How Companies Today Can Anticipate the Technology of Tomorrow

Innovators should develop a set of contingency plans for pivotal risks and opportunities in the marketplace.

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The headquarters building for American Power Conversion Corp. is seen, Monday, Oct. 30, 2006, in South Kingstown, R.I. French electric equipment maker Schneider Electric SA has agreed to buy APC, a U.S. manufacturer of backup power equipment, for $6.1 billion in cash.

Alejandro Crawford is a senior consultant at Acceleration Group, and he teaches growth and digital strategy at Baruch's Zicklin School of Business and the New School. Lisa Chau is the assistant director of Affiliated & Shared Interest Groups at Dartmouth College.

In 1985, Rodger Dowdell became CEO of American Power Conversion, a small manufacturer of solar power inverters. The company also sold power backup units, though these represented just 5 percent of its business. Hardly an industry player.

Three years later, American Power Conversion went public as the world's leading manufacturer of power backup units, having introduced a string of solutions that addressed the mushrooming need to protect data during power outages. At the time of its initial public offering, the company was valued at $20 million. Eighteen years later, thanks to a series of successful innovations, its value was $6 billion. As CEO, Dowdell drove American Power Conversion's meteoric growth by identifying successive opportunities for innovation. Instead of sticking with what worked yesterday, the company invested in what would work tomorrow. And it did so at every stage of its growth.

Seems simple. So why don't more companies follow this strategy?

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In most established companies, managers get reviewed according to their performance against established goals. Employees are taken to task for working on projects other than those they've been assigned. Salespeople face pressure to meet monthly goals. Customer service reps repeat from a script that they hope they've addressed your needs. Meanwhile, even if a new idea promising to address major market needs does present itself, the potential returns on investment are vague and without guarantee.

So what is to be done? How can a company emulate American Power Conversion, rather than going the way of the many firms that fail to anticipate market transformations? The answer may come, not from the swashbuckling entrepreneur of myth and legend who makes decisions on instinct, but from innovators and investors who have been working to make entrepreneurship and early stage investment more manageable. One of us (Alejandro) is cofounder of Acceleration Group, Inc., which uses an alternative approach to traditional planning. This approach asks innovators to develop a set of contingency plans for pivotal risks and opportunities in the marketplace. They refer to these pivotal risks and opportunities as "Acceleration Moments."

A recent example involved the shift in mind-share from traditional newspaper and yellow pages advertising to mobile apps and online local search. While this seismic shift in customer behavior was evident and mounting, the market had yet to adapt. Innovators were scrambling to create new models and technologies to address the needs of local businesses to reach customers in this new world.

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Acceleration Group's client had to decide under what conditions to fund one of the innovations. To win required competing successfully against larger firms, including incumbents and well-financed startups. The key, in this case, was to assess the innovator's capability to exploit the change in the advertising market, test its readiness to expand on this capability, and tie investment in the innovation to this.

When assessing potential Acceleration Moments, the idea is to anticipate opportunities for disruptive innovation and assess what will be required to commercialize such an innovation successfully. (Disruptive innovation is Harvard Business School professor Clay Christensen's term for innovations that transform markets.) This might sound like common sense, to get out ahead of the curve when the world is changing. But businesses that are good at doing anticipatory disruption are few and far between.

Corporations work hard to set and correct course, but typically focus on the waves they already see others paddling toward. Meanwhile, many entrepreneurs are still expected to present static business plans that lay out a single set of actions and projected outcomes, based on a scenario they extend five years out. Investors and entrepreneurs talk about pivoting, but for the most part this is reactive pivoting. Contingency plans are made, of course, but they tend to be reserved for emergencies.

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Think of big-wave surfers watching waves forming on the horizon. Their skill in gauging the shape of these emerging waves, before paddling to catch or dodge them, can be a matter of survival. Anticipatory disruption, Acceleration Group cofounder Brian Gurski emphasizes, is not just a matter of thinking through a few "what-ifs" before returning to business as usual:

It's critical to go beyond modeling a few revenue scenarios, and engage in scenario planning that accounts for trends that could rapidly decelerate or accelerate an innovation's adoption in the marketplace.

Planning around Acceleration Moments can benefit not only companies seeking to foster innovation from within, but also those looking to bring it in-house through successful acquisitions. According to Mark Zimmerman, CEO of Dexter Solutions, a firm that has made acquisition planning a cornerstone of its strategy:

With a well-developed sense of the relevant Acceleration Moments, companies' investments in outside ventures can be far more focused and made at an earlier stage—clearly a source of considerable competitive advantage. And this same thinking facilitates integration so that corporate resources and scale can be brought to bear sooner and more effectively—one thought process, with dual payoffs, affording the corporation greater innovation capacity.

(Zimmerman was involved in developing the methodology around Acceleration Moments, although his association with Acceleration Group is informal.)

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The key is to "pivot proactively," as Dowdell puts it. Doing so gives innovators—and their stakeholders—far greater control over the risks they are taking than does the traditional reactive model. And over time it gives them a much better understanding of the resources required to invest in innovation.

Why is this so elusive for companies to do in practice? Dwight Sperry, formerly General Manager of APC's Enterprise and Systems Group, explains:

Your resource allocations are your strategy—not what the CEO or Exec team think they concluded from their cushy retreats to the woods. The steering wheel is not connected to the car. The common response to accelerated innovation is "we cannot afford it or my people are tied up doing other things." 

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To begin to put this into practice, Sperry emphasizes the importance of creating dedicated teams for "rapid experimentation:"

The ability to carve out a small talented team or teams that can focus on rapid experimentation with the right leading metrics for success is the key to getting the ball rolling.  Less is actually better and most company budgets can easily handle it.

Well before innovators began talking about Acceleration Moments, or testing what Eric Ries, author of The Lean Startup, calls a "Minimum Viable Product" in the marketplace, Dowdell, Sperry, and the team at American Power Conversion conducted "parallel experiments."

Whenever we faced large uncertainty on the demand side of our business—as we did after inventing a new modular solution for data center systems—we needed to figure out how to take it to the market. To do so, we used a simple process of running a number of small experiments in parallel to determine which approach would be the most effective for generating demand. We would then take the results and "pour gas on the fire" by shifting our demand-generating resources onto the technique which produced the best results.

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Like that big-wave surfer, American Power Conversion had its eyes focused on emerging waves. This was critical in enabling it to develop, introduce, and monetize innovations successfully over time. Dowdell recounts:

Whenever APC attempted to enter a new market segment, we tried to find a "wave" in the market to ride. So, as we entered the small UPS [power backup] market, we learned that one of our earliest customers, that had placed two orders, was using the products to protect network file severs.

After further research, we decided that the demand "wave" for servers was likely one with very large future economic momentum, so we decided to focus on this application to the exclusion of most other applications, even though this application represented less than 10 percent of the total unit market at that time.

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To foster corporate innovation, we must equip managers and employees with the tools to catch these waves before they crest. Without such tools, even the most valuable intrapreneurial innovation is likely to be squelched by otherwise sensible systems for resource allocation, performance measurement and career advancement.