Genetics Meets InnovationIn the field of genetics, scientists develop stronger species of corn and other crops through a process known as “seed, select, and amplify.” First, they use a diverse range of seeds to grow several different varieties of the crop under various conditions, such as drought, frost, heavy rainfall, and so on. Then they select the seeds from the sturdiest and most productive strains of each generation of crops and cross-breed those with the desired trait for use in the next generation of test crops. Ultimately, over many generations, the scientists develop super-crops that produce more food, resist all types of weather and pests, and require less soil and water.
In much the same way, the most innovative companies are actively managing their product development process with an aggressive “seed, select, and amplify” strategy. Back in the machine age, the idea was to produce one model of a product, introduce it with great fanfare, and ? if it succeeded ? try to extend its life-cycle as long as possible.
In the age of business eco-systems, companies are intentionally trying lots of low-cost experiments, expecting most of them to fail. They launch hundreds of product variations in the hope that one or two will succeed. They introduce dozens of versions of each product with various features and at a range of price points. Then they combine the best features of all of the different products and versions into a single winning product that makes up for all of the failures.
Three powerful forces are driving this trend:
Increased competition from foreign companies in a global market. Commoditization of existing products due to rapid imitation by rivals and falling costs of technologies. Insatiable demand for new products by customers who grow bored with yesterday’s products and have the disposable income to spend due to a recovering economy.
We expect the number of new product offerings to further accelerate over the next five years. According to the Product Development Institute, new products account for about 50 percent of U.S. companies’ revenues from sales, and 40 percent of their profits.1
Unfortunately most of these new offerings, like salmon swimming upstream to spawn, do not survive. Dr. Robert G. Cooper of the Product Development Institute claims, “An estimated 46 percent of the resources that companies devote to the conception, development, and launch of new products go to ventures that don’t succeed ? they fail in the marketplace or never seem to make it to market. Only one out of four development projects succeeds commercially and one-third of all new product launches fail.”
Given that U.S. companies spent more than $189 billion in 2002 on industrial R&D, the financial losses from new product failures are staggering. To increase revenues and limit losses in the face of these sobering odds, companies increasingly follow a strategy of seeding, selecting, and amplifying competing ideas.
However, this strategy isn’t easy to pursue. It’s still difficult to come up with good ideas for potential new products and services. For this reason, the job of identifying customer drivers for complex products has been called “the fuzzy front end,” where success relies less on science and logic and more on creativity and magic.2
By mirroring the selective pressures found in nature, the genetic algorithms we discussed in Trend #5 help companies deal with the fuzzy front end. They do so by quickly and efficiently identifying the best concepts from an ever-expanding universe of possibilities.
This enables companies to move only the best ideas to a later stage of new product development: pilot testing. Companies take “seed” concepts that represent their best ideas, plant them, and see which ones grow strongest. In other words, like a botanist, they strive for smarter experimentation by simultaneously testing several different genetic strains.
Consultants Stephen Proud and Michael Wetzer from Accenture note that the “seed, select, and amplify” strategy can be used in many industries, regardless of whether their product life-cycles are short or long.3
Based on these developments, we anticipate two major upheavals over the next five years:
First, we are entering the Age of Hypercompetition. We anticipate that companies will increasingly explore multiple concepts simultaneously for new products and services. They will try to get rapid feedback from the marketplace at the lowest cost possible. Instead of the formal, structured product development plans of just a few years ago, companies will probe the market with experiments designed by genetic programming-enabled product development software. They will then react quickly to the market signals and customer information these tests reveal. Michael Schrage from MIT calls this trend hyperinnovation.4 As Schrage points out, “Hyperinnovation occurs due to the radical change in prototyping methods caused by further enhanced technologies allowing [the firm] to radically reduce costs of testing products and services, as well as business models. The marginal costs have shrunk to insignificance. This has changed the rules of innovation. As a result, hyperinnovation forces all companies to rethink their innovation strategy.”
Second, companies will increasingly look for new ideas outside their organizations ? and beyond their industries. The reason is simple: There has been a fundamental shift in where innovation occurs. According to innovation expert Henry Chesbrough, “As recently as 1981, companies with more than 1,000 employees accounted for more than 95 percent of R&D spending.5 Today, they account for less than 80 percent of U.S. R&D. Large companies of more than 25,000 employees used to provide over 70 percent of industrial R&D. Today, they provide about 40 percent of R&D.” The most advanced companies have quickly recognized this, and are already responding. For example, Procter & Gamble has named a director of external innovation and set a goal of sourcing 50 percent of its innovations from outside the company in five years. The logic behind this decision is that P&G can rely on the knowledge of 8,600 scientists inside the company to develop new products. However, if it looks outside the company, it can leverage the knowledge of 1.5 million scientists. Looked at that way, it doesn’t make sense for the company to focus only on what it can invent in-house. Among the other leading companies that are now looking outside their organizations for new ideas are IBM and Intel. While business analysts have considered these firms innovative in the past, these companies formerly restricted innovation within their own four walls. The move to external sources of innovation therefore represents a seismic shift for these industry giants.
References List :1. Ivey Business Journal, July/August 2000, "Doing It Right: Winning with New Products," by Dr. Robert Cooper. ⓒ Copyright 2000 by Richard Ivey School of Business. All rights reserved.2. To access the article "Using Research in Defining New Products," by Linda Stegeman, visit the Product Marketing website at: www.productmarketing.com/topics/03/01ls.htm3. For additional information about Product Lifecycle Management, visit the ASCET (Achieving Supply Chain Excellence Through Technology) website at: www.ascet.com/documents.asp?d_ID=2015#4. Strategy + Business, First Quarter 2001, "Here Comes Hyperinnovation," by Michael Schrage. ⓒ Copyright 2001 by Booz-Allen Hamilton. All rights reserved. 5. For information on open innovation, visit the Innovation & Business Architectures website at:www.biz-architect.com/chesbrough_on_open_innovation.htm
