We often hear that the pace of innovation is speeding up, that new discoveries are occurring faster than ever before, that new technologies are coming ever more rapidly, and that new products are changing the way that we live. But how does innovation actually occur and how can companies systematically pursue innovation and profit from its implementation? When Bill Hewlett and Dave Packard set out to make a reliable audio oscillator in their legendary garage in Palo Alto, did they regard innovation as an orderly process? I think it`s more likely that, as entrepreneurs, they understood intuitively that innovation is a random process and successful innovation is completely unpredictable.
A recent series of articles in The Economist (February 20, 1999, also available at www.economist.com), suggests that innovation has become the industrial religion of the late 20th century. But despite what The Economist may say, an almost religious belief in innovation is hardly new, particularly in North American companies. Bill Shockley had the benefit of the massive resources of Bell Laboratories when he and his colleagues developed the transistor, a device that has changed the lives of millions around the world. Charles Kao had the resources of Britain`s Standard Telecommunications Laboratories behind him as he and his coworkers predicted the optical fiber that has transformed communications.
A sticky persistence
Sometimes, the radical innovation is due to the inspiration and persistence of one person. It may be as startlingly simple as glue that remains permanently sticky, which led Art Fry of 3M to conceive of the now-famous Post-It notepads. The technical staff of 3M are encouraged to spend as much as 15% of their time working on pet projects that may (or may not) become successful products. The company estimates that a quarter of its annual revenue comes from products less then five years old.
Other innovative processes may be more complex and require more cooperation, as in the so-called "skunk works" built by Lockheed Aircraft in the late 1940s. Working under conditions of extreme secrecy, Lockheed engineers and managers broke company rules with abandon and deliberately ignored official directives from the Pentagon. The result was a family of spy planes that set new records for performance-and came in ahead of schedule and below budget. Lockheed was then on the leading edge of the wave of innovation.
According to The Economist, we`re in the fifth wave of industrial innovation in a series of cycles envisaged by Russian economist Nikolai Kondratieff and explored in detail by Austrian economist Joseph Schumpeter working in the 1930s. The first wave, driven by advances in water power, textiles, and iron, lasted 60 years (from 1785 to 1845, approximately). The fifth wave, powered by developments in digital networks, software, and new media, began in the late 1980s and may last no more than 25 to 30 years. The pace of innovation is indeed speeding up. We`re already well into the rapid upswing of the latest industrial cycle and it may be too late for newcomers to catch the wave of innovation.
The risk-reward relationship
Just how does a company surf the wave? I think a risk-oriented culture has to exist in the general business environment, as in Silicon Valley, and within an individual company, as in fast-growing computer companies such as Sun Microsystems and Silicon Graphics. Such innovative companies also exist in the optoelectronics world-SDL, Uniphase, and New Focus spring to mind. But the risk of failure is much greater than the chance of success. To foster an innovative environment, a company should allow for failures without major punishments but it should also be prepared to reward success significantly. That`s why stock options are so motivating for young Silicon Valley engineers.
A company not only has to generate a generous risk-reward culture, it also has to find and develop the sharpest minds-a much more difficult task. No one understands this better than New Focus founder Milton Chang who often picks my brain in his never-ending search for the best and brightest people. Governments may spend money on R&D and companies may foster a supportive culture, but you can`t catch the wave of innovation without risk-taking surfers. Are you ready to "hang ten?"