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The motivation [for implementing the kind of process that embraces failure] isn’t to grow any existing revenue lines or serve any existing customers. It tends to be that you want to stay ahead of potentially disruptive competition that’s coming down the pike. The world is changing more quickly and if you just continue to sell and develop products the way you always have, there’s a good chance that someone will come along and develop something that either seriously erodes your customer base or puts you out of business.
This sort of experimentation works particularly well in fast-changing industries where barriers to entry are falling most rapidly – in software or media, for example. If you’re in those industries, you need a way to echo internally all of the experimentation that would normally happen outside your company. Companies are looking for a way to do that without the cost of expensive acquisitions or venture capital investment, which is traditionally the way to bring the most radical innovation in-house in certain sectors.
These forms of experimentation – Google’s 20% programme or LinkedIn’s Incubator – are relatively low cost ways to generate innovation internally. The idea is to have the next really interesting products in your sector that you might normally have to go out and buy, or compete with, created internally.
You can think of it as a benefit for employees but one that happens to have a potential upside for the company. You can give someone an opportunity once a month, or whatever your budget allows, to work on things that they’re not normally allowed or wouldn’t get to work on.
It’s surprisingly transferable [across industries] but there are limits. It helps if you’re in an industry where profit margins are large and the potential upside is larger; where launching a new product can bring a huge share of profits.
Costs have come way down in software development, but that’s not necessarily true for, say, a pizza parlour. Marketing costs have come down thanks to the internet. You can do a Facebook page, you don’t have to advertise in the local newspaper, but the actual cost of serving your food has not really changed in the past 15 years.
Because technology is changing more and more industries, we will see this spread far beyond software, where it started.