Darwin and the demon: innovating within established enterprises

As commercial processes commoditize in a developed economy, they are outsourced or transferred offshore, leaving onshore companies with unrelenting, Darwinian pressure to come up with the next wave of innovation. But innovation is a broad term. There are many types, from the ballyhooed disruptive innovation to more mundane forms such as process and experiential, which might involve, respectively, doing such things as streamlining the supply chain and delighting customers with small modifications of products. Many executives find it hard to decide which kind to focus on. The best way to choose is to consider the phases of a market's life span. In a market's earliest phase, a new technology attracts enthusiasts and visionaries. Eventually, the market reaches the Main Street section of its life, when growth slows, flattens, and finally subsides. Different types of innovation produce more bang for the buck at different points in the life cycle. Disruptive innovation, for example, is rewarded most during the earliest phase. Once the life cycle advances to Main Street, however, the marketplace is no longer willing to yield the revenue or margin gains necessary to fund that type of innovation, so other forms, including process and experiential, yield better returns. But attempts to change the company's direction are often thwarted by the inertia that success creates. To overcome the inertia demon, managers must introduce new types of innovation while aggressively extracting resources from legacy processes and organizations. By running the two efforts in parallel, they can defeat the demon and renew the company.