Innovation, construed as broadly as it is today, is seen as a universal panacea for all that ails developed economies. In the U.S., innovation has been credited with driving dramatic growth, productivity, and an unprecedented standard of living. Add the disintermediation of the Web, and innovation can also be credited with empowering the individual in driving adoption and contributing to technologies. Look beyond the “fuzzy front-end,” and innovation can be perceived throughout the value chain and across industry ecologies.
Simply put, innovation is everywhere. So then where does differentiation come from?
New business springs eternal in the Valley
Most directly, competitive advantage comes from creating new business propositions in a disrupted environment. (If compelling enough, a novel offering can itself be the source of disruption.)
Startups, especially in Silicon Valley, have been glorified as the vehicles of disruption and creative destruction. As internal R&D—including captive research labs—has increasingly been restructured to reflect the enterprise’s present and near-future strategic interests, new business creation has come from acquisition substituted for organic growth. Why build what you need or what you think your customer wants when you can scour VC portfolios and buy it whole.
This strategy certainly works, or has worked, for some. Cisco assertively dominated its industry with its ability to seamlessly onboard new entities into the parent organization. But the strategy doesn’t work all the time, or for everyone. See AOL’s recent sale of Bebo as a stark example of the mismatch between market disruption and good intention. The list will go on.
From incremental to exponential
Yet… the reality is, when corporations are innovating incrementally, there’s probably not much difference between acquiring a startup, licensing a patent or two from a university, or building a technology with internal R&D. Because in all these cases, the company clearly knows what it wants. The market has signaled what features are desired and getting there is a matter of tactics—identify the right startup, patents, or internal team/expertise.
But what happens when the market doesn’t exist yet? Or when it’s too time-consuming and expensive to absorb a startup into your corporate culture—let alone to compete with your competitors to court the targeted startup?
What if there’s a disruptive change in the industry? An incremental venture in a disrupted market yields a delta of 0.1 when a 1.0 change is happening. When a corporation wants to innovate exponentially—create a new business or initiate a potential market—the question becomes:
