Innovating for cash.

Abstract

Despite companies' almost fanatical worship of innovation, most new products don't generate money. That's because executives don't realize that the approach they take to commercializing a new product is as important as the innovation itself. Different approaches can generate very different levels of profit. Companies tend to favor one of three different innovation approaches, each with its own investment profile, profitability pattern, risk profile, and skill requirements. Most organizations are instinctively integrators: They manage all the steps needed to take a product to market themselves. Organizations can also choose to be orchestrators: They focus on some parts of the commercialization process and depend on partners to manage the rest. And finally, companies can be licensers: They sell or license a new product or idea to another organization that handles the commercialization process. Different innovations require different approaches. Selecting the most suitable approach, the authors' research found, often yields two or three times the profits of the least optimal approach. Yet companies tend to rely only on the mode most familiar to them. Executives would do better to take several different factors into account before deciding which tack to take, including the industry they're trying to enter, the specific characteristics of the innovation, and the risks involved in taking the product to market. By doing so, companies can match the approach to the opportunity and reap the maximum profit. Choosing the wrong approach, like Polaroid did, for example, can lead to the failure of both the product and the company. Optimizing their approaches, as Whirlpool has done, helps ensure that companies' innovations make money.