."
I think Dominic Basulto would agree with that last sentence. However, he takes a more upbeat view of the Business Week topic, seeing instead: The Death of Idea Factories... and the Birth of Idea Networks . He also has an interesting perspective on what is driving some of America's leading companies and how they may stay ahead in the innovation race by involving their customers intimately with Beta Products... and Solving the Innovator's Dilemma . He argues : "that alpha companies are increasingly viewing beta releases as low-risk ways of experimenting with market-transforming technologies. Put another way, the most intelligent, most aggressive companies -- the alpha companies -- are willing to release products that are somehow second-rate or inferior to currently existing products when they realize the potential for these beta products to become category killers over time. That's a 180-degree change from what one would expect from America's best-managed companies. ....
Sound familiar? It's a variation of the 'disruptive technology' argument proposed by Harvard Business School's Clayton Christensen in his best-selling business book of 1997, The Innovator's Dilemma. Christensen claimed that the reason so many successful, dominant companies were being upstaged by rivals with low-end, inferior technologies was due to one simple reason: mature, well-managed corporations do not release unproven products to their largest, most important customers .... Instead, successful companies focus on making incremental improvements to market-leading products already in production. By the time big alpha companies realize that beta technologies are actually market-transforming disruptive technologies, though, it's too late. The disruptive technology gains market share so quickly that the former market leader is left playing a desperate -- and fruitless -- game of catch-up."
In discussing Idea Networks, he extends this theme by noting: "how companies like General Electric, BMW and Electronic Arts are tapping into the creativity of their customers and experimenting with "open-source" innovation. According to The Economist, "Not only is the customer king; now he is market-research head, R&D chief and product-development manager, too."
Clearly, the notion of innovation is changing rapidly. ..(and) Yes, companies are outsourcing innovation -- if that's what you want to call it. A more accurate representation, though, would be that companies are recognizing the immense creativity at the edges of their networks. These companies are finally learning the value of collaboration and information-sharing, whether it is with third party suppliers located in Bangalore, India or consumers located in Bangor, Maine."
I agree that the winners will be the companies most adept at marshaling the creativity and skills of workers around the world. I'd even bet on America maintaining the innovation lead. I'm just a little unsure about my role as unpaid Beta-tester, market -research head, R&D chief, product-development manager, and customer king.
"Underlying this trend is a growing consensus that more innovation is vital -- but that current R&D spending isn't yielding enough bang for the buck .. The result is a rethinking of the structure of the modern corporation. What, specifically, has to be done in-house anymore? At a minimum, most leading Western companies are turning toward a new model of innovation, one that employs global networks of partners. These can include U.S. chipmakers, Taiwanese engineers, Indian software developers, and Chinese factories.
When the whole chain works in sync, there can be a dramatic leap in the speed and efficiency of product development.
The downside of getting the balance wrong, however, can be steep. Start with the danger of fostering new competitors. ...The key, execs say, is to guard some sustainable competitive advantage, whether it's control over the latest technologies, the look and feel of new products, or the customer relationship. "You have to draw a line," says Motorola CEO Edward J. Zander. At Motorola, "core intellectual property is above it, and commodity technology is below."
Who will ultimately profit most from the outsourcing of innovation isn't clear. The early evidence suggests that today's Western titans can remain leaders by orchestrating global innovation networks. Yet if they lose their technology edge and their touch with customers, they could be tomorrow's great shrinking conglomerates."
I think Dominic Basulto would agree with that last sentence. However, he takes a more upbeat view of the Business Week topic, seeing instead: The Death of Idea Factories... and the Birth of Idea Networks . He also has an interesting perspective on what is driving some of America's leading companies and how they may stay ahead in the innovation race by involving their customers intimately with Beta Products... and Solving the Innovator's Dilemma . He argues : "that alpha companies are increasingly viewing beta releases as low-risk ways of experimenting with market-transforming technologies. Put another way, the most intelligent, most aggressive companies -- the alpha companies -- are willing to release products that are somehow second-rate or inferior to currently existing products when they realize the potential for these beta products to become category killers over time. That's a 180-degree change from what one would expect from America's best-managed companies. ....
Sound familiar? It's a variation of the 'disruptive technology' argument proposed by Harvard Business School's Clayton Christensen in his best-selling business book of 1997, The Innovator's Dilemma. Christensen claimed that the reason so many successful, dominant companies were being upstaged by rivals with low-end, inferior technologies was due to one simple reason: mature, well-managed corporations do not release unproven products to their largest, most important customers .... Instead, successful companies focus on making incremental improvements to market-leading products already in production. By the time big alpha companies realize that beta technologies are actually market-transforming disruptive technologies, though, it's too late. The disruptive technology gains market share so quickly that the former market leader is left playing a desperate -- and fruitless -- game of catch-up."
In discussing Idea Networks, he extends this theme by noting: "how companies like General Electric, BMW and Electronic Arts are tapping into the creativity of their customers and experimenting with "open-source" innovation. According to The Economist, "Not only is the customer king; now he is market-research head, R&D chief and product-development manager, too."
Clearly, the notion of innovation is changing rapidly. ..(and) Yes, companies are outsourcing innovation -- if that's what you want to call it. A more accurate representation, though, would be that companies are recognizing the immense creativity at the edges of their networks. These companies are finally learning the value of collaboration and information-sharing, whether it is with third party suppliers located in Bangalore, India or consumers located in Bangor, Maine."
I agree that the winners will be the companies most adept at marshaling the creativity and skills of workers around the world. I'd even bet on America maintaining the innovation lead. I'm just a little unsure about my role as unpaid Beta-tester, market -research head, R&D chief, product-development manager, and customer king.
