The New, Faster Face of Innovation By Erik Brynjolfsson and ...

The New, Faster Face of Innovation By Erik Brynjolfsson and ...

The New, Faster Face of InnovationBy Erik Brynjolfsson and Michael SchrageAugust 17, 2009Thanks to technology, change has never been so easy—or so cheapCall it innovation on steroids. Or innovation at warp speed. Or just the innovation of rapid innovation.But the essential point remains: Technology is transforming innovation at its core, allowing companiesto test new ideas at speeds—and prices—that were unimaginable even a decade ago. They can stickfeatures on Web sites and tell within hours how customers respond. They can see results from instorepromotions, or efforts to boost process productivity, almost as quickly.The result? Innovation initiatives that used to take months and megabucks to coordinate and launchcan often be started in seconds for cents.And that makes innovation, the lifeblood of growth, more efficient and cheaper. Companies are ableto get a much better idea of how their customers behave and what they want. This gives newofferings and marketing efforts a better shot at success.The Speed of ChangeThe Evolution: Technology is allowing companies to test new ideas at speeds—and prices—that were unimaginable even a decade ago.The Effect: Innovation, the lifeblood of growth, is growing more efficient and cheaper.What’s Ahead: Innovative companies will shift away from traditional research-anddevelopmentmethods. Managers will change the way they solicit ideas. And much, muchmore.Companies will also be willing to try new things, because the price of failure is so much lower. Thatwill bring big changes for corporate culture—making it easier to challenge accepted wisdom, forinstance, and forcing managers to give more employees a say in the innovation process.There will be even better payoffs for customers: Their likes and dislikes will have much more impacton companies’ decisions. In globally competitive markets, they will ultimately end up getting productsand services better tailored to their needs.Already, this powerful new capability is changing the way some of the biggest companies in the worlddo business, inspiring new strategies and revolutionizing the research-and-development process.

“In the U.S., we do the vast majority of our concept testing online, which has created truly substantialsavings in money and time,” says Joan Lewis, global consumer and market knowledge officer atProcter & Gamble Co.Finding the LinkWhat does all of this experimentation look like in practice?Consider Google Inc., which runs 50 to 200 search experiments at any given time. In one case,Google asked selected users how many search results they would like to see on a single screen. More,said the users, many more. So Google ran an experiment that tripled the number of search results perscreen to 30. The company found that traffic declined.Journal VideoMichael Schrage talks with the Journal’s Erin White about how managers can strike the right balancein giving employees guidance on innovation—avoiding being too restrictive on the one hand orallowing a free-for-all on the other.THE NEW, FASTER FACE OF INNOVATIONWhat happened? On average it took about a third of a second longer for search results to appear—aseemingly insignificant delay that nonetheless upset many of the users. The greater number of resultsalso made it more likely that a user would click on a page that did not have the information he or shewas seeking.In an environment where experimentation is this quick and efficient, many traditional practices makeless economic sense. For instance, current research-and-development efforts are often driven byconsiderations that the company’s technicians think are important but customers really don’t careabout. Mobile-phone companies, for one, had a reputation for piling on features that added more costand complexity than value.Real-World ResultsBut it’s not just Web-based companies that are taking advantage of technology to run crucialexperiments.Even retailers—who might seem to have tremendous logistical challenges implementing rapidexperiments across lots of stores—can tap this new approach, thanks to the rise of sophisticatedtracking systems that make measuring customer behavior more agile and less expensive.These systems—which track everything from purchases at the cash register to how products movethrough the supply chain—allow stores to cheaply collect terabytes of data on their customerinteractions, the performance of products in the field, employee productivity and other factors.Traditionally, companies have simply rooted through all of that data to look for patterns and trends;they’ve mined their data. But some retailers are beginning to realize that they can get much betterresults by using their digital systems to run experiments.

Take Wal-Mart Stores Inc., which frequently runs comparative in-store experiments with signage,displays and shelf layouts to see what influences shopper decisions. Wal-Mart can test differentarrangements in a number of stores for a week or so to see which approach boosts sales the most. Ifdifferent sign colors or unusual merchandise juxtapositions increase—or depress—relative sales, thestores can quickly share the information and implement the same plan. That said, store managers alsohave the ability to make decisions at their store to meet individual customer needs.JOURNAL PODCASTHear Erik Brynjolfsson on how faster and cheaper innovation technologies are affecting companies’hiring, rewards and promotion practices.Other companies, meanwhile, have blended digital technologies and conventional systems to test outideas. For instance, Harrah’s Entertainment Inc. uses advanced information systems to analyze datafrom its Total Reward Card and field experiments throughout its casino and hotel network.Gary Loveman, the chief executive who brought the experimentation mindset to 70-year-old Harrah’s,quips, “There are two ways to get fired from Harrah’s: stealing from the company, or failing to includea proper control group in your business experiment.”Experiments to ComeWhere will all this lead? Experiments will become far more pervasive and persuasive as informationtechnology improves and testing grows faster and cheaper. More companies—and more enterprisingindividuals who work in them—will recognize that experiments don’t have to be time-consuming andexpensive, and they will propose more tests that exploit those economies.Business InsightSee the complete Business Insight report.Increasingly, the more innovative companies—the Googles and Harrah’s of tomorrow—will shift awayfrom traditional research-and-development methods. Five years ago, for instance, a leadership teammight have reviewed two or three “big” innovation proposals from consulting gurus; executive teamstoday might compare the outcomes of 50 or 60 real-world experiments to decide which ones to actupon.All of which guarantees huge changes for corporate cultures. Challenging conventional wisdom, forone thing, becomes immeasurably faster, cheaper and easier. And there’s a subtle shift in how peopleview innovation. People don’t talk about running experiments months into the future—they’re intoimmediacy, because they see that they can test ideas right away, and the company culture starts toactively encourage speed. A provocative hypothesis proposed during a morning meeting mightgraduate into a full-blown experiment by day’s end.Even if a test doesn’t produce a workable idea, there’s usually something important to be gleanedfrom it. “Genius is born from a thousand failures,” says Greg Linden, an entrepreneur who has beenan innovator at both Inc. and Microsoft Corp. “In each failed test, you learn somethingthat helps you find something that will work. Constant, continuous, ubiquitous experimentation is themost important thing.”Giving Up ControlThis new environment also has big implications for managers. Simply put, bosses must be prepared togive up some control. With testing so cheap, easy and accessible, there’s less need to ration it as theyhave in the past. Managers used to directing the company’s innovation efforts must give their workersthe freedom to come up with ideas on their own and pursue them without lots of red tape.

See AlsoThe Era of Open InnovationHenry W. ChesbroughCompanies are increasingly rethinking the fundamental ways in which they generate ideasand bring them to market—harnessing external ideas while leveraging their in-house R&Doutside their current operations.Institutionalizing InnovationScott D. Anthony, Mark W. Johnson and Joseph V. SinfieldBuilding an engine that produces a steady stream of innovative growth businesses is difficult,but companies that are able to do it differentiate themselves from competitors.An Inside View of IBM’s ‘Innovation Jam’Osvald M. Bjelland and Robert Chapman WoodIBM brought 150,000 employees and stakeholders together to help move its latesttechnologies to market. Both the difficulties it faced and the successes it achieved provideimportant lessons.Some of the best experiments come from outside the chain of command. At Amazon, for instance,innovators initially developed the company’s recommendations feature—which suggests otherproducts customers might want—without explicit approval from higher-ups.Not only do we expect managers to solicit and welcome more ideas from lower down in the ranks, weexpect that lots more people will be invited to review experiments and make changes. Customerserviceand maintenance people, say, might chime in on experiments proposed by manufacturing ordistribution.That might seem hard to believe, given the turf battles that can arise over new ideas. But whenexperiments become more abundant—and easy and inexpensive to change—those proprietary issueswon’t come up as much. Think of the difference between improving and sharing presentations back inthe day of transparencies and 35mm slides versus PowerPoint presentations, which can be modifiedwith a few clicks of a mouse.As more people get involved in experimentation, companies will also need to change their focus ineducation and training efforts for innovation. Instead of just getting workers to creatively interpretlarge volumes of data, companies will need to help them develop the skills to rapidly designprovocative experiments. Passive analysis will be subordinate to active experimentation.Another crucial development down the road will be “scaling.” Digital technology, as we have seen,allows companies to test new ideas quickly and easily. But the technology also lets companies easilyscale those ideas—or implement them rapidly and cheaply throughout the whole business. We predictthat as companies realize the power of this idea, they will focus on experiments that not only can betested rapidly but also can be put into wide effect just as quickly.The most obvious example of scaling is a Web site. Companies can test out a new feature with a quickbit of programming and see how users respond. The change can then be replicated on billions ofcustomer screens.But that kind of scaling becomes rapidly possible in the bricks-and-mortar world, too, as morebusiness processes become digital—supply-chain management, customer-relationship managementand so forth. When a retailer identifies a better process for screening new employees, the companycan embed the process in its human-resource-management software and have thousands of locationsimplementing the new plan the next morning.We think the future of innovation and the future of experimentation will continue to evolve, thanks tothe improving economics of digital technologies. As a result, the next decade of innovation in the

global marketplace will be even more tumultuous than the last. That’s a great opportunity forinnovators—and even better news for customers and consumers world-wide.Illustration: Harry CampbellDr. Brynjolfsson is a professor of management at the MIT Sloan School of Management. Mr. Schrageis a research fellow at the MIT Center for Digital Business.

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