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Corporate Innovation

Writing in the Wall Street Journal in 2011, renowned entrepreneur and venture capitalist Marc Andreessen warned that “we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy.”

At the time, Andreesen pointed to Borders giving way to Amazon, Blockbuster giving way to Netflix, and the general disruption of the telecommunications industry. But even in the few years since, we’ve witnessed the demise of American institutions like Kodak, the transformation of the music industry because of streaming, and how Tesla has challenged century-old car manufacturers.

Indeed, a wealth of new technologies and capabilities have challenged the conventional wisdom about how to approach innovation and product management. Few areas more clearly illustrate this problem than the very graduate program so long relied on as a source of that wisdom for those seeking to build the next great businesses. But alas, Intuit Co-Founder, Scott Cook, recently remarked “When MBAs come to us, we have to fundamentally retrain them—nothing they learned will help them succeed at innovation.”

Something about the traditional approach to innovation and product management is no longer applicable and thereby no longer sustainable. But what exactly about it is outdated, and what is the alternative? What separates companies that continuously innovate successfully from those that struggle to?

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Writing in the Harvard Business Review, innovation consultants discussed their findings from an exhaustive study: “Companies have been successful time and time again…not because they’ve won big bets but because they’ve made the process of bringing new offerings to market more reliable and less risky.”

This, in short, is precisely what’s outdated about the traditional approach to product management. It’s predicated on a mindset and process that requires bets to be big. The analog world required sizeable investments to engineer and bring a product to market. Development moved slow and inefficiency posed one of the greatest risks. Hence hallmark innovations such as the assembly line and Six Sigma. Almost by definition, success depended on winning big, calculated bets in the market.

The digital revolution turned this paradigm on its head: engineering costs are approaching zero and products can be iteratively developed. This has enabled innovators today to incorporate a century’s worth of business breakthroughs into a methodology that mitigates what they perceive now to be the greatest risk: building something no one wants.

Approaches to corporate innovation

Innovation initiatives vary greatly from industry to industry and company to company. One common approach is to create an innovation lab that either sits within the organization or as a “Skunkworks” lab outside of routine organizational procedures.

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Another common approach is ‘open innovation,’ a process that pairs external ideas with internal capabilities when developing new products. By shifting perspectives externally, companies can diversify the risk and costs of ideation but still reap the rewards. Companies use open innovation to source innovative ideas from customers, existing startups, academics, and others. Alternatively, many organizations create Venture Capital groups that invest in ideas (whether internal or external) and form strategic partnerships.

Closing the gap

No matter what approach or collection of approaches an organization may take, success is closely tied to an organization’s ability to close the gap between itself and the market. Doing so requires being able to generate and process customer feedback, and making data-driven decisions thereafter.

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