Innovation Risk Management & Product Success Rates

Posted on February 13, 2008
Filed Under Gregg Gallagher, Innovation |

In my earlier post on the potential traps of metrics-based innovation management, I noted that while a significant amount of innovation appears to be driven out of smaller firms,  there is an underlying, Darwinian dynamic by which we only see the relatively small percentage of successful outcomes, as compared to the very large numbers of failures in the form of companies which fail before ever bringing products to market, products which fail after being introduced, etc.. Research by the PDMA and other entities indicates that new product success rate appears to be higher in larger companies than in smaller firms.

I do not dispute these numbers, but do believe that there may be an underlying dynamic these numbers don’t fully consider as to the nature of the innovations being measured. For discussions sake, let’s simplify and categorize new products as falling within two broad categories: Sustaining Innovations which are incremental improvements upon an existing product, technology or service. A new version of the Apple iPod with more memory and a color LCD screen would be an example of incremental innovation. The other end of the scale are Transformative Innovations which (per Carlson & Wilmot) are “major new market opportunities that come through breakthrough technologies and business models.”

My intuition tells me that the higher new product success rate of larger firms derives from their greater emphasis on pursuing lower-risk, incremental product development as compared to higher-risk, potentially transformative approaches. Smaller firms tend to be more receptive to risk, and the very raison d’etre of most start-up companies is bring such transformative innovations to market.

I’ll discuss how larger firms can more effectively manage higher levels of risk in their innovation processes in future posts.

I would like to hear from this blog’s readership their perspectives on my assumptions outlined above.

Gregg Gallagher
Director, Marketing & Innovation Practice
Quantum Leaders, Inc

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