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Breakthrough Innovation and The Innovation Cube

Since the 1990s due to a variety of factors, big businesses have been moving away from large central R&D investments and beginning to experiment with new business models and organizational approaches to innovation. However, how best to optimize investments in innovation while staying ahead of the competition, especially new entrants, continues to elude big businesses.

Discussions about Innovation are increasingly diverse and often the term Innovation is used to mean different things in different contexts. Booz & Co (1), The Oslo Manual (2), Christensen (3, 4), Chesbrough (5, 6), and Muju (7) they each define innovation and types of innovation from various perspectives, each relevant in its context.

To address the central message of this article we will adopt the three segment groupings based on scope and impact, KPMG (8), dividing innovation spectrum into,

  1. Incremental innovation - high levels of certainty about business environment and typically about making small changes to existing products/services/business models,

  2. Evolutionary innovation - moderate amount of uncertainty regarding business environment and represents extension to existing products/services/business models, and

  3. Revolutionary or Radical Innovation - involving high levels of uncertainty about the business environment and represents significant departure from organizations previous products/services/business models and could even lead to industry-level disruption.

Big businesses do well when they nurture and provide the suitable environment for conducting evolutionary and incremental innovations internally. However, various R&D models of post-World War II era have shown that the benefits company derives out of internal revolutionary innovation efforts is spotty at best and rarely sustainable. Well-known internal corporate R&D and innovation centers like AT&T Bell Labs and Xerox PARC have been quite prolific in generating new innovations in post-World War II era and even received a number of Nobel prizes. However, the benefits accruing to the parent company have not been sustainable from a business stakeholder perspective inevitably leading to repurposing or spin-offs of these R&D units.

Bernard Munos (9) comments regarding Big Pharma’s Freshness Index that in 2012 “.. the top 13 big pharma reported the sales of 314 products, representing 79% ($309 bn) of their pharmaceutical sales ($391 bn). … only 10% of sales from reported products ($32 bn) came from drugs approved since 2007, and only 48% ($150 bn) from drugs approved during the last 12 years, which approximates the effective patent life of medicines. Paradoxically, the majority of sales from pharma’s biggest products ($159 bn) comes from drugs approved before 2001, that are either generic or about to become so.”

Further, Jim Carroll (10) wrote “big pharma’s 10 biggest companies spent $50 billion on R&D last year. For that sum, they could buy the entire US biotech industry, excluding the top five companies. Yet, 3/4 of all newly approved drugs approved came from small biotech labs.”