Many companies looking for breakthroughs struggle to move beyond incremental ideas, because cognitive biases trap people in the status quo and prevent them from seeing big opportunities. But four tactics can help firms overcome biases and think far more creatively: (1) Science fiction. Sci-fi writers have foreseen all kinds of innovations. When Lowe's invited some in to envision its future, it got ideas for augmented reality phones, service robots, 3-D printing, and other new technologies that boosted sales. (2) Analogies. These can help innovators make big leaps too. For instance, when Charlie Merrill applied the analogy of a supermarket to the brokerage business, he changed the industry. (3) First principles logic. Often it helps to reexamine foundational assumptions and rebuild from the ground up. That's how Regeneron cut drug development costs 80%. (4) Exaptation. Why do we use something for one purpose and not another? Asking that question led to the creation of the Flex-Foot, a revolutionary prosthetic that doesn't look anything like a foot but acts like one.

In an increasingly digital and connected environment, leaders of established companies frequently find themselves facing opportunities that they--or even their industries--cannot seize alone. Instead of relying on start-ups to create innovations and then buying in to them, organizations are taking part in a process that the authors call "ecosystem innovation," collaborating to develop and then commercialize new concepts. Cisco Hyperinnovation Living Labs (CHILL) differs from seemingly similar approaches, such as R&D alliances, because it focuses on the fast and agile commercialization of ideas without a complicated intellectual property agreement. It also differs from traditional partnership efforts, because it brings multiple partners together at a very early stage all at once. In this article the authors discuss how large companies can develop their own ecosystem innovation capabilities, using Cisco's process as an example. They describe the basic principles and the process, identify the most common traps, and explain how leaders can capture valuable opportunities. The process allows companies to bring extremely diverse ideas, skills, and resources together to solve ecosystem-level problems at an astonishing speed.

Like any corporate operation, innovation requires effective leadership. But it's a different kind than the core business calls for, involving skills and tactics many executives have yet to master. The authors' study of companies that consistently launch novel offerings and enter new markets reveals the process that successful innovation leaders follow--one that draws on risk-reduction ideas developed over the past 50 years. This process, which the authors call the innovator's method, is at heart a journey of discovery, and so the role of the person leading it is to set other people down a path and demonstrate a willingness to push boundaries and embrace uncertainty. Indeed, the innovation leader is not the chief decision maker but the chief experimenter, helping to identify critical assumptions on which new offerings are based, fashion experiments to test those assumptions with customers, and interpret the results. Preparing the organization to accept novel ideas is a crucial part of the job. Innovation leaders can do that by emphasizing that the process is aimed at minimizing the risks of innovation in the same way that other organizational processes minimize core operational risks. Finally, the innovation leader must give team members not just time (uninterrupted blocks are best) but also the resources and tools to explore the unknown.

The "free" business models popularized in the digital world by companies such as Google, Adobe, and Mozilla are spreading to markets in the physical world. How should established companies respond? The authors have found that some are too quick to offer free products of their own. Many more either don't move quickly enough or simply fail to respond at all, even when they have the resources to win a head-to-head battle. Consider the reluctance of almost all U.S. newspapers to counter the attack on their classified advertising business from Craigslist. To determine the level of threat posed by a free-product rival, a company should assess the rate at which its own paying customers are defecting versus how quickly the entrant's user base is growing. Most incumbents can fend off the assault by introducing a better free offering and generating revenues and profits through up-selling, cross-selling, selling access to their customers, and bundling the free product with paid offerings. Embracing free strategies is not easy for managers at established companies. One obstacle is the profit-center structure, which makes it impossible to consider a product's revenues and costs separately. Another is the cost accounting system, which is not good for identifying the actual expense of generating additional offerings. To overcome these challenges, managers can push profit responsibility up, push revenue and cost responsibilities down to separate groups, and step back from the cost accounting system. They may find pricing flexibility they didn't realize they had.

"How do I find innovative people for my organization? And how can I become more innovative myself?" These are questions that stump most senior executives, who know that the ability to innovate is the "secret sauce" of business success. Perhaps for this reason most of us stand in awe of the work of visionary entrepreneurs such as Apple's Steve Jobs, Amazon's Jeff Bezos, eBay's Pierre Omidyar, and P&G's A.G. Lafley. How do these individuals come up with groundbreaking new ideas? In this article, Dyer, of Brigham Young University; Gregersen, of Insead; and Christensen, of Harvard Business School, reveal how innovative entrepreneurs differ from typical executives. Their study demonstrates that five "discovery skills" distinguish the most creative executives: Associating helps them discover new directions by making connections among seemingly unrelated questions, problems, or ideas. Questioning allows innovators to break out of the status quo and consider new ideas. Through observing, innovators carefully and consistently look out for small behavioral details - in the activities of customers, suppliers, and other companies - to gain insights about new ways of doing things. In experimenting, they relentlessly try on new experiences and explore the world. And through networking with diverse individuals from an array of backgrounds, they gain radically different perspectives.

How can companies break into attractive markets, where incumbents erect many barriers to entry? To answer this question, the authors studied organizations that successfully entered the most profitable industries in the United States between 1990 and 2000. When they dissected the strategies that worked best, one common theme stood out: indirect assault. Smart newcomers don't duplicate existing business models, compete for crowded distribution channels, or go after mainstream customers right away. Instead, they attack the enemy at its weakest points; then gain competitive advantage; and later, if doing so meets their objectives, go after its strongholds. Recent battles in the soft drink industry--where brands, bottling and distribution capabilities, and shelf space are incumbents' main advantages--are a case in point. When Virgin Drinks entered the U.S. cola market in 1998, it advertised heavily and immediately tried to get into the retail outlets that stock the leading brands. Virgin has never garnered more than a 1% share of the market. Red Bull, by contrast, came on the scene in 1997 with a niche product: a carbonated energy drink. The company started by selling the drink at bars and nightclubs. After gaining a loyal following through these outlets, Red Bull elbowed its way into the corner store. In 2005 it enjoyed a 65% share of the $650 million energy drink market. Successful entrants use three basic approaches in their indirect attacks. They leverage their existing assets and resources, reconfigure their value chains, and create niches. These approaches may appear to be simple, but their magic lies in their combination. By mixing and matching them, Bryce and Dyer say, enterprises can defy half a century of economic logic and make money entering highly profitable industries. The authors use Skype, Costco, Skechers, and many other companies to illustrate their argument.

Acquisitions and alliances are two pillars of growth strategy. But most businesses don't treat the two as alternative mechanisms for attaining goals. Consequently, companies take over firms they should have collaborated with, and vice versa, and make a mess of both acquisitions and alliances. It's easy to see why companies don't weigh the relative merits and demerits of acquisitions and alliances before choosing horses for courses. The two strategies differ in many ways: Acquisition deals are competitive, based on market prices, and risky; alliances are cooperative, negotiated, and not so risky. Companies habitually deploy acquisitions to increase scale or cut costs and use partnerships to enter new markets, customer segments, and regions. Moreover, a company's initial experiences often turn into blinders. If the firm pulls off an alliance or two, it tends to enter into alliances even when circumstances demand acquisitions. Organizational barriers also stand in the way. In many companies, an M&A group, which reports to the finance head, handles acquisitions, whereas a separate business development unit looks after alliances. The two teams work out of different locations, jealously guard turf and, in effect, prevent companies from comparing the advantages and disadvantages of the strategies. But companies could improve their results, the authors argue, if they compared the two strategies to determine which is best suited to the situation at hand. Firms, such as Cisco, that use acquisitions and alliances appropriately grow faster than rivals do. The authors provide a framework to help organizations systematically decide between acquisition and alliance by analyzing three sets of factors: the resources and synergies they desire, the marketplace they compete in, and their competencies at collaborating.

This is an MIT Sloan Management Review article. Many companies keep their suppliers and partners at arm's length, zealously guarding internal knowledge. Toyota Motor Corp., however, embraces its suppliers and encourages knowledge sharing through established networks. Toyota has developed interorganizational processes that facilitate the transfer of both explicit and tacit knowledge. The three key processes revolve around supplier associations (for general sharing of information), consulting groups (for workshops, seminars, and on-site assistance from Toyota), and learning teams (for on-site sharing of know-how within small groups). With Toyota's help, suppliers have fine-tuned their operations until, compared with their work for Toyota's rivals, they have 14% higher output per worker, 25% lower inventories, and 50% fewer defects. Quality improvements enable Toyota to charge price premiums for its products. Toyota's experience suggests that competitive advantages can be created and sustained through superior knowledge-sharing processes within a supplier network. The authors believe those principles have applicability in other types of alliances, too, including joint ventures. In fact, they contend that establishing effective interorganizational knowledge-sharing processes with suppliers and partners can be crucial for any company. The authors claim that knowledge sharing with suppliers is the reason for Toyota's dynamic learning capability and might be the company's one truly sustainable competitive advantage.

This is an MIT Sloan Management Review article. New research shows that among today's numerous strategic alliances, the most successful are in companies with a department specifically assigned to oversee alliances. Management professors Jeffrey H. Dyer, Prashant Kale, and Harbir Singh came to that conclusion after conducting an in-depth study of 200 corporations and their 1,572 alliances. They set out to discover why some companies manage alliances effectively when others fail. They found that organizations such as Hewlett-Packard, Oracle, Eli Lilly & Co., and Parke Davis, which excel at generating value from alliances, have a dedicated strategic alliance function. Companies with a dedicated function were better at solving problems related to the four key alliance management elements: knowledge management, external visibility, internal coordination, and accountability. A dedicated function, the authors show, acts as a focal point for learning and for leveraging feedback from prior and ongoing alliances. It systematically establishes processes to articulate, document, codify, and share alliance know-how. One benefit of creating an alliance function was that it compelled companies to create metrics for evaluating the performance of all their alliances. And regular evaluations alerted senior managers to intervene when a particular alliance was struggling. Many companies with dedicated alliance functions report codifying alliance management knowledge. They create guidelines to help with specific aspects of the alliance life cycle, such as partner selection or alliance negotiation. When done properly, dedicated alliance functions offer internal legitimacy to alliances, assist in setting strategic priorities, and draw on resources across the company.

This study of 453 supplier-automaker relationships in the United States, Japan, and Korea examines the extent to which automakers manage their "arm's-length" and "partner" suppliers differently. The findings indicate that U.S. automakers have historically managed the majority of their suppliers using an arm's-length model, Korean automakers have managed suppliers primarily as partners, and Japanese automakers have somewhat different relationships with suppliers depending on the nature (i.e., degree of asset specificity and value) of the component. Only Japanese automakers have strategically segmented suppliers in such a way as to realize many of the benefits of both the arm's-length as well as the partner models. Firms should think strategically about supplier management and should not have a "one-size fits-all" strategy for supplier management.

Many U.S. managers want to enlist their suppliers in their efforts to develop products faster and to reduce manufacturing costs. But they have wondered whether they can have the sort of mutually supportive relationship that characterizes manufacturers and suppliers in a Japanese keiretsu. Chrysler Corp. shows that the model can indeed be adapted successfully. Chrysler's relationship with its suppliers used to be one of mutual distrust and suspicion. At the end of the 1980s, however, dire financial straits convinced the company that it had to rethink its supplier relations. The resulting new model has played a major role in Chrysler's stunning revival.

U.S. managers know that the formidable success of Japanese automakers stems to a great extent from their close relationships with suppliers. Toyota, Nissan, and others, working closely with their respective lean-production networks of parts suppliers, produce high-quality vehicle models quickly and inexpensively; competitors rooted in traditional mass-production operations, which have typically compelled manufacturers to keep suppliers at arm's length, are left struggling to catch up. Most competitors know that a key factor in the success of Japanese network relationships is the practice of dedicating supplier assets to the customer. Nevertheless, many U.S. managers still do not fully appreciate just how profitable the practice of using dedicated assets can be. A two-year study that Jeffrey Dyer conducted of production networks in the auto industry strongly reinforces the contention that dedicated assets provide Japanese manufacturers with substantial competitive advantages. U.S. managers who face closing plants, building plants, or changing suppliers have much to learn from their Japanese competitors.