Mastering Innovation’s Toughest Trade-Offs

Leaders must answer eight key questions to address the hidden tensions underlying innovation strategies.

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Dan Page/theispot.com

Innovation is frustratingly hit-or-miss. More than 90% of high-potential ventures fail to meet projected targets, while roughly 75% of the products released each year bomb.1 Few established organizations remain dominant over time, as revitalization efforts fail or backfire, costing companies time and money and creating openings for competitors; even fewer generate above-average shareholder returns for more than a couple of years.

These failures are often attributed to a lack of money, talent, or luck. But we think the underlying cause is that innovation in dynamic environments — those characterized by novelty, resource constraints, and uncertainty — is rife with critical tensions. When left unaddressed or mishandled, these tensions sink teams and organizations. Until now, there has been little focus on these tensions in practice or theory, leaving leaders blind to their existence and without the rigorous approaches needed to successfully manage them.

To address this, we conducted hundreds of interviews at organizations in diverse industries on five continents and surfaced eight questions that every innovation leader must be able to answer correctly. We’ll discuss each in turn and provide practical guidance for harnessing the tension that underlies each question.

1. Should you be flexible or disciplined when capturing growth opportunities?

A small, U.S.-based security software company received a call from a customer prospect in Germany. To capture the business and meet cash demands, the company chose to enter the German market. It subsequently entered additional overseas markets in a similar manner. “It was more like we were drawn in rather than made a conscious decision,” a company executive told us.

Seizing opportunities as they arise is consistent with the conventional wisdom that companies must move quickly in dynamic markets. But there is an underlying tension here. Acting fast leaves less time for deliberation, so companies can easily end up with an incoherent portfolio of mismatched opportunities.

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References

1. C. Nobel, “Why Companies Fail — and How Their Founders Can Bounce Back,” Harvard Business School Working Knowledge, March 7, 2011, https://hbswk.hbs.edu; and J. Schneider and J. Hall, “Why Most Product Launches Fail,” Harvard Business Review 89, no. 4 (April 2011): 21-23.

2. C.P. Bingham, “Oscillating Improvisation: How Entrepreneurial Firms Create Success in Foreign Market Entries Over Time,” Strategic Entrepreneurship Journal 4, no. 4 (December 2009): 321-345.

3. R.M. McDonald and K.M. Eisenhardt, “Parallel Play: Startups, Nascent Markets, and Effective Business-Model Design,” Administrative Science Quarterly 65, no. 2 (June 2020): 483-523.

4. R. McDonald and K. Eisenhardt, “The New-Market Conundrum,” Harvard Business Review 98, no. 3 (May-June 2020): 74-83.

5. M. Garber, “Instagram Was First Called ‘Burbn,’” The Atlantic, July 2, 2014, www.theatlantic.com.

6. V. Kumar, “Making ‘Freemium’ Work: Many Start-Ups Fail to Recognize the Challenges of This Popular Business Model,” Harvard Business Review 92, no. 5 (May 2014): 27-29; T.R. Eisenmann, M. Pao, and L. Barley, “Dropbox: ‘It Just Works,’” Harvard Business School case no. 811-065 (Boston: Harvard Business Publishing, January 2011, rev. October 2014).

7.Form S-1 Registration Statement — Dropbox, Inc.,” U.S. Securities and Exchange Commission, accessed March 31, 2022, www.sec.gov.

8. J. Adalian, “Inside the Binge Factory,” New York Magazine, June 11, 2018.

9. S.L. Cohen, C.B. Bingham, and B.L. Hallen, “The Role of Accelerator Designs in Mitigating Bounded Rationality in New Ventures,” Administrative Science Quarterly 64, no. 4 (December 2019): 810-854.

10. M.S. Granovetter, “The Strength of Weak Ties,” American Journal of Sociology 78, no. 6 (May 1973): 1360-1380.

11. C. Bingham and K. Eisenhardt, “Rational Heuristics: The ‘Simple Rules’ Strategists Learn From Their Process Experiences,” Strategic Management Journal 32, no. 13 (December 2011): 1437-1464.

12. Ibid.

13. D. Lavrinc, “Why Flipping Through Paper-Like Pages Endures in the Digital World,” Wired, May 11, 2012, www.wired.com.

14. R. McDonald, C.M. Christensen, and S. Roseman, “Purpose Brands,” Harvard Business School module note 619-075 (Boston: Harvard Business Publishing, June 2019, rev. July 2020).

15. R. McDonald and C. Gao, “Pivoting Isn’t Enough? Managing Strategic Reorientation in New Ventures,” Organization Science 30, no. 6 (November-December 2019): 1289-1318; and R. McDonald and R. Bremner, “When It’s Time to Pivot, What’s Your Story? How to Sell Stakeholders on a New Strategy,” Harvard Business Review 98, no. 6 (September-October 2020): 98-105.

16. G. Raz, “Away: Jen Rubio,” March 18, 2019, in “How I Built This,” produced by National Public Radio, podcast, 1:08:00, www.npr.org.

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Comments (2)
Stuart Roehrl
Greatly appreciated this excellent article - thank you for publishing.  Very well explained.  Exceptionally valuable content.  In my experience, it seems the discussion about heuristics under question 5 - selection, strategy, priority, and timing - can be applied to a just-in-time production operations management situation as well.  Thank you.
Stuart Roehrl
Yaser Asgari
Segmentation of opportunities is first Break-stone of building competitive innovative company. Some people say knowing what you are not going to do. Miss-match technologies and capabilities happens while you exhaust resources and avoid data driven development. 
Close communication of organization decision maker with developer is best approach to accelerate innovation.