12. How to Manage Radical Innovation (management series)

The next article is by Robert Stringer from 2000 in California Management Review, "How to Manage Radical Innovation."

1. Innovation is a Strategic Imperative

"Corporate size is inversely correlated to growth through innovation" (71).

2. Why aren't large companies more innovative?

• Industry leaders can't afford to embrace radical innovation. They may invest in "sustaining technologies" for improved performance, but they are not well-equipped to deal with "disruptive technologies."
• Structures and cultures discourage bringing big ideas to market. "The cultures of most large companies act as powerful stabilizing influences" (72).
• Relying too much on internal R & D. "Industry leaders must be very careful about prematurely assuming a new technology will be the best solution and committing the company to it" (73). "If a senior executive hasn't screamed at you lately for grossly exceeding your authority, you're probably not doing your job" (relayed by Bernard Meyerson of IBM, who pushed IBM to make silicon-germanium semiconductors)
• Large companies don't attract or retail radical innovators. "A large corporate environment is one dominated by the need for power, not the need for achievement" (74).

3. Why are small companies the source of most radical innovations?

• "Often, the entire organization can be built around a single breakthrough concept" (74).
• Usually there is a concentration of inventive entrepreneurs found in them.
• Entrepreneurs are motivated by "need for accomplishment" and "achievement motivation."

Four drivers of entrepreneurs:

• to compete against an internal standard of excellence
• to make a unique contribution to the world
• to engage in moderately risky activities (like 50/50 chance)
• to receive constant, concrete, measurable feedback on performance and progress

"High achievers are planners" (75). "High achievers are not simply idea people--they are builders. They take ideas and put them to work, and this is what makes them successful as entrepreneurs" (75). Sometimes entrepreneurs, however, are poor team players.

Meanwhile, for entrepreneurs, large companies have "too many rules, too much compromise, too many meetings, and too little willingness to 'just do it.'"

4. Stimulating innovation in large companies--nine different strategies arranged from more to less potential. They're also arranged from less to more desperate.

I. Inside-Out Strategies

• Make breakthrough innovation a strategic and cultural priority.
• Hire more creative and innovative people.
• Grow informal project laboratories within the traditional organization.
• Create "idea markets" within the organization.
• Become an "ambidextrous organization." Keep the innovators separate from the traditionalists.

II. Outside-In Strategies

• Experiment with acquisitions, JVs, cooperative ventures and alliances with outside innovative entities.
• Engage in corporate venturing--creating and supporting new businesses that are managed apart from a company's existing business.

III. Working with Venture Capital

• Establish a corporate venture capital fund.
• Participate in an emerging industry fund (EIF). This is giving money to a third party to manage toward innovation.