Gerard Tellis

Innovation is a critical component of competitive success for businesses and economies. But how do you spark innovation, measure it, nurture it and finally make all the research and development effort pay? Gerard J. Tellis has dedicated himself to answering those questions as director of the Marshall School of Business’s Center for Global Innovation and as a professor of marketing at the University of Southern California. Professor Tellis has written widely on innovation and won many awards for his achievements in advancing the field. In an interview with PwC, excerpted here, he draws on his research—across a range of companies, time periods and international borders—to share thoughts on the crucial challenge of innovation: how to drive an idea to its ultimate success in the marketplace.

PwC: Your research has focused on the commercialization phase of the innovation process. Why target that area?

GT: Many firms have a large number of innovations which they fail to introduce for fear of cannibalizing their existing products. Success ultimately can be defined only in terms of results—commercializing innovations. And what we’ve found is that innovations initially experience a long period when sales are dormant before—in cases of successful innovation—they experience a rapid takeoff. That is a critical stage in the life cycle of any successful innovation. Our research attempts to find out: What are the drivers of takeoff? Can you predict it? Can you control it?

PwC: Have researchers and enterprises established any golden rules when it comes to understanding how enterprise innovation can be managed successfully?

GT: Well, a problem in the business world is that cycles of different ideas become popular and then fade away. I will mention just three popular ideas. One of them is called the S-curve of technological evolution. It says that performance of new technology has an initial flat period, followed by a period of rapid improvement until maturity sets in when performance is again flat. Then, a replacement technology emerges and follows a similar S-curve that crosses the first one at some time when the old one is flat. The trick for companies is to switch from the old S-curve to the new one before that crossing.

We researched this in a number of markets across a number of technologies and found the rule doesn’t really apply. A large number of technologies coexist at the same time. There is not just one S-curve. But the ironic thing is that the curve is not S-shaped to begin with. It has multiple-step functions, with a fresh jump in performance after a period of apparent maturity. You might think it’s maturity, but it might not really be so. If you jump ship because you think it’s mature, you may have jumped ship prematurely.

A second golden rule of innovation uses a disruption paradigm, popularized by Clayton Christiensen. The thinking is that you should be aware of these disruptive technologies and be ready to embrace them before they disrupt you. To begin with, the concept may contain a bit of circularity, because if a new technology doesn’t really disrupt incumbents, then it’s not called disruptive innovation, whereas if it does disrupt incumbents, then it is called so, but it may be too late for them. One challenge is to try to categorize new technologies without using the word disruptive—namely, based on scientific principles—can you actually identify it as disruptive before learning the outcome? For example, in lighting, incandescence, fluorescence, and electric arc technologies have all coexisted. When you examine the introduction of these technologies and the firms that introduced them and distinguish survivors and losers, you find that so-called disruptive technologies don’t always disrupt. The real challenge is not so much to find or detect a disruptive technology. The real challenge is to find out why some firms are disrupted by innovation and why others are not.

That brings me to a third golden rule of innovation. The most popular concept today is open innovation. And the idea is that the enterprise should be open to ideas whatever their source, internal or external, from partners or customers. It should not be secretive about its own ideas and let others borrow them. I think while that is a very promising approach to innovation, it still does not overcome one of the basic problems we have found—namely, why there are some firms which are highly innovative and are not disrupted while other firms get disrupted.

PwC: Do you have any empirical data on that? Can you predict successful innovation?

GT: Yes. We surveyed the innovations of 770 companies across 17 different countries. What we’ve found is that it’s not so much these golden rules, which talk about external market conditions for innovation. We found there were two determinants of successful innovative firms. One not surprising is the total investment in R&D within the organization. The second is the internal culture of the organization, which we break down into three components. One is future orientation, being focused on the future rather than on past glories or present crises; another is the tolerance for risk; and a third is cannibalization of one’s own successful products. And I think that’s the most difficult for companies to do, and that’s the one which trips up companies most often. An innovative firm is one that risks cannibalizing its own successful products to introduce new innovations for the future.

PwC: Can you identify a company that in your research comes out high on all three of those and as a result is very innovative?

GT: Well, you could say that Apple is pretty much like that. There was a lot of criticism when they came out with the Nano very quickly after the mini and cannibalized the mini. A lot of people said, “Why would you kill a profitable product?” And now they have come out with the iPhone, of which they’ve already had three generations in less than two years.

PwC: What can a management team do to create a culture that is more likely to deliver successful innovations?

GT: We’ve identified a few things that companies can do to make the culture more innovative. One is to empower product champions, where a product champion is entrusted with a technology, people and resources, and told to go out and capture a market. It is important that this take the form of empowering a champion, as opposed to doing things by committee. Because when you have large committees with a series of approvals at different levels, not only does it slow down the process, but a lot of good ideas get laid by the side. A second approach is to create internal competition, allowing competing divisions to cater to the same market. A third approach is to have incentives for innovation—as opposed to incentives for seniority or age— to encourage people to take risks with new products. It’s important that these incentives be asymmetric in the sense that you would reward success but not penalize failure.