By Ed Bernstein, President, Industrial Research Institute
Top-down innovation is dead. This is a recent Forbes headline which speaks volumes to industry insiders, but what does it really mean? Are businesses recognizing that ideas no longer come from corporate offices? Does it speak to the emerging trend to innovate for the bottom end of the market with less expensive products? Is it highlighting the movement to decentralize R&D through open innovation practices? Or is it hyperbole aimed at capturing your attention as a reader of relevant tech news?
The answer—all of the above, with caveats.
No one can argue effectively that central offices do not innovate, as the first question poses. Central R&D units do still innovate and many of the decisions made regarding which new ideas to pursue are made by the C-suite. If this were not the case, significant sums would be wasted as researchers explore whatever catches their fancy. But large, central offices are no longer the sole market leaders who control what gets made. Entrepreneurs the world over have learned to secure funding in order to pursue their ideas on a shoestring budget without a large corporate R&D office dictating their future.
Sometimes these products scale up and disrupt established markets, other times they don’t. But these small-scale, high-speed businessmen and women are able to fill a niche faster than most large companies can due to the rapid turnover of trends in today’s business environment. So the corporate office could decide to invest millions of dollars and upwards of 20+ months to develop a product that, once complete, will perhaps no longer be desired by that market. Or it could simply purchase a small organization already producing something for that market and help them scale to the proper size. In this sense, top-down innovation is indeed dying because top-down organizations are transitioning to large-scale venture capitalists that simply identify products arriving from the bottom-up instead of making those products themselves.
This brings us to the second question about innovating for the bottom end of the market with less expensive products. It isn’t that companies no longer innovate for the top. Auto companies are an obvious example, continuing, for instance, to design, produce and sell high-end luxury vehicles. Boeing’s 787 Dreamliner, as a high-end aerospace product, is another example. But more and more organizations are recognizing that speed-to-market demands in and of themselves are disruptive agents as organizations struggle to maintain the speed and flexibility needed in today’s market. The pressure to stay relevant is greater than it ever was and technology advances are allowing smaller organizations to out-compete market incumbents.
Disruptive innovation is perhaps one of the most relevant topics to address with the current business environment gaining strength. Clayton Christensen, Harvard Business school professor and closing keynote at IRI’s Diamond Jubilee this coming May, recently wrote that established companies like Apple also face the potential for disruptive start-ups—coming in at the bottom end of the micro-processing and digital technology market—to overturn its leadership status and threaten its very existence. Other areas, like higher education, Christensen argues, also face the potential to go the way of the dinosaurs because online learning is changing the way people valuate traditional 4-year learning standards.
What does this all mean? It means that bottom-up innovation, coming directly from savvy consumers, is traditionally a faster mode of innovation. This speed and flexibility allows bottom-up organizations to outpace large market incumbents who are calcifying their practices with layers of corporate bureaucracy. The difference between them, however, is that large companies tend to have more money and thus more flexibility in terms of investments. See the solution?
Partnerships, capital venturing, alliances, open innovation; all of these terms refer to the direction the market is moving. Top-down innovators working in established markets are not going to stop doing what has made them successful by innovating solely from the bottom-up. In that sense, top-down innovation is not dead and this makes the Forbes headline a bit of hyperbole aimed at getting your attention. But top-down organizations will likely look to the bottom end for ways of breaking into new markets and it means that horizontal movement among large-scale companies is more likely than vertical, internal-only R&D for new products. Is it fair to say top-down innovation is dead? Not really. But perhaps it is accurate to say that top-down innovation is deathly ill and will either evolve to survive or meet the dinosaurs in extinction.