The price of failure is plummeting, thanks to technology

Technology enables companies to test new ideas at speeds—and prices—that were unimaginable even a decade ago.
Written by Joe McKendrick, Contributing Writer

Testing new innovations once cost some companies millions of dollars to perform. Now, new technology approaches, such as online real-world simulations and samplings, reduce the cost of testing new ideas to pennies.

We've already seen the impact of technology to shave tremendous time and costs in such areas as energy exploration and engineering. But now the ability to quickly test and deploy new innovations is available to all types of businesses.

Technology has made experimentation quick cheap, and easy, Erik Brynjolfsson and Michael Schrage state in a recent article in MIT Sloan Management Review. For example, with a Website, "companies can test out a new feature with a quick bit of programming and see how users respond. The change can then be replicated on billions of customer screens." This capability can be extended to supply chain management and customer relationship management systems as well.

Implementation of new ideas is blindingly fast, Brynjolfsson and Schrage state. "When a company identifies a better process for screening new employees, the company can embed the process in its human-resource-management software and have thousands of locations implementing the new plan the next morning."

Brynjolfsson and Schrage predict that thanks to technology, many companies will shift from conducting two or three real-world experiments to 50 to 60 a year. "Technology is transforming innovation at its core, allowing companies to test new ideas at speeds—and prices—that were unimaginable even a decade ago," the authors write:

"[Companies] can stick features on Web sites and tell within hours how customers respond. They can see results from in-store promotions, or efforts to boost process productivity, almost as quickly. The result? Innovation initiatives that used to take months and megabucks to coordinate and launch can often be started in seconds for cents."

The revolution in innovation is comparable to the push for quality management that transformed the manufacturing sector in the 1980s, Brynjolfsson explains in an interview. "I compare it what happened in the 1980s when [Total Quality Management] and Six Sigma went through the manufacturing industries, and a lot of line manufacturing employees learned these interesting statistical process control techniques. I think one of the next wave will be learning the theory of the design of experiments."

The coming innovation wave, as in the quality management wave, needs to involve the entire workforce, from the corner office to the production floor. This requires adopting management practices that encourage employees to engage in design experiments. For example, at Harrah's, there was a conscious effort to "transform how employees think about they should do their day-to-day jobs," Brynjolfsson says. "A lot of them are getting training not just in traditional customer service, but even in design in experiments."

Examples of fast innovators cited by Brynjolfsson and Schrage include Wal-Mart, Google, and Harrah's. Wal-Mart, for example, tests different signage arrangements in its stores, and quickly has the sales data that show whether the new alignments are having a positive impact. Google runs 50 to 200 search experiments at any given time, and is constantly re-adjusting its online offering.

Innovation, of course, is smart business, and the increasing ability to launch multiple ideas with relatively little or no risk is creating new opportunities. And the price of failure has suddenly dropped through the floor. As I noted in a previous post, relatively few innovations actually deliver results in the end, and the challenge is determining which ones may be the winners. As a result, businesses avoided innovation because it meant sinking considerable time and resources into ideas that don't get off the ground. However, technology is clearing the way to turn staid businesses into innovation factories.

This post was originally published on Smartplanet.com

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