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Supplement to 609-065

Describes Apple's approach to innovation, management, and design thinking. For several years, Apple has been ranked as the most innovative company in the world, but how it has achieved such success remains mysterious because of the company's obsession with secrecy. This note considers the ingredients of Apple's success and its quest to develop, in the words of CEO Steve Jobs, insanely great products. Focuses on: 1) design thinking; 2) product development strategy and execution; 3) CEO as chief innovator; and 4) bold business experimentation.

The case describes Pfizer's efforts to build and run an innovation center in Cambridge, Massachusetts. As the center goes through different periods of leadership and strategic models, its relationship with the corporation and other research sites is explored. The case study describes in detail the challenges of building an innovation center within a large corporation, including organization, incentives, and scientific issues.

At the heart of business today lies a dilemma: Our economy is increasingly dependent on services, yet our innovation processes remain oriented toward products. In this article, Harvard Business School professor Stefan Thomke points out the challenges of applying the discipline of formal R&D processes to services. Most service companies have not established rigorous, ongoing R&D processes, Thomke says. But the author provides an in-depth look at a five-step process that Bank of America has used to create new service concepts for retail banking. The company has turned a set of its branches into, in effect, a laboratory where a corporate research team conducts service experiments with actual customers during regular business hours, measures results precisely and compares them with those of control branches, and pinpoints attractive innovations for broader rollout. The article describes the program's workings, its successes, and the obstacles the bank faced. The effort reveals an enormous amount about what a true R&D operation might look like inside a service business, he concludes.

Supplements the (A) case.

Describes how Bank of America is creating a system for product and service innovation in its retail banking business. Emphasis is placed on the role of experimentation in some two-dozen real-life "laboratories" that serve as fully operating banking branches and as sites for testing new ideas and concepts. Focuses on: 1) how learning from experimentation can be maximized; 2) incentive and reward systems that motivate employees to experiment in "life" environments; and 3) the challenges of managing innovation in an industry that eschews risks, failure, and change.

Product R&D at many companies is a major bottleneck. The difficulty is that fully understanding the needs of just a single customer can be an inexact and costly process--to say nothing of the needs of all customers or even groups of them. In the course of studying product innovation across many industries, authors Stefan Thomke and Eric von Hippel found several companies that have adopted a completely new, seemingly counterintuitive, approach to product R&D: they have abandoned their efforts to understand exactly what products their customers want; instead, they equip customers with tool kits to design and develop their own products. Doing so can create tremendous value, but capturing that value is hardly a simple or straightforward process. Not only must a company develop the right tool kit, but it must also revamp its business models and management mind-set. When companies relinquish a fundamental task--such as designing a new product--to customers, the two parties must redefine their relationship, and this change can be risky. With customers taking over more of the design, companies must now focus more on providing the best custom manufacturing. In other words, the location where value is created and is captured changes, and companies must reconfigure their business models accordingly. This article offers basic principles and lessons for industries undergoing such transformations.

Supplements the (A) case.

Describes how Siemens, the German electrical engineering giant, has developed and manages global R&D in its large Information and Communications Networks (ICN) division. In 1994, Siemens opened its Bangalore (India) center, which has now grown into one of its largest regional development centers outside Germany. With Bangalore asking for increased resource independence and managerial autonomy, senior management has to decide how the activities in India fit into its global development strategy. This tension is played out in a large software project led by Bangalore developers in which an increase in project autonomy also results in serious technical problems for Siemens in the quality-driven telecommunications equipment industry.

Spreadsheet supplement for 602-061.

Supplements the (A) case.

The high cost of experimentation has long put a damper on companies' attempts to create great new products. But new technologies are making it easier than ever to conduct complex experiments quickly and cheaply. Companies can now take innovation to a whole new level, contends Stefan Thomke, if they're willing to rethink their R&D from the ground up. Thomke argues that new technologies affect everything, from the development process itself--including the way an R&D organization is structured--to how new knowledge is created. So companies that are trying to be more innovative face both managerial and technical challenges. Drawing on his research in the pharmaceutical, automotive, and software industries, Thomke introduces the following four rules for enlightened experimentation: organize for rapid experimentation; fail early and often, but avoid mistakes; anticipate and exploit early information; and combine new and old technologies. The article uses real-world examples to explain each rule in detail. It also suggests how this system of experimentation will affect other industries and examines the implications for knowledge workers.

Bush Boake Allen, a flavor and fragrance firm, is considering strategic options that would integrate customers into its innovation process via a potentially disruptive Internet-based technology. As this approach could result in dramatic changes to the firm's business model and relationship with customers worldwide, Julian Boyden, president, CEO, and chairman, faces serious opposition from senior managers.

Describes IDEO, the world's leading product design firm, and its innovation culture and process. Emphasis is placed on the important role of prototyping and experimentation in general, and in the design of the very successful Palm V handheld computer in particular. A studio leader is asked by a business start-up (Handspring) to develop a novel hand-held computer (Visor) in less than half the time it took to develop the Palm V, requiring several shortcuts to IDEO's legendary innovation process. Focuses on: 1) prototyping and experimentation practices at a leading product developer; 2) the role of playfulness, discipline, and structure in innovation processes; and 3) the managerial challenges of creating and managing an unusually creative and innovative company culture. Includes color exhibits.

Spreadsheet supplement for case 600-143.

This team exercise allows students to experience some of the dynamics of developing products in the fast-paced Internet environment and was inspired by the browser war between Netscape and Microsoft. Designed to be taught in a single class session, the exercise introduces various sources of uncertainty (e.g., various press releases, different team sizes) that make the task of designing a development process particularly challenging. Student teams have to make decisions on organization, features, milestones, testing, and integration in a period of about 30 minutes and present their results to the rest of the class.

Focuses on Millennium's strategy to grow and revolutionize drug development through the use of new technologies such as genomics. Describes how Millennium Pharmaceuticals--a fast-growing biotechnology firm in Cambridge, MA--has used strategic alliances to finance the development of technology platforms based on the latest breakthroughs in genomics. As the firm considers developing pharmaceutical drugs itself, they face a number of challenges: 1) Can they revolutionize drug development by making it more predictable, faster, and less costly? 2) How should they select their alliances such that they move closer to becoming a pharmaceutical firm and still attract the funding needed for their strategy? 3) How can they continue to grow rapidly and attract and retain some of the best minds in the pharmaceutical industry?

Focuses on the ongoing competitive battles in the global home video game market that is estimated to exceed $15 billion by 1999 in the United States and Japan alone. Describes how Sega Enterprises has redesigned its development processes to create a revolutionary 128-bit video game console (named Dreamcast). Having lost its leading position in an accelerating market to Sony's Playstation console, Sega is trying to reclaim its former position through an aggressive entry strategy in the Japanese market. Integral to this strategy is the ability to bring its Dreamcast console to market rapidly and to manage its relationships with independent game developers. Focuses on: 1) hardware and game software development, 2) the role of market share in an environment of increasing economic returns, and 3) the dynamics of market entry strategies as a function of development capabilities and competitive responses.

Supplements the (A) case.

Describes how firms can learn from projects through postmortem analysis. Focuses on the step-by-step process of preparing and running a postmortem meeting as it is done at Microsoft and other software developers.