Jiri’s Notepad

“The American start-up method works very well when hundreds or thousands of potential business models might succeed-and the best way to find out which is to allow each brave or disgruntled genius to try out his own approach. Many fail, but a few succeed.

In other industries and technologies-such as cars and electronics in the 1970s and 1980s-a better way to innovate is to learn by doing. If 100 start-ups try, all might fail before they learn anything useful or before they come up with a product or service they can sell. A big company is often better suited to such fields. Not only can it offer its innovators a more reliable source of investment capital, but it also has links to consumers, which it can use quickly to improve the next generation of whatever it is making. A big company in a new field can afford to make products with initial drawbacks, provided it learns quickly to overcome them.

As they once did in cars and electronics, Japanese companies are today pursuing future technologies in several industries by making things first and only then pausing to think about how to improve them or put them to new uses. This leaves them at a familiar disadvantage in blue-sky research. But the idea-which has worked well enough in other industries to turn Japan into the world’s second-biggest economy-is to keep getting better, eliminating costs and boosting quality, while rivals in America and Europe waste precious time at the drawing board. When Japanese companies do it right, they can innovate so quickly that they leave western competitors gasping for air.” The Economist: Competing through innovation

“Radical innovation transforms the relationship between customers and suppliers, restructures marketplace economics, displaces current products, and often creates entirely new product categories. Radical innovation provides a platform for the long-term growth that corporate leaders desperately seek. Unfortunately, recognizing the importance of radical innovations and successfully developing and commercializing them are two different things.

Incremental innovation is not as great a problem for established companies as radical innovation. During the 1980s, U.S. and European firms were competitively challenged in many industries by Asian firms. They took a beating in memory chips, office and factory automation, consumer electronics, and automaking. 5 These behemoths were routinely outmaneuvered by new competitors. Kodak watched as videotape camcorders reduced its home movie business to cinders. Xerox’s lock on the photocopier business was broken by Canon, Sharp, and others. Consumer electronics products made by Motorola, Zenith, and RCA were largely displaced by new ones introduced by Sony, Panasonic, and Toshiba. On the automotive front, Toyota, Honda, and Nissan expanded their inroads into the North American market, winning universal kudos for quality and reliability. Effective incremental innovation and dramatic improvements in operating efficiency were the two keys to the success of these Asian firms.

In response, U.S. firms increased their competencies in managing the development of incremental innovation in existing products and processes, with an emphasis on cost competitiveness and quality improvements. Extensive study of incremental innovation by both business managers and academics led to a variety of prescriptions: six sigma quality in manufacturing, concurrent engineering, reduced cycle time, just-in-time inventory management, and phase-gate product development systems, to name just a few. These prescriptions were widely adopted and helped many American companies regain their competitive positions in the world marketplace. -Harvard Business Review: Radical Innovation