When All Plans Go Awry
"Everything that can be invented has been invented," declared the director of the U.S. Patent Office in 1899. His remark, though amusing on the surface, aptly captures our skill at predicting and managing the course of innovation.
To begin with, innovation does not occur where it is supposed to. This was never better illustrated than in a landmark study 20 years ago by British professor John Jewkes and two collaborators who systematically examined a sample of 58 major 20th-century innovations, from self-winding wristwatches to jet engines, to penicillin and the computer. Forty-six of the innovations emerged from the "wrong" place—that is, not from the labs of a current industry leader. Instead, 38 poured forth from either a tiny company or independent individuals, 5 from a larger firm in an industry unrelated to the invention, and 3 from an unlikely corner of a firm in an industry that was associated with the invention.
As the Jewkes study implies, big firms fall miserably short in sensing the early winds of innovation. Long-time management consultant Richard Foster grimly reveals the primary problem in his superb new book, Innovation: The Attacker's Advantage. Big firms stick too long with today's winners. If they are to have a chance at continued vitality, Foster argues that they must "abandon the skills and products that have brought them success." They must "cannibalize their current products and processes just when they are most lucrative."
Instead, when a firm does produce a winner, the forces unleashed to guard it create the preconditions for subsequent failure. Entrepreneur and University of Miami business school professor Modesto Maidique found that following a big product success, a pattern of subsequent failure often ensues. Thus, Apple followed up the wildly successful Apple II personal computer with —two consecutive bombsApple III and Lisa before it was able to break free enough from its past to launch the successful Macintosh line. One reason, Foster suggests, is that our financial tools lead us to over-invest in incremental improvements to today's profitable, predictable technology and ignore tomorrow's potentially profitable but unpredictable ones.
Even companies with more-forward-looking attitudes can stumble. Take DuPont's experience in losing the huge tire-cord market to rival Celanese. While DuPont had dominated the market—which had nylon as its base—for decades, some experts believed that making tire cords from polyester filament might be a more economical alternative. Celanese, with no nylon position to guard, charged ahead with polyester. Despite its grip on the market for nylon tire cord, DuPont, too, decided to look ahead and explore the new polyester option. But because DuPont's fledgling polyester research was conducted at its tire development laboratories, where the powerful industrial nylon division was in control, the project floundered.
In the face of this unrelieved bad news, what are the solutions? Do you plan more and spend more? No one has examined the innovation process more closely than Dartmouth business, researcher James Brian Quinn, who has spent 35 years studying the issue at General Electric, IBM, Xerox, and the like. Says Quinn: "Few, if any, major innovations come from structured planning systems."
Throwing money at innovation doesn't necessarily help either. Typical is General Electric's acquisition of Calma, a leading computer-aided design firm in 1981. To spearhead GE's drive to develop the factory of the future, it invested hundreds of millions in Calma's operation. The unintended effect: The once entrepreneurial firm became complacent, and product leadership vanished almost overnight.
Among giant companies the $8 billion 3M Company is a model of constant renewal. Not that it is without problem operations, but the company's well-diversified portfolio of small, independent business start-ups spreads the risks of failure in what is essentially a numbers game. At 3M every division general manager, in high and low-growth areas alike, must meet ambitious targets for the share of annual revenue that comes from new products.
Acquisition is another way for big companies to nurture innovation. While experts agree that most mega-mergers fail to achieve the synergy often predicted for them, acquiring businesses can be an effective way for sizable firms to test the water in new areas. Thus, the 2,388-store chain The Limited stooped to acquire a single store—Henri Bendel in Manhattan—to serve as the window for entering a new market.
Despite such strategies, the surest source of innovation still lies with the little players. Studies suggest that research effectiveness per dollar spent is four times higher in small firms than in large ones and that the presence of a swarm of small start-ups is an unparalleled stimulant to the clumsy behemoths. MIT small-business expert David Birch warns government not to "try to influence the rate of job loss." Instead, he urges us to treasure our entrepreneurs "because it is from their unfettered and sometimes undisciplined efforts that job creation will come."
The picture of innovation that emerges is not tidy, and it flies in the face of most of the last 25 years' conventional theorizing on management, with its emphasis on injecting even more orderliness via planning into the large firm. While some giant firms are trying to assume the 3M look, the most appropriate national policy should be to support small business and create a financial climate that spurs the stock market to provide capital for such ventures.
(c) 1986 TPG Communications
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