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Outsmart the Upstart

Radical Innovation: How Mature Companies Can Outsmart Upstarts
November 1, 2000

The Internet stock bubble may have burst, but that hasn’t freed big companies from fears that their own market values could be decimated overnight by nimble startups. Never mind that most startups fail-and that they can be acquired. Corporate America still dreams of a way to domesticate innovation, for example by creating internal “entrepreneurial incubators” and “corporate venturing” departments to support ideas that wouldn’t normally find a home (see “Lucent Ventures Into the Future”).

Radical Innovation, by a group of faculty at the Lally School of Management at Rensselaer Polytechnic Institute, encourages the notion that big firms accustomed to incremental innovation can also successfully manage the development of disruptive new technologies. To these scholars, who studied attempts at radical innovation inside 10 corporate behemoths such as IBM, DuPont, General Electric, General Motors and Texas Instruments, all that’s required are solutions to seven managerial challenges: recognizing a groundbreaking idea while it’s still fuzzy; coping with uncertainty over resources, expectations and leadership;
defining a market for the new idea; getting the market to pay for the idea; finding resources to sustain a long-term development effort; handing off the developed product to a business unit; and keeping individual innovators motivated.

Laudable goals, all. But they read less like a recipe for success than a laundry list of things most mature companies do badly. Indeed, five years after the RPI group began their interviews, seven of the 12 projects they studied have yet to reach the commercialization stage. One project, an effort at GM to develop a hybrid gas-electric engine, flopped after internal funding ran out and external partners missed deadlines. A project at Otis Elevator to build a bidirectional elevator (similar to the turbolifts in Star Trek) folded after Otis overestimated the size of the potential market.

And an IBM handheld electronic book project went by the wayside after two startup companies brought their own products to market. A startup mentality and headstrong, resourceful leadership distinguished the projects that succeeded. The winning ventures all had champions whom other people described as creative, mercurial, colorful and passionate, and who were “excellent at lobbying, at bootlegging resources, and at inspiring loyalty in team members,” the RPI team reports. The best way to outsmart upstarts, it seems, is to be one.

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