For many years the common approach to innovation has been large and well-funded R&D programs.
In his new book “The Architecture Of Innovation,” Harvard Business School Professor Josh Lerner says it doesn’t work the way it used to.
Lerner uses Nokia and Apple as an example to explain why:
Between 2004 and 2007, Nokia spent around $22 billion on R&D. Apple spent $2.5 billion. One came out with the iPhone. The other is continuously struggling.
The company’s stock prices are a decent indication of how things have gone. Apple is flirting with $700, Nokia can’t break $3.
Nokia made the big mistake of only focusing on what was driving their sales at the time — low end phones — and ended up falling behind in the smartphone race.
When companies come under pressure, they cut R&D and focus on what worked in the past, which can cripple them for future success.
That has to change.
An obvious alternative model is venture capital. However, venture capital’s success has been limited to a few industries, funding is volatile, and it carries an expectation of a quick return — which doesn’t always happen.
Lerner’s suggestion is that companies combine the two models:
“If you combine the scale and resources of the corporate lab with some of the intensity and urgency associated with the venture capital model, you have something that can be very, very strong.”
That’s already starting to happen.
Reuters cites a study from CB Insights which found that corporate investments in start ups have risen 16 per cent year over year. Last quarter, “corporate backed venture groups” invested $2.1 billion.
By taking a stake in startups, companies support innovative new technologies and get a closer look at rising stars in their industries. For example, by investing in companies that developed apps, Apple helped create a large and vibrant industry that has helped make their products more appealing.
Getting more with less is a priority in the current economy. Intelligent external investment, higher standards for research groups, and new structures allow companies to innovate more, spend less, and focus on the future.
Check out Lerner’s book here
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