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For most of the 20th Century, serious corporations judiciously invested in strategic research and development (R&D) efforts to innovate and bring new products to market. Dedicated teams got patents and top executives carefully monitored results. That traditional R&D paradigm is being challenged.

Michael Schrage, MIT IDE Visiting Scholar, writes that “Disciplined digital design experimentation and test cultures increasingly drive tomorrow’s innovations and strategies. Innovation investments emphasizing Research & Development (R&D) will increasingly yield to practices supporting Experiment & Scale (E&S).”

In today’s high-bandwidth, massively networked environments, he observes, so-called good ideas matter much less; testable hypotheses matter much more. “Tomorrow’s innovations and strategies will increasingly be the products — and byproducts — of real-time experimentation and testing.”

Schrage, who is also a Visiting Fellow in the Imperial College Department of Innovation and Entrepreneurship, discussed the E&S concept in a brief Q&A with MIT IDE Editor, Paula Klein. His blog on the topic can be read on the MIT Sloan Management Review web site here.  

 

Q: What’s wrong with the traditional corporate R&D model? Are there still cases – such as spinoffs or innovation labs -- where R&D has value, say, for long-term or large-scale projects?

 

A: The classic, linear R&D models best exemplified by IBM’s Watson Labs, or the former Bell Labs, GE’s Schenectady, N.Y. headquarters, or Heinrich Caro’s BASF were effective for their time, but that time is past. Ironically, but appropriately, R&D breakthroughs over the past 25 years have shattered the traditional enterprise R&D model. Capital-intensive, linear, proprietary and ‘over-the-wall’ processes -- that translated basic research into preliminary developments, and preliminary developments into prototypes and pilots, and pilots into production processes -- have given way to innovation initiatives that are more op-ex than cap-ex. They are more open, agile, iterative, digital, networked, interdisciplinary, customer-centric and more user-aware than ever. These digital architectures and associated processes typically deliver innovation faster, better and cheaper than their analog predecessors.

 

Innovation is really no longer about better understanding of requirements; it focuses on creatively imagining compelling use cases.

After decades of squandering tens of billions of dollars and Euros boosting R&D budgets, sophisticated entrepreneurs and CEOs better appreciate the power and potential of human capital and creativity over financial capital and proprietary investment.

 

Innovation has become more of an ecosystem capability than a business process. The bottom line KPI is shifting from ‘what new proprietary products and services are coming out of our labs?’ to ‘How can our best customers and prospects get great value from our prototypes, design resources, algorithms and research communities?’

Today’s E&S does a measurably better job of answering that question than yesterday’s R&D. Between the Internet of Things and the ongoing rise of machine learning, the economics of E&S render much of traditional R&D an anachronistic albatross.

 

Q: Where does E&S usually originate: From the top down or from grassroots, bottom-up experimentation? How widespread is it at present?

 

A: If you’re Google, Amazon, Apple, Uber or Netflix, E&S originates from the top-down; there’s nothing like a founder’s imprimatur to get innovators and intrapreneurs to embrace E&S.  If you’re an IBM, PwC, Toyota, BASF or WalMart, there’s a mix. Top executives have to give permission – if not guidance – for an E&S ethos, but you’ve got to give the people closest to the customers and clients both the tools and incentive to experiment.

 

I find it impossible to come up with meaningful estimates as to how pervasive these practices now are, but I would confidently assert that they exist much in the way organizations once talked about shadow apps and bootlegged projects. I’m seeing a lot more cloud-enabled shadow experimentation and exploration with clients, customers and channels. I’m seeing it with digital agencies on the marketing side and with contract manufacturers and post-industrial designers on the supply-chain side.

 

When you look at the innovation tempo and customer response enjoyed by a Netflix, an Amazon or a Facebook, you see that E&S is integral to their current success.

 

Q: How important is corporate culture in the success of a virtual research center? Are there environments where E&S just won’t work?

 

A: This is the question I find most irksome and frustrating. There’s no escaping the painful truth that culture matters most. Most MBAs – and far too many engineers – are educated, trained and rewarded for coming up with plans and analyses rather than running simple, fast, cheap and scalable experiments. In 1995 – maybe even as late as 2005 – the enterprise economics of planning, analysis and pilots were cost-effective innovation-process investments. And while that hasn’t been true for a decade,

too many established organizations have legacy innovation approaches and processes that treat E&S as an end-of-pipeline practice rather than a wellspring of disruptive innovation, inspiration and insight.

It’s reminiscent of the painful 1980s/1990s phenomenon of inspecting quality in instead of designing quality in from the start.

 

These issues, indeed, relate more to cultural inertia than technical competence or economic cost. Plainly put, E&S doesn’t work in executive environments where validating plans is valued over learning-by-doing. Today, leading-by-example has to embrace leading-by-experiment.

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