Harnessing the Secret Structure of Innovation

Book description

In an era of low growth, companies need innovation more than ever. They can draw on a large body of theory and precedent. In practice, though, the authors say that innovation is more of an art than a science. They argue that there is an opportunity to view innovation not as the product of luck or extraordinary vision but as the result of a deliberate search process that companies can harness to construct an advantaged innovation strategy. The authors analyzed the mathematics of innovation as a search process for viable product designs across a universe of components. They then tested their insights using historical data from four real environments and concluded that companies can have an advantaged innovation strategy by using information about the unfolding process of innovation. But there isn’t one superior strategy. The optimal strategy, they found, is both time-dependent and space-dependent. Based on their findings, the authors developed a five-step process for constructing an information-advantaged innovation strategy. Step 1. Choose your space: Where to play? It’s not enough to analyze markets or anticipate customers’ needs, the authors say. To innovate successfully, you also need to understand the structure of your innovation space. Step 2. Select your strategy: How to play? Measure the evolution of complexity in the space by analyzing the distribution of product sizes in terms of the number of unique components in products. If complexity is low and stable, the authors say, it’s an indication that the space is still in its infancy, which argues for an impatient strategy. If complexity is high, then the space is maturing and a patient strategy will be the best approach. Step 3. Apply your strategy: How to execute? If you follow an impatient innovation strategy, the objective is to adopt or develop components that enable the company to bring relatively simple products to market quickly. Managers should ask themselves how they can be first. However, if the characteristics of your chosen innovation space imply that a patient strategy is more appropriate, your objective should instead be to maximize future innovation options. Step 4. Sense shifts and adapt: How to extract a switch signal? You need to monitor the complexity of your innovation space and compete on access to information in order to detect valuable strategy-switching signals before competitors. In their research, the authors found that a flattening in the increase of product complexity is a signal that it is time to switch from an impatient innovation strategy to a patient one. Step 5. Brace for disruptions: How to reset the clock? The promise of an information-enabled innovation strategy extends to disruption. Disruption, the authors note, suddenly resets and simplifies an innovation space by lowering product complexity. Disruptions don’t just happen — they are created by innovators at the edge of a space who build simpler products that leverage components from a different space.