Rebecca Henderson from HBS on Innovation

I attended a conference call this morning hosted by HBS featuring Professor Rebecca Henderson talking about her research around innovation.  Thought I'd share some takeaways.  Here's a link to some of her other publications around innovation strategy.

Why is it so hard for large companies to innovate?

1. Most new ideas have a low probability of success so it's easy to poke holes in any idea and shoot it down.  Furthermore, it takes investing in some level in 10-20 ideas to get one that really takes off.

2. Most new ideas seem most interesting to peripheral customers.  Core customers like you for what you do today.  Parodoxically, customer-centric organizations often miss the most disruptive innovations precisely because their current customer set finds the innovation to be a bit on the margins.  This is one of the core arguments to Clay Christensen's Innovator's Dilemna concept.

3. Most new ideas have lower margins than the core.  This is because they may meet a different need, an embryonic market that's not yet fully developed, and/or the current company's cost structure and internal infrastructure is set up for the current core business.  If you take a innovative idea and manage it to "the numbers" and then underinvest in it, it will almost certainly fail.

4. Organization challenges.  The people, culture, processes of today are set up to maximize success for the core business and sometimes individual actors in the enterprise will not benefit from a new innovation (in fact, they may feel like they look bad, have to risk their own division's growth prospects, etc.).  Furthermore, it's often really hard to integrate an external group's innovations into the core because of the organizational chasms.  It's also harder to develop great innovation completely seperated from the core since a seperate innovation division may not have the on-the-ground market understanding that the core businesses have.  

Her ideal is to have a heavyweight team that is connected to the core but not completely tied down by it.  She also mentioned this depends partly on how "stuck" the enterprise is.  I.e., if it's really stuck in its current ways, you may need to carve out a labs like environment but understand that has it's own challenges around market savvy and future integration.

5. Overload.  This was probably one of the most compelling arguments in my opinion which is most enterprises can't say no.  They evaluate every project independently and don't take a holistic view across the enteprise and say how many projects can we really nail.  She quote Kim Clark (her thesis advisor) as once saying you don't send a teenager to the mall with $5 to watch a $7.50 movie.  She also shared a story about a Fortune 200 senior leadership offsite where every divisional leader had a great idea that everyone agreed made a ton of sense until 8 hours later, they had a list of 20+ new initiatives which would likely have some initial fanfare and then die a slow death 6 months later because of insufficient focus and investment.

Lastly, I was struck by her assessment of the Steve Jobs effect where she argued that the "great leader" approach had a very high variance of success.  If you have someone (or are someone) who can see the future, you're very lucky but most companies that rely on the single visionary often ride themselves off cliffs.  Her argument is for a combination of great leadership on top of a highly capable culture and organization with as much bottoms up innovation as there is top down.

Thanks to HBS and Professor Henderson for sharing this morning.  Good stuff.

 

 

Comments

[Matt Chew]

A lot of people forget about the details, too. This reminds me of a blog I just read about paying attention to the details in everything, your company, and your product managing: http://bit.ly/uqexP2 .