Nearly 30 years after it was first incorporated to help stabilize and improve older, declining parts of the city, Neighborhood Housing Services (NHS) of Chicago had become among the best-known and most-respected organizations of its kind. Its combination of low-interest lending to homebuyers and home renovators, as well as its neighborhood improvement efforts, had won it credit for helping to maintain or revive parts of Chicago during a time when the city was losing population and private financial institutions were loathe to make conventional loans in its poorer neighborhoods. But, in the late 1990s, NHS Chicago finds it is facing a struggle to survive. Poorer neighborhoods, long-starved of credit, find themselves flooded by lending offers from a new generation of so-called "subprime" lenders. NHS efforts to improve the nine Chicago neighborhoods in which it has offices are threatened both by mortgage foreclosures which result from such high-interest loans, and by a decline in NHS Chicago's own lending business, which has difficulty competing with well-advertised "subprimes". This case raises the question of what strategy NHS Chicago, under pressure from a major foundation which had historically helped support it, should adopt to right itself financially and whether and how it should continue the mission for which it was founded. Case discussion may include both an examination of data-including trends in its revenues and expenses-and of prospective long-term organizational strategies. HKS Case Number 1659.0

Some companies are better at scouting out new market opportunities than others are. Those that lack the time or the talent for this work should consider outsourcing it to reconnaissance experts.

Diversity, cohesiveness, and autonomy may seem critical to the creative work that teams do. But new research shows that too much of those things can thwart innovation.

Not long ago, it seemed far-fetched to think that feature films could be made on computers. Pixar cofounder Ed Catmull discusses how his company turned improbability into reality with the blockbusters Toy Story, A Bug's Life, and Monsters, Inc.

Regions where social ties are tight are the worst places to put your innovation operations. Look instead for communities that promote tolerance, diversity, and creativity.

HomeStar's reputation for being "the first, the best, the only" name in appliances is under threat. For the second time in six months, upstart competitor Vanguard has pulled off a market coup: Its retro line of refrigerators, ranges, and dishwashers is a huge hit. Meanwhile, HomeStar's latest big idea--jumbo appliances--is bombing. CEO Hal Marden is chagrined: How did the company lose its edge? Kelly Dowd, HomeStar's head of marketing, blames Charlie Hamad, the company's chief engineer. Charlie is so focused on developing smart appliances--products that can cook, clean, and even shop--that he's lost touch with the changing marketplace, Kelly complains. Global competition is growing, and consumers' tastes are changing. Now, more than ever, churning out new products is critical to HomeStar's success. But Charlie, a 27-year veteran who has spearheaded almost every major technological advance in the industry, pooh-poohs the new, flashy products: "Form over function. Nothing new there but a fancy paint job and higher prices." Hal is torn. Charlie is a hero to him, but what if the market doesn't go for networked appliances? The company simply can't afford to put all its eggs in one basket. What's more, the biggest trade show of the year is just six months away, and HomeStar has nothing new to offer. Vanguard, meanwhile, is making product announcements every quarter. Is it time for Charlie to move on? How can HomeStar get its R&D efforts back on track? In R0208A and R0208Z, four commentators--Ideo's Tom Kelley, Whirlpool's Philip Pejovich, Thayer School of Engineering's Lewis Duncan, and Ealing Studios' John Kao--offer advice in this fictional case study.

Some organizations repeatedly come up with great ideas, even though each act of innovation is really a leap of imagination that can't be taught or predicted. But even if they can't exactly replicate those successes, can other organizations learn from them? HBR's editors asked 16 innovation experts--leaders but not necessarily inventors themselves--one question: "What's the one thing you've done that most inspired innovation in your organization?" Some of them--like Nolan Bushnell, who founded Atari; CEO Michael Dell; and venture capitalist Esther Dyson--emphasize the importance of letting people experiment and take risks. Hal Tovin, an executive vice president of a financial group, and John Talley, a pharmaceutical researcher, believe that hiring people with widely divergent skills and talents sets the stage for increased innovation. Larry Keeley, the president of an innovation strategy firm, encourages others to innovate in customer service, business models, and networking. Luciano Maiani, the director general of the European Organization for Nuclear Research (CERN), states the case for pure science by claiming that it drives innovation as much as markets do. These experts and others pull back the curtain on the mysteries of innovation.

If you're like most managers, you've worked with people who swear they do their most creative work under tight deadlines. You may use pressure as a management technique, believing it will spur people on to great leaps of insight. You may even manage yourself this way. If so, are you right? Not necessarily, these researchers say. When creativity is under the gun, it usually ends up getting killed, the authors say. They recently took a close look at how people experience time pressure, collecting and analyzing more than 9,000 daily diary entries from individuals who were working on projects that required high levels of creativity and measuring their ability to innovate under varying levels of time pressure. The authors describe common characteristics of time pressure and outline four working environments under which creativity may or may not flourish. High-pressure days that still yield creativity are full of focus and meaningful urgency--people feel they are on a mission. High-pressure days that yield no creativity lack such focus--people feel they are on a treadmill, forced to switch gears often. On low-pressure days that yield creativity, people feel as though they are on an expedition--exploring ideas rather than just identifying problems. And on low-pressure days that yield no creative thinking, people work on autopilot--doing their jobs without engaging too deeply. Managers should avoid extreme time pressure when possible.

"The fastest way to succeed," IBM's Thomas Watson, Sr., once said, "is to double your failure rate." In recent years, more and more executives have embraced Watson's point of view, coming to understand what innovators have always known: Failure is a prerequisite to invention. Although companies may grasp the value of making mistakes at the level of corporate practices, they have a harder time accepting the idea at the personal level. In this article, psychologist and former Harvard Business School professor Richard Farson and co-author Ralph Keyes discuss how companies can reduce the fear of miscues. What's crucial is the presence of failure-tolerant leaders--executives who, through their words and actions, help employees overcome their anxieties about making mistakes and, in the process, create a culture of intelligent risk-taking that leads to sustained innovation. Drawing from their research in business, politics, sports, and science, the authors identify common practices among failure-tolerant leaders. These leaders break down the social and bureaucratic barriers that separate them from their followers. They engage at a personal level with the people they lead. They take a nonjudgmental, analytical posture as they interact with staff. They openly admit their own mistakes. And they try to root out the destructive competitiveness built into most organizations. Above all else, failure-tolerant leaders push people to see beyond traditional definitions of success and failure. They know that as long as a person views failure as the opposite of success, rather than its complement, he or she will never be able to take the risks necessary for innovation.

In most companies, investments in innovation follow a boom-bust cycle. For a time, the cash flows. Then, as the economy sours or companies rethink their priorities, the taps go dry. But when research budgets are slashed, the strong projects are often abandoned along with the weak ones. When disruptive changes in the competitive landscape come, companies are caught flat-footed. Sustainable innovation requires a new approach: Instead of being largely isolated projects, innovation initiatives need to gain access to the insights and capabilities of other companies. But how can businesses traffic in such sensitive information without giving their competitors an advantage? The answer, the author contends, lies in a practice that's been common since the Middle Ages: the use of independent intermediaries to facilitate the exchange of sensitive information among companies without revealing the principals' identities or motives and without otherwise compromising their interests. A network of innovation intermediaries would be in a unique position to visualize new opportunities synthesized from insights and technologies provided by several companies--ideas that might never occur to businesses working on their own.

How much of innovation is inspiration, and how much is hard work? The answer lies somewhere in the middle, says management thinker Peter Drucker. In this HBR classic from 1985, he argues that innovation is real work that can and should be managed like any other corporate function. Success is more likely to result from the systematic pursuit of opportunities than from a flash of genius. Indeed, most innovative business ideas arise through the methodical analysis of seven areas of opportunity. Within a company or industry, opportunities can be found in unexpected occurrences, incongruities of various kinds, process needs, or changes in an industry or market. Outside a company, opportunities arise from demographic changes, changes in perception, or new knowledge. There is some overlap among the sources, and the potential for innovation may well lie in more than one area at a time. Innovations based on new knowledge tend to have the greatest effect on the marketplace, but it often takes decades before the ideas are translated into actual products, processes, or services. The other sources of innovation are easier and simpler to handle, yet they still require managers to look beyond established practices, Drucker explains. The author emphasizes that innovators need to look for simple, focused solutions to real problems.

As companies try to keep pace with rapid changes in technology and cope with unstable business environments, their research departments have to do more than simply invent new products. They must design the new technological and organizational architectures that make a continuously innovating company possible. In this 1991 article, John Seely Brown, then director of Xerox's Palo Alto Research Center (PARC), describes the business logic behind this distinctive vision of research's role and the ways Xerox PARC tried to realize that vision. Its researchers developed prototypes of new work practices as well as new technologies and products. They designed new uses for technology to encourage the local innovation that, they found, occurs naturally at all levels of any big company. And they experimented with new techniques for what the author terms "coproducing" technological and organizational innovations with Xerox's customers. Xerox's business is technology, but Seely Brown argues that any company, no matter what its business, must eventually grapple with the issues he raises. The successful company of the future must understand how people really work and must adapt its technology to the work rather than the other way around. It must know how to create an environment that allows for continuous innovation by all employees. McKinsey Award Winner.

Consistent innovation is the key to market leadership. Outstanding companies know that and build their success on it. And other organizations can do the same, the author explains in this HBR article from 1988, by making a systematic effort to concentrate on five key activities. Start at the top. Innovation begins with a CEO or general manager who believes change is the way to survive. Spread that mind-set through the organization by setting challenging, measurable goals; getting everyone focused on beating a specific competitor; and supporting individuals who take risks. Allow innovation to rise. New ideas need champions, sponsors, a mix of creative types (for ideas) and operators (to keep things practical), and separate systems to get ideas to top management early and quickly. Know the competitive dynamics of your business cold. A realistic strategic vision will channel innovative efforts to ideas that will pay off in the marketplace. Determine where innovation lives. Look hard at your customers to find new segments, at your competitors to see what's already working, and at your own business to determine where you can leverage existing strengths. Once an idea is well developed, go for broke. Set priorities. Think through every step of the launch.

In August 2002, Microsoft approached the one-year anniversary of its video game console, the Xbox. The first wave of console systems were available in the United States, Japan, Europe, and Australia, and the second wave of rollouts was targeted for Asian markets: Korea, Taiwan, Hong Kong, and Singapore. Dan Adelman, business development manager for the Xbox, and Brenda Ng, Xbox's consumer strategy and research manager, considered the marketing data for the Korea launch. They needed to analyze the findings of the first report and to identify issues to resolve in a second, follow-up marketing study. Over the course of the next few months, Adelman and Ng would direct the Xbox team in identifying console purchase drivers and deciding what segments of gamers to target and the message to send to the target segments.

Champions of virtual corporations urge managers to subcontract anything and everything. And because several high-profile corporate giants have been outperformed by more nimble, "networked" competitors, the idea of the virtual organization is tantalizing. Many executives have come to believe that a company that invests in as little as possible will be more responsive to a changing marketplace and more likely to attain global competitive advantage. But is that really the best way to organize for innovation? In this HBR article from 1996, Henry Chesbrough and David Teece argue that the virtual corporation has been oversold. Innovation is not monolithic. For some innovations, joint ventures, alliances, and outsourcing can play a useful role. But for others, they are inappropriate--and strategically dangerous. The authors present a framework to help managers determine when to innovate by going virtual, when to form alliances, and when to rely on internal development. They provide a range of cases to illustrate how to match organizational strategy to the type of innovation being pursued. Long-term success requires considerable and sustained investment within a company.

Creativity is often touted as a miraculous road to organizational growth and affluence. But creative new ideas can hinder rather than help a company if they are put forward irresponsibly. Too often, the creative types who generate a proliferation of ideas confuse creativity with practical innovation. Without understanding the operating executive's day-to-day problems or the complexity of business organizations, they usually pepper their managers with intriguing but short memoranda that lack details about what's at stake or how the new ideas should be implemented. They pass off onto others the responsibility for getting down to brass tacks. In this classic HBR article from 1963, the author, a professor emeritus at Harvard Business School and a former HBR editor, offers suggestions for the person with a great new idea. First, work with the situation as it is--recognize that the executive is already bombarded with problems. Second, act responsibly by including in your proposal at least a minimal indication of the costs, risks, manpower, and time your idea may involve. Extolling corporate creativity at the expense of conformity may, in fact, reduce the creative animation of business. Conformity and rigidity are necessary for corporations to function.

Many of the greatest discoveries happen by accident, not design. Innovations often emerge not at the center of a company's field of focus, but at its periphery, hidden in the mass of work done in the pursuit of some other goal. Everyone knows that innovation is risky, and it's rare that you arrive at your expected destination. But maybe the destination isn't so important. Maybe what you should be paying attention to are the little detours along the way: It's down those back roads and byways that the real payoff usually is found. The discovery of penicillin and the creation of e-mail are just two examples of such stumblings into brilliance.

HomeStar's reputation for being "the first, the best, the only" name in appliances is under threat. For the second time in six months, upstart competitor Vanguard has pulled off a market coup: Its retro line of refrigerators, ranges, and dishwashers is a huge hit. Meanwhile, HomeStar's latest big idea--jumbo appliances--is bombing. CEO Hal Marden is chagrined: How did the company lose its edge? Kelly Dowd, HomeStar's head of marketing, blames Charlie Hamad, the company's chief engineer. Charlie is so focused on developing smart appliances--products that can cook, clean, and even shop--that he's lost touch with the changing marketplace, Kelly complains. Global competition is growing, and consumers' tastes are changing. Now, more than ever, churning out new products is critical to HomeStar's success. But Charlie, a 27-year veteran who has spearheaded almost every major technological advance in the industry, pooh-poohs the new, flashy products: "Form over function. Nothing new there but a fancy paint job and higher prices." Hal is torn. Charlie is a hero to him, but what if the market doesn't go for networked appliances? The company simply can't afford to put all its eggs in one basket. What's more, the biggest trade show of the year is just six months away, and HomeStar has nothing new to offer. Vanguard, meanwhile, is making product announcements every quarter. Is it time for Charlie to move on? How can HomeStar get its R&D efforts back on track? In R0208A and R0208Z, four commentators--Ideo's Tom Kelley, Whirlpool's Philip Pejovich, Thayer School of Engineering's Lewis Duncan, and Ealing Studios' John Kao -- offer advice in this fictional case study.

HomeStar's reputation for being "the first, the best, the only" name in appliances is under threat. For the second time in six months, upstart competitor Vanguard has pulled off a market coup: Its retro line of refrigerators, ranges, and dishwashers is a huge hit. Meanwhile, HomeStar's latest big idea--jumbo appliances--is bombing. CEO Hal Marden is chagrined: How did the company lose its edge? Kelly Dowd, HomeStar's head of marketing, blames Charlie Hamad, the company's chief engineer. Charlie is so focused on developing smart appliances--products that can cook, clean, and even shop--that he's lost touch with the changing marketplace, Kelly complains. Global competition is growing, and consumers' tastes are changing. Now, more than ever, churning out new products is critical to HomeStar's success. But Charlie, a 27-year veteran who has spearheaded almost every major technological advance in the industry, pooh-poohs the new, flashy products: "Form over function. Nothing new there but a fancy paint job and higher prices." Hal is torn. Charlie is a hero to him, but what if the market doesn't go for networked appliances? The company simply can't afford to put all its eggs in one basket. What's more, the biggest trade show of the year is just six months away, and HomeStar has nothing new to offer. Vanguard, meanwhile, is making product announcements every quarter. Is it time for Charlie to move on? How can HomeStar get its R&D efforts back on track? In R0208A and R0208Z, four commentators--Ideo's Tom Kelley, Whirlpool's Philip Pejovich, Thayer School of Engineering's Lewis Duncan, and Ealing Studios' John Kao--offer advice on this fictional case study.

Protagonist Frank Ruderman evolved from entrepreneur to traditional angel investor and later to innovative angel or hybrid investor. Ruderman's investing group, Tenex Greenhouse, was created as a hybrid investing fund that brought together Ruderman's angel network with two institutional partners. At the outset of the case, Ruderman is in conversation with an entrepreneur/CEO who is seeking funding from the Greenhouse. Prepared for a class on venture capital, the case can serve as an introduction to angel investing and new innovations in angel investing. The fund in question has developed new techniques for fundraising (institutional partners) and investing (a narrow but deep focus).