12 different ways to innovate

Topics: Innovation, Business, MIT Sloan School of Management Pages: 25 (4722 words) Published: August 29, 2014
S PRING 2006

VOL.47 NO.3

SMR207

Mohanbir Sawhney, Robert C. Wolcott and Inigo Arroniz

The 12 Different Ways for
Companies to Innovate

Please note that gray areas reflect artwork that has
been intentionally removed. The substantive content
of the article appears as originally published.

REPRINT NUMBER 47314

The 12 Different Ways for
Companies to Innovate
F

Companies with a
restricted view of
innovation can miss
opportunities. A new
framework called the
“innovation radar”
helps avoid that.
Mohanbir Sawhney,
Robert C. Wolcott
and Inigo Arroniz

Illustration: © Brian Raszka/Veer

aced with slow growth, commoditization and global competition, many CEOs view innovation as critical to corporate success. William Ford Jr., chairman and CEO of Ford Motor Co., recently announced that, “[f]rom this point onward, innovation will be the compass by which the company sets its direction” and that Ford “will adopt innovation as its core business strategy going forward.”1 Echoing those comments, Jeffrey Immelt, chairman and CEO of General Electric Co., has talked about the “Innovation Imperative,” a belief that innovation is central to the success of a company and the only reason to invest in its future.2 Thus GE is pursuing around 100 “imagination breakthrough” projects to drive growth though innovation. And Steve Ballmer, Microsoft Corp.’s CEO, stated recently that “innovation is the only way that Microsoft can keep customers happy and competitors at bay.”3

But what exactly is innovation? Although the subject has risen to the top of the CEO agenda, many companies have a mistakenly narrow view of it. They might see innovation only as synonymous with new product development or traditional research and development. But such myopia can lead to the systematic erosion of competitive advantage, resulting in firms within an industry looking more similar to each other over time.4 Best practices get copied, encouraged by benchmarking. Consequently, companies within an industry tend to pursue the same customers with similar offerings, using undifferentiated capabilities and processes. And they tend to innovate along the same dimensions. In technology-based industries, for example, most firms focus on product R&D. In the chemical or oil and gas industries, the emphasis is on process innovations. And consumer packaged-goods manufacturers tend to concentrate on branding and distribution. But if all firms in an industry are seeking opportunities in the same places, they tend to come up with the same innovations. Thus, viewing innovation too narrowly blinds companies to opportunities and leaves them vulnerable to competitors with broader perspectives. In actuality, “business innovation’’ is far broader in scope than product or technological innovation, as evidenced by some of the most successful

Mohanbir Sawhney is the McCormick Tribune Professor of Technology and the Director of the Center for Research in Technology & Innovation at Northwestern University’s Kellogg School of Management in Evanston, Illinois. Robert C. Wolcott is a fellow and adjunct professor and Inigo Arroniz is a postdoctoral fellow at the Center for Research in Technology & Innovation. They can be reached at mohans@kellogg.northwestern.edu, r-wolcott@kellogg.northwestern.edu and i-arroniz@kellogg.northwestern.edu.

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MIT SLOAN MANAGEMENT REVIEW

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companies in a wide range of industries. Starbucks Corp., for example, got consumers to pay $4 for a cup of latte, not
because of better-tasting coffee but because the company was able to create a customer experience referred to as “the third place” — a communal meeting space between home and work
where people can unwind, chat and connect with each other.
Dell Inc. has become the world’s most successful personal computer manufacturer, not through R&D investments but by making PCs easier to use, bringing products to market more
quickly and innovating on processes like...

References: 2. J. Immelt, “The Innovation Imperative” (2004 Robert S. Hatfield Fellow in Economic Education lecture at Cornell University, Ithaca, New
York, April 15, 2004).
3. C. Nobel, “Ballmer: Microsoft’s Priority Is Innovation,” Oct. 19, 2005,
www.eweek.com
Hannan and J. Freemen, “Organizational Ecology” (Cambridge,
Mass.: Harvard University Press, 1989).
and accomplishment of innovation. See J. Schumpeter, “The Theory of Economic Development” (Cambridge, Mass.: Harvard University Press, 1934).
6. B. Nussbaum, “The Power of Design,” Business Week, May 17,
2004, 86.
Strategies for Continuously Creating Opportunity in an Age of
Uncertainty” (Boston: Harvard Business School Press, 2000); and
School Press, 2003).
Copyright © Massachusetts Institute of Technology, 2006. All rights reserved.
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