A couple of weeks ago I was at Lucent headquarters where I saw their hall of fame, which is a walk down memory lane, in this case the highlights of innovation of Bell Labs over the years.
The trip reminded me of the great book “Open Innovation” by Harvard Professor Henry Chesbrough. It reviews how much innovation changed from the era of Bell Labs, Xerox Parc to today’s VC-funded innovations in startups.
His core question in the book is of Xerox Parc:
How could a company that possessed the resources and vision to launch a brilliant research center—not to mention the patience to fund the center for more than thirty years, and the savvy to incorporate important technologies from it—let so many good ideas get away?
Hopefully these ideas are no longer getting away given the vast network of angels, VCs continuing funding innovation. More importantly as startups’ exits are increasingly through corporate acquisitions vs. IPOs, it is clear that innovation has found a nice balance of inhouse R&D and acquired innovation (M&A) by the new corporate innovators like Google,Yahoo and others.
While many technology companies are buying market share or expanding existing lines through acquisitions, the integration of new innovation continues as a major motive in M&A and more importantly as the fuel for the broadening innovation boom.
Mercer Consulting’s analysis of product cycles vs performance of high tech companies points to product saturation as the main killer of growth. They argue something that maybe counter to the history of technology firms: that technology companies built on innovation (vs marketing and other competencies) are highly unstable business models.
In that sense outsourcing or acquiring innovation may be the lowest risk business model if it is combined with increased focus on customer relationships, improved customer economics and better value propositions. Their research points out:
Very few high-tech companies have converted a hot product into an enterprise relationship. Those that have bucked the bottle-rocket pattern have done so by taking a customer-centric approach to stabilize against the inherent risks of product-centric growth.
So their prescription is marketing and customer intimacy as core competence and product innovation as an outsourced capability. It sure is in line with what we can observe with Microsoft, Google, Yahoo and Oracle and there is a lesson for all the Web2.0 innovators in the M&A queue.
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Technorati Tags: Acquisitions, Bell Labs, business models, core competency, Enterprise 2.0, entrepreneurs, Harvard, Henry Chesbrough, Innovation, M&A, Mercer, success, Venture Capital, Web 2.0, Xerox Parc
