Academic journal article The McKinsey Quarterly

Software-Based Innovation

Academic journal article The McKinsey Quarterly

Software-Based Innovation

Article excerpt

A Reprint from Sloan Management Review

A revolution is now underway. Most innovation occurs first in software.(1) And software is the primary element in all aspects of innovation from basic research through product introduction:

* Software provides the critical mechanism through which managers can lower the costs, compress the time cycles, and increase the value of innovations. It is also the heart of the learning and knowledge processes that give innovations their highest payoffs.

* In many cases, software is the core element in process innovations or in creating the functionalities that make products valuable to customers. In others, software is the "product" or "service" the customer actually receives.

* Software provides the central vehicle enabling the inventor-user interactions, rapid distribution of products, and market feedback that add most value to innovations. Consequently, customers - and the software itself make many inventions the company's technologists, acting alone, could not conceive.

All this demands a basic shift in the way managers approach innovation from strategic to detailed operational levels. Some portions of the innovation process may still require traditional physical manipulation, but leading companies have already shifted many steps to software. And those who do not will suffer. Managers can shorten innovation cycles through other means, but through properly developed software, they can change their entire innovation process, completely integrating, merging, or eliminating many formerly discrete innovation steps.(2) In the process, they can dramatically lower innovation costs, decrease risks, shorten design and introduction cycle times, and increase the value of their innovations to customers.

Software dominates all innovation steps

Innovation consists of the technological, managerial, and social processes through which a new idea or concept is first reduced to practice in a culture. Discovery is the initial observation of a new phenomenon. Invention provides the first verification that a real problem can be solved in a particular way. Diffusion spreads proved innovations broadly within an enterprise or society. All are necessary to create new value. Software dominates all aspects of the cycle from discovery to diffusion.

Basic research. Most literature searches, database inquiries, exchanges with other researchers, experimental designs, laboratory experiments, analyses of correlations and variances, hypothesis testing, modeling of complex phenomena, review of experimental results, first publication of results, enhancements to existing databases, and so on are performed through software. To a large extent, software search tools determine what data researchers see and what questions they ask. In many frontier fields - like astronomy, semiconductors, or biotechnology - researchers may be able to observe, measure, or precisely envision phenomena only through electronic measures or electronic modeling (software).

For example, in 1991, a group at IBM's Watson Research Center completed calculations from a full year's continuous run on its high-powered GF 11 computer. based on known physical evidence, the group had established the masses of seven basic particles, including hadrons, important in quark research. By 1995, two further years of calculations had established both the mass and the decay rate of an elusive subfamily of hadrons, called glueballs, which had gone unrecognized in preceding laboratory experiments. These massive computations had both discovered a new particle and provided an important confirmation of quantum chromodynamics, the theory governing the behavior of quarks.(3)

Applied research. Most of the above activities are common to applied research as well. However, at this stage practical data about market, economic, or performance phenomena become important. Most major innovations are preceded by a defined need. …

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