The Inside and Outside View of Innovation

“Innovate or die” has become the mantra for many companies. But how, exactly, should businesses innovate? To be sure, much has been written on the subject, yet many executives are still uncertain how to proceed with respect to a number of fundamental issues. How, for instance, can they ensure that a promising initiative receives the necessary resources when the core business dominates the organization? And why do so many brilliant inventions fail while other seemingly mediocre offerings succeed? Such basic questions are the subject of two recent books — Unrelenting Innovation: How to Build a Culture for Market Dominance, by Gerard J. Tellis (San Francisco, California: Jossey-Bass, 2013), and The Wide Lens: A New Strategy for Innovation, by Ron Adner (New York: Portfolio/Penguin, 2012). The two books make an interesting pairing: The first concentrates on a company’s internal workings, while the latter focuses on its external environment.

An Internal Focus on Organizational Cultures

In Unrelenting Innovation, Tellis, who is the Jerry and Nancy Neely Chair in American Enterprise and Professor of Marketing at the USC Marshall School of Business in Los Angeles, asserts that the single most important driver of innovation in any company is its culture, and he cites three essential organizational traits: a willingness to cannibalize existing products, a risk-taking attitude and the ability to focus on the future.

These traits, he contends, are especially difficult to maintain in successful companies because of various human tendencies and biases. One well-known example is “loss aversion,” in which our desire to acquire gains is greatly outweighed by our fear of incurring losses. Because of that, Tellis notes, many companies have a hard time commercializing radical innovations that would hurt their existing products. As a result, companies don’t aggressively pursue emerging opportunities in new businesses and instead focus on securing their dominance in existing markets. Think of Kodak’s missed opportunity with digital photography. To counter such tendencies, Tellis offers three important practices.

First, he says, managers need to provide the right incentives. For one thing, many companies have an incentive structure that unwittingly discourages innovation with strong punishments for failures but relatively weak rewards for successes.