Why do start-ups seem to have an easier time coming up with breakthrough innovations, while established companies find it harder? Is it the people, the organizational structure or the corporate culture?
In their book, The Innovation Paradox: Why Good Businesses Kill Breakthroughs and How They Can Change, IESE Professor Antonio Dávila and Prof. Marc J. Epstein of Jones Graduate School of Business at Rice University state that the answer to these questions is simply the incumbents' obsession with "incremental innovation."
When a company pursues incremental innovation -- i.e., increasing efficiency here and improving execution there -- R&D investments can end up making companies less able to make breakthrough innovations. That is the "innovation paradox" at the heart of this book.
The authors step up to offer advice on how to foster different types of innovation for times of stability and for times of change. "Incremental innovation delivers results as long as the industry structure remains stable, yet it can fail miserably when unexpected developments redefine an industry," the authors explain.
Incremental Innovation vs. Breakthrough Innovation
The problem is that many corporations fail to realize that there are different types of innovation -- and that they require very different management approaches.
At one end of the spectrum, incremental innovation usually means reducing costs and adding customers by gradually improving operations and products. Incremental innovation is about managing knowledge effectively.
At the other end, breakthrough innovation is about managing ignorance. Pursuing breakthroughs requires the handling of a high level of uncertainty to build products for markets that might not (yet) exist -- such as space tourism, nano-robots or an ageless society.
The "Start-up Corporation" Model
The authors have developed a new model called "the Start-up Corporation" which identifies the fundamental traits of successful start-ups that large corporations should borrow from to foster breakthrough innovation. In a Start-up Corporation, leaders should:
- foster innovation at all levels of the organization;
- look and reach outward since breakthrough innovations often come from collaborations with outsiders -- such as universities, suppliers and customers, and
- be supportive and create a culture of discovery that promotes learning from failures and encourages employees to take calculated risks and to go after hard but high-potential challenges.
As a model, the "Start-up Corporation" is designed to leverage incumbents' strengths, adding start-ups' agility to meet future challenges.
For more information, see IESE Insight
Buy The Innovation Paradox here.