Incrementalism or New Breakthroughs: Which Is It?

A recent Economist article says that rather than chasing new wonder products, big companies should focus on making lots of small improvement. Hum. let's talk about this one.

Big companies have a big problem with innovation. This was most vividly described by Clayton Christensen, a Harvard Business School professor, in his book, “The Innovator's Dilemma” (Harvard Business School Press, 1997). Few conversations about innovation take place without reference to this influential work.

The Oxford English Dictionary defines innovation as “making changes to something established”. Invention, by contrast, is the act of “coming upon or finding: discovery”. Whereas inventors stumble across or make new things, “innovators try to change the status quo,” says Bhaskar Chakravorti of the Monitor Group, another consulting firm, “which is why markets resist them.” Innovations frequently disrupt the way that companies do things (and may have been doing them for years).

It is not just markets that resist innovation. Michael Hammer, co-author of another important business book (“Re-engineering the Corporation”, HarperCollins) quotes the example of a PC-maker that set out to imitate Dell's famous “Build-to-Order” system of computer assembly. The company found that its attempts were frustrated not just by its head of manufacturing (who feared it would lead to most of his demesne, including his job, being outsourced), but also by the head of marketing, who did not want to upset his existing retail outlets. So the innovative proposal got nowhere. Dell continued to dominate the business.

Mr Christensen described how “disruptive innovation”—simpler, cheaper and more convenient products that seriously upset the status quo—can herald the rapid downfall of well-established and successful businesses. This, he argues, is because most organisations are designed to grow through “sustaining innovations”—the sort, like Gillette's vibrating razor, that do no more than improve on existing products for existing markets.

When they are hit by a disruptive innovation—as IBM was by the invention of the personal computer and as numerous national airlines have been by low-cost carriers—they are in danger of being blasted out of their market. This message found a ready audience, coming as it did just as giant businesses from banking to retailing, and from insurance to auction houses, were being told that some as-yet-unformed dotcom was about to knock them off their pedestal.

There are implications of the improvement versus radical innovation strategy. Many manufacturers are struggling with current products, and some think we need to stop tweaking old ones and focus instead on birthing the next generation products and services. Who's right? I guess that depends on who you talk to. My suggestion is that we do both. Novel idea, I know. Truthfully, we need to enhance existing products and push them as far as we can, and we need to get with next-gen technology before our world competitors do.

Go here to read more. This is an important one for economic developers.