How to Innovate When Platforms Won’t Stop Moving

The article How to Innovate When Platforms Won’t Stop Moving in MIT Sloan Review has several interesting pointers towards R&D management:

Businesses must cultivate agility — the ability to adapt quickly to or even anticipate and lead change. Businesses must develop deep differentiating capabilities that enable them both to separate themselves from competitors and endure disruptions. Companies such as Apple and IBM show how agility and capabilities can enable organizations to shape-shift as industry models rapidly change.”

Prof. Cusumano has four suggestions on how to be more agile (rearranged based on needs for R&D):
1. Emphasis on flexibility: As markets, customer needs and platforms are changing rapidly, we need to change our development approach so products can be successful despite changes.  This is hard to do using current processes and tools for R&D management, however, it is good to keep in mind.

The key for many firms is not to always be creating plans and pushing products out to market but to find ways to react very quickly to new information or responses from customers and other partners to what you are doing or intending to do. 

2. Capabilities rather than strategy: One approach to flexibility is to develop capabilities that can be reused if market changes.  Capabilities are broad tools while products are targeted towards specific needs.  My suggestion is for R&D managers to characterize plans and projects as leading towards key capabilities in addition to products that satisfy particular strategies.  This way a minor change in processes can help lead us to flexibility.

For example, the future is unpredictable, so strategy needs to change, but companies can still build unique capabilities that provide a stable base for new products and services as well as help them navigate through change. 

3. Economies of scope rather than scale: In case flexibility adds costs to development, one way to make the business case for the additional investment is to see that a broad set of capabilities will let companies address more market niches.

Economies of scope are also useful here because customers today often want a variety of new products and features but do not want to pay much money for them. Companies need to go beyond traditional scale economies and find ways to leverage existing knowledge in the form of reusable components and frameworks to produce a variety of products and services as efficiently as possible.

4. Information Pull Rather than push:  To understand what capabilities to focus on, companies need better market information.

Managers also need to create mechanisms that “pull” information from the market in something resembling real time, such as customer-driven product development processes or production management systems that allow firms to change their product mix very quickly.

How do we identify what market information to focus on?  Look for “megatrends”:

Managers certainly need to ask themselves — and the smartest people they can find around themselves, inside and outside the company — what are the potential megatrends that could disrupt their businesses in the future or make their business models obsolete. In the industries that I study, for example, there have been two such trends emerging over the last several decades: the rising importance of industrywide platforms as opposed to stand-alone products, and the rising importance of services or service-like versions of products.

That brings us to platform-based design (PBD), which underlies points 1 to 3 above.  Prof. Cusumano is focusing on computing industry where platforms provide standards (e.g. PC, WCDMA, 802.11) and standard interfaces (e.g. PCI express, USB) that can be used to define flexibility.  There are other forms of platform-based design that can be used in industries such as medical devices which do not depend on standardization.  I recently presented a paper on this form of PBD.  Please email if you would like to find out more.

Finally, this focus on flexibility may require more significant changes than just R&D:

IBM did a number of studies and figured out that it had all these processes that were designed to ensure quality, but they also meant that it was extremely slow to develop anything new. Different markets, like the PC market and then later the Internet market, required much faster decision making. They didn’t require the same kind of quality standards, but different kinds of standards. And so IBM did decentralize its decision making, but without physically breaking up the company. IBM reorganized into a small number of groups that mapped better to how customers needed to integrate the new technologies.