All the challenges (and complexities) of innovation

Radical innovation can give companies superior returns and opportunities for growth and renewal, as numerous studies have shown. But along with these benefits come high risk and uncertainty and longer development time. For many companies that don’t have enough resources to pursue radical innovations, these factors may prevent them from pursuing this path and prompt them instead to embark on incremental innovations that entail fewer risks and more immediate returns.

In our study, published in the Journal of Product Innovation Management in 2013, we investigated the complex relationships between resources and innovation, developing a conceptual model that can more effectively inform corporate strategy.

We surveyed the heads of marketing (each with at least three years of experience) from 363 Chinese tech companies using a questionnaire. Based on their responses, we were able to track the relationship between discretionary resources (or discretionary slack), distal information search (i.e. outside the firm’s traditional domains) and innovation. To contend with the uncertainty generated by radical innovation, companies need a cushion of resources – organizational slack – that enables them to adapt to changes and discontinuities. Resources that are not assigned to specific tasks are available to tackle alternative activities; this guarantees companies the flexibility they need to seize technological and market opportunities that underpin innovation.

Companies engage in distal search (i.e. novel problems to face and diverse information to acquire beyond their consolidated knowledge domain) when they explore new markets and new technological areas. This activity is high-cost because it requires new competences, and high-risk because outcomes are hard to predict.

Distal search also calls for combining new information with what an organization already knows. The ensuing information diversity inspires the company to draw new connections between different ideas and perspectives, and to recombine old and new knowledge. All this makes the innovation process more effective. So the influence of discretionary slack on radical innovation is mediated by the positive effect of distal search, which provides the company with a rich, diversified set of information to channel into radical innovation projects.

Companies can adopt a variety of strategies in their approach to innovation. Proactive ‘Prospectors’ strive to be first movers in launching new products and services. On the other end of the spectrum, ‘Defenders’ carve out a portion of the market and grow there via penetration, rarely undertaking innovative activities. ‘Analyzers’ merge the characteristics of the previous two archetypes, and while closely following new product development, they keep a firm grip on their more stable market segments. Last come ‘Reactors,’ who introduce a given innovation only when it already has a successful track record thanks to other firms.

The second set of hypotheses corroborated by our research links the availability of slack resources and distal search with the company’s innovative strategy. With Analyzers, there is a strong positive relationship between discretionary slack and distal search. In fact, these organizations have a pronounced tendency to invest slack resources in distal search activities in order to grow, and to balance out the use of resources in the stable market segments they’ve already secured. Defenders, on the other hand, are more prone to adopt incremental innovative processes and less likely to search for information outside of their established domain, unless they are convinced that such action will shore up their competitive advantage. As a result, these organizations utilize distal information for radical innovation in a more focused, effective way. For Prospectors, radical innovation doesn’t depend on their stock of slack resources. Instead, the key characteristics of their strategic focus are their evident willingness to cannibalize existing products and market share, their future market orientation, and their risk tolerance.

Our study offers three substantial contributions. The first is the analysis of pathways that link discretionary slack and radical innovation. Specifically, companies utilize slack resources to acquire more comprehensive, diversified information in new sectors to develop new products and services, or to deal with the complexity of the radical innovation process in various ways. Our second contribution relates to the role of distal information search outside of consolidated domains: slack resources enable distal search, which in turn generates diverse information and knowledge, providing the company with a richer set of solutions for tackling the complexity of radical innovation. Last of all, an analysis of a company’s approach to radical innovation must be framed by its strategic orientation. Put another way, while a company does need slack resources to produce radical innovation, the entity of this innovation depends on its strategic orientation.

Our research also offers clear guidelines for mapping out an effective pathway paving the way for radical innovation development. But managers must be aware of the strategic orientation of their companies vis-à-vis innovation. If their company takes a passive stance, managers need a substantial stock of slack resources to overcome the intrinsic resistance toward the risk and uncertainty that radical innovation entails. Once they’ve secured an adequate cushion of resources, they should invest them in the search for distant technological domains and markets.

Distal search activities will help companies develop the new knowledge and competences they need to steer their creative efforts toward opportunities, to minimize internal conflict around existing resources and to accept the risks and uncertainties of radical innovation. Managers in Prospector companies should pay close attention to R&D and marketing process implementation, to avoid less-than-optimal use of resources, which could diminish the effectiveness of their innovative efforts. Last of all, managers who work for Analyzers should carefully assess their endowment of slack resources, which are a prerequisite for radical innovation, and deploy them in such a way as to strike a balance between radical and incremental innovation.