4th Generation R&D

Managing Knowledge, Technology, and Innovation

William L. Miller and Langdon Morris; John Wiley & Sons, Inc., New York NY; 1999;
www.allbusiness.com
Asserting that business organizations have largely failed in their attempts to bring about innovationespecially radical innovation-William Miller and Langdon Morris set out "to understand the problem
of innovation and to identify how it can be corrected." As R&D professionals (Miller at Intel and
Morris at KMLab), their method is to combine conceptual descriptions with illustrative examples
that include the XeroxDocuTech, Apollo 13, Nike Town, Ford Tri-Motor, Motorola's New
Enterprises Group, Hewlett-Packard's Test and Measurement Organization, and Intel.
To frame the problem, they quote the 1997 Harvard Business Review article by John Seely Brown,
chief scientist at Xerox: "The great challenge in innovation is linking emerging technologies with
emerging markets. If it were just a matter of linking emerging technologies with existing markets (or
vice versa), the coupling would be relatively easy. But when both are emerging, it is a delicate,
coevolutionary process: as technologies emerge, they affect the markets, and as markets emerge,
they influence the technologies."
Resolving the problem, write Miller and Morris, requires "a complete rethinking of innovation
practice." It is this model they call 4th generation R&D, the practice of which will enable both
continuous and discontinuous innovation.
Following their introduction to 4th generation R&D, they devote a chapter to each of the following:
* The broad structure of the market and its evolution (the "competitive architecture").
* The development of products and services within this market ("organizational capability").
* The knowledge channel and market development.
* Managing knowledge and financial assets.
* Issues related to the design of the organization ("organizational architecture").
* How this design supports the ongoing development of organizational capability.
* A complete description of the new innovation business process.
From this structure emerges:
* How to master the linkage between strategy, innovation and R&D.
* Why conventional market research is not sufficient - and what is.
* How to use the Internet as a critical component of the innovation process.
* The vital difference between tacit and explicit knowledge, and how to combine them for
effective knowledge management.
* How the new organizational models used in leading organizations like Ford, HewlettPackard and Intel are critical to success.
* The difference between continuous and discontinuous innovation, and how to make an
organization effective at both.
In concluding, Miller and Morris observe that "Achieving success at innovation requires that one
grapple with complexity, ambiguity, contradictions, unclear signals, and paradox, for neither
innovation nor technology is black and white." By presenting a framework for using R&D to drive
innovation throughout an entire organization, the authors have provided a means of harnessing
creativity and disciplined business process in a coherent approach to the central organizational
challenge of a new century.
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Another generation for R&D

Chemistry and Industry, August 7, 2000 by Peter Bamfield
Fourth generation R&D: managing knowledge, technology, and innovation W- Miller & L. Morris
How many generations of R&D can we expect? Well apparently at least four!
The high points of the first-generation R&D departments occurred in the mid - 20th century. Largely
left alone, they came up with new inventions, which the burgeoning (comming up, naciente)
development and engineering skills of large organizations turned into products and delivered to
expectant and receptive consumers. Innovation step changes were large, as with the arrival of
manmade fibres in the 1940s and 1950s. 1G: 40s to mid 60s. 2G: 70s to 80s
Naturally, this happy state of affairs did not last. By the mid-1960s, every major chemical company
had set up its own R&D department -- often centralised within its organization -- and by this time,
many of the newer businesses had matured. Just having a large R&D department was no longer a
competitive advantage; it needed to be more focused. Marketing provided specific business targets
for research, in the form of project portfolios, and became integral to the process. By using project
management techniques to monitor progress, put measures in place (to evaluate cost-effectiveness)
and modify its course, R&D was already in its second generation of development. Into the 1980s,
businesses were heavily customer focused and R&D had to deliver to market needs as rapidly as
possible, in order to underpin business development. At higher management levels, however,
business support was often missing, inhibiting the innovation contribution to a company's wellbeing.
In 1991, the third-generation R&D, from AD Little, came up with a methodology for addressing this
issue. At the core of its thinking was the requirement for each business to have an integrated
strategic plan for its development, in which the role of R&D was clearly defined. The innovation
process was to be managed by a team from the breadth of the organization, using portfolio
management and technology road maps for each business. The third-generation R&D fitted in neatly
with prevalent business strategies; aligning R&D more closely with strategic business units became
a driving force, encouraging the demise (downfall, death) of the central research function.
This methodology did not escape criticism; whilst seen as an excellent driving force for research
geared towards the existing market needs, it was seriously lacking when it came to step change or
discontinuous innovations.
William Miller and Langdon Morris now address these shortcomings by what they call 'fourthgeneration R&D'. 'Knowledge management' has been the hot topic in recent years and is at the heart
of fourth-generation R&D thinking. Here the unmet, or latent, needs of customers are to be
identified from their tacit rather than explicit knowledge, normally generated by traditional market
research. They see sharing knowledge, including testing technologies, with customers and other
stakeholders as essential, at each stage of any discontinuous innovation. (Focus in discontinuous
innovation)
The final chapter describes a new business process for protecting discontinuous innovation during
its formative period, bringing it to fruition and ensuring its development. This is an excellent and
thought-provoking book that deserves to be as widely read as it's third-generation precursor, upon
which its thinking is built, and certainly well before the fifth-generation appears!
Peter Bamfield is an independent consultant and author of 'Research and development management
in the chemical industry' (VCH, 1996).
COPYRIGHT 2000 Society of Chemical Industry

4th Generation R&D

Managing Knowledge, Technology, and Innovation
Excerpts (extract) from

Innovation labs - http://www.innovationlabs.com/4Gpub2c.html

Continuous and Discontinuous Innovation

The difference between continuous innovations that comply with the
standards of existing markets and discontinuous innovations that supplant
them is critical.
Continuous innovation is incremental, and takes place within existing
infrastructures. It builds on existing knowledge in existing markets without
challenging underlying strategies or assumptions. We can visualize the
domain of continuous innovation as a circle containing the established
knowledge of suppliers and customers in a particular market or field.
Figure 1.2 - Continuous innovation
Continuous innovation occurs within the boundaries of this known world. It works when the future
competitive requirements of customers can be met within existing industry structures, an existing
competitive architecture. As indicated by the inward-pointing arrows, continuous innovation is
characterized by convergent thinking, by progressive refinements, increasing focus, and therefore
increasing specialization.
Strategies for continuous innovation include portfolio planning, five forces analysis, and
globalization through regional subsidiaries that stay close to customer needs. The awareness of
core competencies also turns the focus inward, while the emerging resource-based view of the firm
proposes integrating internal and external views by better gauging the value of resources.
But continuous innovation is clearly not sufficient unto itself. As Joe Marone, Dean of Rensselaer
Polytechnic Institute has commented, "We know that there is overwhelming emphasis on the virtue
of continual incremental improvement, yet every time we look at any successful company that has
emerged over the last 30 years in a technology intensive field, and in fact throughout any period of
industrial history, you will always find a pattern of big leaps into major new product lines, which are
then followed by the efforts to stay ahead. And yet while we know an awful lot about practices of
continual improvement, we seem to know very little about how to manage the discontinuous
innovations. It may well be that the practices that we have learned for continuous improvement are
not only inappropriate for discontinuous innovation, but may actually be detrimental."
Discontinuous innovation brings forth conditions that emanate from
fundamentally different new knowledge in one or more dimensions of a
product or service compared to what has come before, offering significantly
different performance attributes. The difficulty that is so commonly
experienced in achieving successful discontinuous innovation is precisely
that it requires new knowledge, knowledge that is not available when you
are looking only on the inside.
The domain of discontinuous innovation is therefore everything outside of
the circle.
Fig 1.3 - Discontinuous innovation

Discontinuous innovation falls outside of existing markets or market segments, and when
successful extends and redefines the market, exposing new possibilities. As indicated by the
outward-pointing arrows, discontinuous innovation is characterized by lateral or divergent thinking,
by looking outside of defined boundaries, and by discovery of new knowledge related to both
market need and technological capability. Discontinuous innovation leads to aggregated domains of
knowledge that support new capabilities.
Success at both continuous and discontinuous innovation are driven by "forced questioning" about
the limits of existing capabilities, and by asking the right questions and probing at the edges of
existing knowledge to understand what new possibilities may exist that have not yet been
recognized or considered. It would be trite (commonplace) to say that the kinds of questions you
ask determine the kinds of answers you receive, were it not for the fact that deep, fundamental
questions are simply not being asked in so many organizations. Prevalent cultural barriers widely
preclude precisely the kinds of inquiry that are needed. Until and unless such questions are asked,
deep and fundamental answers about the evolution of companies, markets, and industries will not
be uncovered in time to do anything about it, nor will leadership be achieved.
Discontinuous innovation is more than the shift from horses to automobiles for personal
transportation, an inconceivable thought for those focused on four-legged capabilities. It includes
the shift from urban to suburban communities that offer new lifestyles created by real estate
development that is based, in turn, on new highways that also bring new patterns of traffic and new
forms of congestion,
Discontinuous innovation does not just bring change in the simple sense, but change in a deep and
systemic way that is fundamental and far-reaching. It affects not only products and services, but
also the infrastructures that are integral to their use, and the extensive chains of distribution that
may involve dozens or hundreds of affiliated and competing companies and industries.
Hence, it is the shift from family to factory farms, impossible without the tractor, the truck, the
railroad, the ship, and global markets; the shift from typewriters to personal computers, completely
unpredictable before the microprocessor; or the shift from live performance to radio and television
broadcasting for entertainment, news, and advertising, inconceivable before modern
communications.
Discontinuous innovation is dramatic, and it is also inevitable when the requirements of customers
can no longer be met within the existing framework of capability. This often happens because new
combinations or aggregations of knowledge, tools, technology, and processes change the
underlying character of customer need by changing the boundaries of what is possible. In fact, new
knowledge continually creates new realities.
But discontinuous innovation also brings with it a price in the form of entirely new rules of
competition. It invalidates entire companies and even entire industries even as it creates new ones.
There was once, for example, a global infrastructure to distribute kerosene for lighting, and another
to distribute ice for cooling. Both were highly developed, extremely sophisticated for their times, and
highly profitable for extended periods. But both are now mostly forgotten, displaced by the evolution
of technology in the shift from one dominant business model to another.
More recent examples are the rapid evolution of the computer and communications industries that
drastically impacted industry leaders IBM and AT&T. Both companies shed hundreds of thousands
of employees in the early 1990s as discontinuity reached their worlds, and both continue to
reshape themselves still. In addition to its impact in computers and telecommunications,

discontinuous innovation is reshaping the airline industry, the auto industry, banking, retail, credit
cards, securities, entertainment, and even the staid world of electrical generation and distribution.
No business can protect itself fully from the impact of discontinuous change.
In the marketplace, discontinuous innovations are successful only if a new value proposition offers
a significant improvement on at least one of the three performance axes: features, benefits, and
cost. In the words of Rensselaer Polytechnic Institute Dean Joe Marone, "The performance gain
must be five to ten-fold or have a 50% reduction in costs, or both."
The switch from the typewriter to the PC, for example, required not only the purchase of expensive
equipment, but also training in its use. Once a PC user attained experience with particular
application programs, the investment of additional time that was required to switch to different
programs became a significant burden, so users stayed with obsolete software rather than incur the
cost of switching to new programs, or even newer versions of the same program.
Similarly, an audiophile who switches from long-playing records to compact discs must repurchase
an entire music library, title by title.
Hence, the new economics of "increasing returns" described by Stanford Professor Brian Arthur
suggests that when an innovation does become dominant, so much knowledge is attached to it that
it gets "locked-in." The cost to switch is too high, showing that the structure of the market, its
architecture, is inseparable from the knowledge-enabled capability of end users.
While discontinuous innovations force major shifts in both architecture and capability, continuous
innovations are absorbed relatively effortlessly. They are easier to achieve, as they draw upon the
existing market framework, infrastructure, and tacit knowledge of customers, suppliers, and other
stakeholders. As they are more narrowly and incrementally focused, they do not require conceptual
leaps, massive amounts of new knowledge, nor the huge risks that accompany dealing with the
unknown. Hence, they are also more comfortable innovation targets. As Chip Holt, Corporate Vice
President of the Wilson Center for Research and Technology of Xerox has observed, "People have
a tendency to focus in on the things they're most comfortable with and work them to death."
In a stable world there would be no call for discontinuous innovation, and continuous innovation
would suffice for every need. But the reality of today is exponential change that takes many forms.
One element is the influx of new technologies that drive a positive feedback cycle from which there
is no escaping. If you want to remain viable in a competitive market, you must engage in the same
cycle of technology development that your competitors are pursuing.
Figure 1.4 - Positive feedback in technology-driven markets

To remain viable in a competitive market, companies

inevitably pursue proprietary technical advances. This
leads to further specialization, which drives increasing
change. There is no graceful way to exit the loop.
The threat of unexpected competition, the risks of
industry evolution, and compression of the sales cycle
makes mastery of discontinuous innovation not a
desirable adjunct but a vital necessity.

Fig. 1.5 - Compression of the sales cycle

It is no longer enough merely to keep up through incremental innovation in existing markets and
market segments (although few companies seem to be doing even that). Today success is defined
by leadership, and leadership is achieved not only by evolving today's products and services, but
more powerfully by evolving and even redefining the very industries in which competition takes
place. This requires not just managing discontinuities in the marketplace, but creating new
discontinuities. These are frequently seen as revolutions or ruptures, and achieving them is the true
and enduring purpose of innovation; describing how to achieve them is the purpose of this book.
While continuous innovation is focused on existing needs, discontinuous innovation is driven by
questions about the future needs of customers, needs that are rarely articulated. In fact, they may
not be able to be articulated at all, and so the only effective way to understand future needs is for
customers to participate in the innovation process. Only when researchers work jointly with
customers can this hidden knowledge be exposed, and only after tacit needs are exposed and
understood is it effective to consider the role that technology should play in fulfilling them.
Therefore, the discontinuous innovation process is a mutually dependent learning process in which
customers must experience what is possible in order to determine what may be of value for the
future. The process is driven not by technology itself, but by how technology is used. Hence, the
role of R&D changes significantly from the 3rd generation to the 4th.