MIT Sloan Management Review

Conventional wisdom has it that new and better technologies replace old ones — and that companies whose markets are being transformed by disruptive new technologies thus need to figure out how to switch to the dominant new technology. And, of course, that’s often the case.  But, in a thought-provoking paper, two researchers argue that an alternative approach — one that involves rethinking opportunities for the old technology — can sometimes make sense. 

Ron Adner of Dartmouth’s Tuck School of Business and Daniel Snow of the Harvard Business School note in their paper “Old” Technology Responses to “New” Technology Threats, that the idea of new technologies always replacing old is incomplete; for example, pagers and fountain pens still persist long after the development of, respectively, cell phones and ball point pens.  What’s more, the authors point out, the option of a new technology can reveal niche markets where characteristics of the old technology still have value.

To be sure, the authors don’t argue that sticking with an older technology should be the response of most businesses to a new technology — just that, for some companies in some circumstances, it can be a rational response that is often overlooked.  They include an interesting case study of a company in the semiconductor lithography equipment industry that, because its resources were constrained by a restructuring, decided not to compete in the next generation of technology in its market. Instead, the company evaluated other options for its older technology — and found new markets for it in areas such as hard disk drive manufacturing and microprocessor packaging.

If one innovation approach is helpful, you might think using more than one approach to innovation would be even better. Not necessarily, write Frank T. Rothaermel and Andrew M. Hess in an article on innovation strategy in the new issue of Business Insight, MIT Sloan Management Review’s collaboration with The Wall Street Journal. 

In a five-year study of strategies among pharmaceutical companies pursuing innovation in biotechnology, Rothaermel and Hess found that not all innovation strategies are equally complementary — and that companies can risk wasting resources if they pursue certain combinations of strategies at the same time. For example, the authors note, companies that invest simultaneously in cultivating internal human capital and in external alliances may not get the best return on the combined investment  — since the two strategies offer similar benefits.

The best single innovation strategy over all, according to this research? Investing in people.  ”The most effective way to achieve continuous innovation over the long term is to hire and cultivate talented people,” Rothaermel and Hess write. “Companies that innovate through hiring will have stronger control over their intellectual property and often a steadier pipeline of future inventions because they aren’t relying on outside partners for any part of the innovation process.”

Apple is often noted for its innovation; its iPhone and iPod are well-known examples of successful innovation by an established company.  But a paper by Thierry Rayna (London Metropolitan Business School) and Ludmila Striukova (University College London) makes an interesting argument: that one thing Apple’s innovation history illustrates is the challenges of being a first-mover in a technology market .

In a paper titled “The Curse of the First-mover,” Rayna and Striukova take a look at two Apple innovations that were not great commercial successes — the Lisa computer in the early 1980s and the Newton PDA in the early 1990s  – as well as two that have been –the iMac and the iPod. The authors argue that the Lisa and the Newton were both actually more radical technological innovations than the iMac, the iPod or the iPhone — which, according to Rayna and Striukova, can be categorized as incremental innovations within existing categories of products.

One of the authors’ conclusions from Apple’s history? That incremental technological innovations can sometimes have more influence than radical ones.

In recent decades, institutional investors have made up an increasing percentage of stock ownership  in U.S. markets. Is that good or bad for innovation? A new working paper suggests that the effect of institutional investment on innovation in public companies is positive — with a greater percentage of institutional investment associated with higher R&D productivity, measured in terms of patents and their significance. (Institutional investment also had a small positive effect on overall R&D spending.)

Researchers Philippe Aghion, Luigi Zingales and John Van Reenen  found support for a hypothesis that institutional investors reduce the career risks that executives at public companies undertake in innovation – because the institutional investors can monitor an executive’s performance in a more sophisticated way than the stock market as a whole can. In addition to their findings on R&D productivity, the researchers found that CEOs at companies with greater institutional ownership were less likely to be fired if the company reported poor financial results.

It can be a formidable challenge to make sure your innovation projects continue to prosper at a time when many company budgets are shrinking. A recent article from Knowledge@Wharton summarizes recommendations from a panel of experts who spoke at Wharton – on the topic of how to sustain technology innovation, specifically, during tough times. Some of the panelists’ recommendations:

• Align projects with the larger organization’s aims.
• Hone your people skills. People “need to like your idea, but they also need to like you,” observed panelist Eric F. Bernstein.
• Show how your innovation will save money.
• Have an advocate for your project at as high a level in the organization as possible.

The Knowledge@Wharton article also quoted Wharton marketing professor George S. Day , who noted that some leading companies continue to invest in innovation even during difficult economic periods. Day has written in MIT Sloan Management Review on topics such as being a vigilant leader and aligning an organization with the market.

How does a large, global corporation capture employees’ ideas about new technologies? “An Inside View of IBM’s ‘Innovation Jam,’” from the Fall 2008 issue of MIT Sloan Management Review, analyzes the results of IBM’s 2006 “Innovation Jam,” where about 150,000 people, from within IBM and also from outside it, participated in online discussions about promising new business ideas for the company.

The article’s authors conclude that the Innovation Jam in 2006, which took place over two three-day periods, ”was successful to a considerable degree. It uncovered and solved problems in and mobilized support for substantial new ways of using IBM technology.” But, they note, the process also had limitations: Most contributors didn’t build well on each other’s postings, so “ideas didn’t bubble up.” And, despite the use of text-mining software, evaluating the ideas later “demanded a great deal of management time.” (IBM has continued to ”jam”; this fall it held InnovationJam 2008.)

The article’s description of both the successes and challenges of the 2006 Innovation Jam brings to mind an interesting question: What is the best way to make sure employees’ ideas and knowledge don’t get overlooked when an organization seeks ways to innovate? 

What, in your experience, are the most effective ways of seeking – and using — employee input effectively in the innovation process?

Is there a corporate culture of innovation that transcends national differences? That’s one of the intriguing suggestions of a new study called  “Radical Innovation Across Nations: The Pre-eminence of Corporate Culture” that is scheduled to be forthcoming in the January 2009 issue of the Journal of Marketing.  Researchers Gerard J. Tellis, Jaideep C. Prabhu and Rajesh K. Chandy report findings from a survey of executives who were closely involved in innovation efforts at more than 750 public companies in 17 different countries.

Tellis, Prabhu and Chandy also used data available from sources such as the World Economic Forum and the IMD World Competitiveness Report to create variables for each of the 17 countries in areas such as capital, skilled labor and innovation-friendly government policies.  And their survey asked respondents questions about their companies’ corporate culture and about the companies’ level of radical innovation.

The researchers found that a number of attitudes and practices associated with corporate culture had a significant positive effect on radical innovation — and radical innovation, in turn, had a positive impact on the financial market’s valuation of a company.  Corporate attitudes that had a relatively strong positve effect on radical innovation included a willingness to cannibalize a company’s existing products, an orientation toward the future, and a tolerance for risk.  Not surprisingly, having a high percentage of a company’s employees working in R&D also had a significant positive association with radical innovation. 

But, once the effect of corporate culture was accounted for, the researchers found that a number of country-level factors — such as the environment for skilled labor in the country as a whole  –  had little impact on a company’s level of radical innovation.