Institutionalizing Innovation

Building an engine that produces a steady stream of innovative growth businesses is difficult, but companies that are able to do it differentiate themselves from competitors.

Many of the case studies describing how established companies have created new growth businesses focus on a single success. The companies that get it right — such as ING Groep NV, with its ING Direct online banking model, and the Procter & Gamble Co., with category-creating products such as Febreze and Swiffer — surely deserve respect and admiration. Big company managers know how hard it is for market leaders to create innovative growth businesses.

The punishing thing about innovation, however, is that the contest never ends. Create a new market, and other companies come flooding in. Parry one threat, and up pops another attacker, hungrily eyeing your core business. Success requires being able to go beyond isolated wins to develop deep capabilities that allow companies to disarm disruptive threats and seize new growth opportunities repeatedly. It requires the ability to churn out successful growth businesses year after year, over and over again.

InThe Innovator’s Solution, authors Clayton M. Christensen and Michael E. Raynor discuss how to institutionalize innovation. They argue that companies should begin planning for innovation well before they need to by appointing a senior manager to oversee the resource-allocation process, creating a team of “movers and shapers,” and training employees to identify disruptive ideas.1

This article builds on those ideas and incorporates our field-based insights from working with companies on innovation issues over the past five years.(See “About the Research.”) Companies that create blueprints for growth, construct innovation engines and support the engines with the right systems and mind-sets can establish favorable conditions for substantial innovation. Although institutionalizing innovation is hard work, companies that build and maintain this capability can create substantial shareholder wealth and differentiate themselves from competitors.

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References

1. C.M. Christensen and M.E. Raynor, “The Innovator’s Solution” (Boston: Harvard Business School Press, 2003), 278–283.

2. See T. Levitt, “Marketing Myopia,” Harvard Business Review 38 (July–August 1960): 24–47. Levitt cited many examples of how companies misunderstanding what business they were in caused them to miss opportunities for growth; for example, companies that thought they were in the railroad business missed opportunities to expand into aviation, shipping and logistics.

3. J.L. Bower and Clark G. Gilbert, “From Resource Allocation to Strategy” (New York: Oxford University Press, 2005). This book is an outstanding compendium of research on the resource-allocation process.

4. A. Bhide, “The Origin and Evolution of New Businesses” (New York: Oxford University Press, 2000); and J. Clayton, B. Gambill and D. Harned, “The Curse of Too Much Capital: Building New Businesses in Large Corporations,” McKinsey Quarterly 3 (1999): 48–59.

5. This pathology is described in eloquent detail in Ettenson, “Innovator’s Solution,” chap. 9.

6. Consider, for example, Wal-Mart’s ill-fated effort to create a social network; airlines-within-airlines like Delta’s Song or United Airlines’ Ted; Kodak’s original $30,000 digital camera; newspaper Web sites that were carbon copies of the print publication; and Nokia’s N-Gage phone. All of these approaches seem to suffer from insufficient separation from the core business and core processes, leading to compromised solutions.

7. Christensen, “Innovator’s Dilemma”; see particularly Chapter 5, “Give Responsibility for Disruptive Technologies to Organizations Whose Customers Need Them.”

8. V. Govindarajan and C. Trimble, “Ten Rules for Strategic Innovators: From Idea to Execution” (Boston: Harvard Business School Press, 2005).

9. “Voices of Disruption: Bob Benz,” Strategy & Innovation 4, no. 4 (July–August 2006).

10. Intel’s chairman of the board, Andrew S. Grove recounted some of his reflections on the insight he gleaned from his interactions with Chris-tensen in A.S. Grove, Keynote Speech (presented at Academy of Management Annual Meeting, San Diego, California, Aug. 9, 1998), and T. Mack, “Danger, Stealth Attack,” Forbes, Jan. 25, 1999.

11. C.M. Christensen, “Disrupting and Avoiding Commoditization” (presentation at the New Market Growth Innovation Workshop, Chatham, Massachusetts, Nov. 12–13, 2003).

12. L. Huston and N. Sakkab, “Connect and Develop: Inside Procter & Gamble’s New Model for Innovation,” Harvard Business Review 84 (March 2006): 58–66.

13. M. McCall, “High Flyers: Developing the Next Generation of Leaders” (Boston: Harvard Business School Press, 1998).