Every organization has its strengths — and weaknesses. To emphasize the former while minimizing the latter, companies often devote considerable resources to their corporate strategies, for example, crafting the perfect plan to outmaneuver the competition in an emerging market. At the same time, those same companies may give short shrift to the essential task of determining exactly what their strategy for product innovation should be. The result: R&D projects that are out-of-synch with the rest of the organization.
Developing the right strategy for product innovation is hardly a simple matter. In fact, it is a complex undertaking that first requires a fundamental understanding of how technical modularity affects R&D efforts. In a modular design, a change in one component of a product (the heating element of a coffeemaker, for instance) has relatively little influence on the performance of other parts or the system as a whole. In a nonmodular, or “coupled,” design, the components are highly interdependent, and the result is nonlinear behavior: A minor change in one part can cause an unexpectedly huge difference in the functioning of the overall system. With semiconductors, for instance, a minuscule impurity (just 10 parts in a billion) can dramatically alter silicon’s resistance by a factor of more than 10,000. Generally speaking, modular designs make R&D more predictable, but they tend to result in incremental product improvements instead of important advances. Coupled designs, on the other hand, are riskier to work with, but they are more likely to lead to breakthroughs.
This trade-off between predictability and innovation can be visualized as a “technology landscape,” with gently sloping hills corresponding to incremental product improvements that are based on modular components and soaring, craggy peaks representing breakthrough inventions that rely on tightly coupled parts. Developing new products requires a search across such technology terrain. For a company like Dell Computer that can compete on its efficient manufacturing and superb supply-chain management, avoiding the rugged peaks and instead traversing the sloping hills is an effective strategy. Other corporations like Apple Computer need to scale the high peaks to maintain their competitive advantage. For such expeditions, one approach is to minimize risk by developing a “map” of the topography — that is, by gaining an understanding of the underlying science of the technologies being used.
1. See also C. Baldwin and K. Clark, “Managing in an Age of Modularity,” Harvard Business Review 75 (September–October 1997): 84–95.
2. S. Thomke, “Enlightened Experimentation: The New Imperative for Innovation,” Harvard Business Review 79 (February 2001): 66–75.
3. L. Fleming and O. Sorenson, “Science as a Map in Technological Search,” working paper 02-096, Harvard Business School, Boston, Massachusetts, 2002.
4. D. Harhoff, F. Narin, F. Scherer and K. Vopel, “Citation Frequency and the Value of Patented Inventions,” Review of Economics and Statistics 81 (August 1999): 511–515.
5. L. Zucker, M. Darby and M. Brewer, “Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises,” American Economic Review 88 (March 1998): 290–306.
6. L. Fleming, “Finding the Organizational Sources of Technological Breakthroughs: The Story of Hewlett-Packard’s Thermal Inkjet,” Industrial and Corporate Change 11 (November 2002): 1059–1084; and, for an account of how Inchiro Endo also invented the inkjet at Canon, independent of H-P’s efforts, see A. Robinson and S. Stern, “Corporate Creativity: How Innovation and Improvement Actually Happen” (San Francisco: Berrett-Koehler, 1997).
7. S. Stern, “Do Scientists Pay To Be Scientists?” working paper 7410, National Bureau of Economic Research, Cambridge, Massachusetts, 1999.
8. O. Sorenson and L. Fleming, “Science and the Diffusion of Knowledge,” working paper 02-095, Harvard Business School, Boston, Massachusetts, 2002.
9. For further details on IBM’s story, see: K. Lim, “The Many Faces of Absorptive Capacity: Spillovers of Copper Interconnect Technology for Semiconductor Chips,” working paper 4110, MIT Sloan School of Management, Cambridge, Massachusetts, 2000.