Managing the “Unmanageable”

In recent decades, one of management’s objectives has been to add discipline to innovation. Companies have greatly improved the efficiency of new-product development, and managers have been able to draw on a variety of processes, methods, and tools to maximize the return on their R&D investment.

Unfortunately, these advances have had the unintended consequence of discouraging radical innovation: technical breakthroughs that render existing products obsolete or that create new markets altogether. In this report, we look at products—not services or business model innovation. Unlike incremental innovation, radical innovation involves a great deal of uncertainty—the very quality that is not tolerated by most management techniques.

As a result of this intolerance for uncertainty, companies have been undertaking less and less radical innovation. A recent study by the Product Development and Management Association found that radical innovation accounted for only 10 percent of an average company’s innovation portfolio, down from 21 percent in 1990. As the new productivity measures gained traction, managers naturally gravitated to projects that succeeded under the new constraints. More and more, breakthrough projects with high failure rates and less predictability lost out when investment priorities were set.

Breakthroughs are an important source of competitive advantage. Although incremental improvements help maximize returns on existing investments, radical innovations are vital to long-term growth and profitability. While challenging to carry off, they can deliver great value. Radical innovations are essential for progress in society at large. Fortunately, there is a way to bring order and efficiency even to highly uncertain projects.