Welcome to growth strategies, module four, growth through innovation. I'd like to begin with an innovation that probably many of you are familiar with, Gorilla Glass. Gorilla Glass was innovated by Corning. It is a tough fracture resistant glass that is also somewhat flexible, and has found wide use in a number of mobile electronic including the iPhone. The story of Gorilla Glass actually goes back to the 1950's. A Corning employee was researching a new type of glass and accidentally heated it further than he had intended. When he pulled back the glass out, he accidentally dropped it and to his surprise it bounced. This led to a series of investments in innovations that led to eventually something called Chemcore. A specific glass that they thought could be used in number of applications such as for windshields for automobiles. And throughout the 1960's, Corning tried to sell this new glass that they had developed. However, the market never really materialized, and by the 1970's, they had abandoned this product. Flash forward 35 years. Steve Jobs is innovating a new personal digital assistant, a new smart phone. And he comes to Wendell Weeks, who's the CEO of Corning, to ask him if he had any products that would be a strong flexible glass. Because Steve Jobs really would like to have a glass product verses a plastic product for the new phones he's coming out with. Well low and behold, sitting on the shelf they had this old technology that with a little bit of investment and innovation eventually became Gorilla Glass. I like to share this story because it highlights many of the challenges and opportunities that innovation provides. Here, we have an innovation that has been transformational, yet it was 50 plus years in the making. There's elements here of serendipity and luck, but there's also hard work and invention and investment that was made as well. Now, growth through innovation, is a topic that is aside many businesses. It's hard to find an organization today who isn't looking for ways to develop new products or services, new ways to create and deliver value. Innovation is important not only to business, but it's important to our broader economy. Joseph Schumpeter, the famous economist, once commented that innovation, not efficiency is the hallmark of market-based economies. It's innovation that drives our economy forward. He also coined that phrase, creative destruction, to talk about how innovation disrupts the current competitive order and moves us forward. From an individual business standpoint, the suggested innovations is not only just an opportunity for growth, but it's also an opportunity to perhaps avoid the creative destruction process. Recognizing that existing positions just simply might not be sustainable in the long run as innovation occurs. Now, despite all the interest in innovation, innovation is difficult. For many organizations, innovation is an R&D expense. It's a large capital investment, and in fact, billions of dollars are spent annually in R&D. 80% of which, is spent by large established firms. R&D is hard to calculate its return on investment. There's a number of reasons for this. It's hard to predict the net present value going forward, a priori when deciding whether to make an investment in R&D. Part of the problem is that the minimum efficient scale, MES, for R&D tends to be relatively moderate. Why is this problematic? Well, it's problematic because it's not just simply about spending more dollars. With capital investments, like say, building a new plant and the like, it could just simply be if you put more dollars into it, you can achieve more outcomes. Not so with R&D. It's not clear just putting more money into R&D will lead to more innovation. And this is because breakthrough products are often not mandated. They arrive unannounced and they often come from far afield maybe from where you originally intended. Once again, look at Gorilla Glass story and where it originally began. Because of the difficulty with innovation, people often ask, well who's more likely to innovate? There's great debates about entrepreneurs versus large incumbents. This idea of two people in their garage, or two people in their dorm room coming up with the next new thing is rampant in our society. And we talk about those entrepreneurs. But there are also examples where large incumbents are the ones most likely to come up with innovations. Joseph Schumpeter himself, early on in his career, talked quite a bit about entrepreneurs and their potential for creative destruction. But later in his career, especially in the wake of World War II, talked about how there are certain industry sectors where one would expect the large incumbents to be most likely to come up with large innovations. Think about Corning, a venerable company in the glass industry, both commercial and industrial usage. They have resources and expertise that they can exploit to come up with something like Gorilla Glass. The gorilla glass story also highlights this tension between what we call demand pull and technology push. Demand pull is the idea that the market is demanding a certain good or service. Technology push is the idea that technology itself is evolving. And history is littered with examples where the technology pushes forward before there is actually a market demand for a product or service. Related to this idea is the tension between whether users innovate or whether companies or producers innovate. In lots of different sectors it's the users themselves who actually push innovation along. In the medical devices industry for example surgeons are often some of the lead innovators in that sector as users of the technology. Of course, there are other examples where the producers are the drivers of innovation. Apple's iPhone, one could argue, wasn't really driven by some explicit customer demand for a product that looked and felt like the iPhone. Rather, that came out of Apple's design studios and their engineers. And then, only when it was revealed, that we realized what a great opportunity this was. Related to this is also the question of breadth versus depth of expertise. At one depth level, having rich technological expertise is often necessary to be able to innovate. On the other side, we know from a lot of evidence and a lot of research, that innovation often arises when you bring novel information together, novel ideas, diversity of ideas together. And as a result, sometimes having breadth of expertise is more important than depth of expertise. Another way of saying this is that we might think of explorers, those who are out looking broadly for new ideas, versus exploiters, those who are able to take their technical knowledge and apply it in a narrow domain. This sometimes translates into organizations, where you see some that organize themselves, what we might call skunk works. Very ill formed, there's not strong rules, and procedures. People are out there just kinda doing their thing. Versus other organizations that are very rigid in their planning, and how they approach innovation and R&D. And we're gonna talk more about these different organizational structures and when one might be favored versus another. Again, this question of who innovates ultimately gets to this question of how can you grow through innovation? And what are some good practices that one might have for doing so?
