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12 Essential

Innovation
Insights
FALL 2017 ISSUE For decades, researchers have published their findings about
innovation in MIT Sloan Management Review. Here are a
dozen of the best insights.

Bruce Posner
Martha E. Mangelsdorf

Vol. 59, No. 1 Reprint #59125 http://mitsmr.com/2eT2Ww9


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12 Essential
Innovation
Insights
For decades, researchers have published their findings
about innovation in MIT Sloan Management Review.
Here are a dozen of the best insights.
BY BRUCE POSNER AND MARTHA E. MANGELSDORF

I
nnovation is a perennial management challenge. That’s why, for decades, MIT Sloan Management
Review has been publishing new research and insights about innovation — from top researchers
at business schools as well as from leading business executives and consultants.
For this article, we tapped into that knowledge base. We combed through our archives, look-
ing for older articles with innovation insights that today’s MIT SMR readers might have missed
but that still retain wide relevance. We then winnowed down our list of articles and set out to
distill 12 key innovation insights from the MIT SMR archives into a succinct format.
We present those selections here, in capsule form, so you can browse through them easily. But
you can also dive deep into any of these articles; we’ve assembled all the articles mentioned at
http://sloanreview.mit.edu/tag/essential-innovation-insights.

28 MIT SLOAN MANAGEMENT REVIEW FALL 2017 PLEASE NOTE THAT GRAY AREAS REFLECT ARTWORK THAT HAS BEEN INTENTIONALLY REMOVED.
THE SUBSTANTIVE CONTENT OF THE ARTICLE APPEARS AS ORIGINALLY PUBLISHED.
Innovation isn’t Markides found, was that the attacker changed the SPECIAL
INNOVATION REPORT
INSIGHT necessarily about rules of the game, a phenomenon he termed “strate- GETTING

1
new things; it’s gic innovation.” For example, Southwest Airlines INNOVATION
RIGHT
about new value. changed the rules of the airline industry when it
Innovation isn’t just about chose to fly its planes point-to-point rather than 37
developing new products or through hub cities. “Strategic innovation occurs,” Harnessing
technologies. In a 2006 MIT SMR article “The 12 Dif- Markides wrote, “when a company identifies gaps in the Secret
ferent Ways for Companies to Innovate,”1 Mohanbir the industry positioning map, decides to fill them, Structure
Sawhney, Robert C. Wolcott, and Inigo Arroniz en- and the gaps grow to become the new mass market.” of Innovation
couraged executives to think broadly about what types Markides offered a framework for thinking
of innovation are possible. The authors noted that about strategic innovation that’s grounded in three 42
companies within the same industry “tend to innovate basic questions: Who are your customers? What Why Design
along the same dimensions” — whether those dimen- products or services should you offer them? And Thinking in
sions are research and development (R&D), process how should you offer them? To change the rules of Business
innovations, or branding. Viewing innovation too the game in their industry, Markides noted, com- Needs a
narrowly, the authors pointed out, “blinds companies panies can either redefine the business, redefine Rethink
to opportunities and leaves them vulnerable to com- who their customers are, redefine what they offer
45
petitors with broader perspectives.” Sawhney, Wolcott, customers, redefine how they do business, or start
Creating
and Arroniz used examples such as Starbucks, which the strategic thinking process at a different point —
Better
initially innovated not by producing a different prod- for example, the organization’s unique capabilities. Innovation
uct but instead by creating a different kind of customer Of course, coming up with new ideas for strate- Measurement
experience — what the company termed a “third gic innovation does not guarantee success. “It’s Practices
place” for gathering that was between home and work. worth reemphasizing that coming up with new
Business innovation, the authors stressed, has to ideas is one thing; succeeding in the market is
do with new value, not necessarily new things — and another,” Markides wrote.
comes in many flavors. The authors presented an
“innovation radar” so companies can consider 12 dif- Focus on identifying
INNOVATION
ferent areas in which they might innovate — ranging
INSIGHT and resolving uncer-

3
from method of value capture to operating processes tainties in innovation
to platforms. “When a company identifies and pur- projects.
sues neglected innovation dimensions, it can change Breakthrough innovation
the basis of competition and leave other firms at a dis- projects necessarily involve a
tinct disadvantage,” the authors concluded. high degree of uncertainty, Mark P. Rice, Gina
Colarelli O’Connor, and Ronald Pierantozzi
Challenge competitors observed in their 2008 article, “Implementing a
INNOVATION
INSIGHT by playing a different Learning Plan to Counter Project Uncertainty.”3

2
game. So, rather than try to apply disciplined planning
Technological disruption is techniques to such innovation projects, they pro-
one way to upend a market, posed that companies focus on identifying and
but it isn’t the only way. For prioritizing the uncertainties that need resolution.
some companies, the secret, according to Constan- The authors developed a framework for turning
tinos Markides of London Business School, is to uncertainty into learning by studying large innova-
change the rules of the game. tion projects at 10 technology-intensive companies,
In researching his 1997 article “Strategic Innova- including GE and IBM, over a period of seven years.
tion,”2 Markides studied more than 30 companies that They concluded that, in breakthrough projects
had successfully attacked leaders in their industry where the shape of the future market has yet to be
without the benefit of a breakthrough technological determined and where it’s unclear which applica-
innovation. The common element in such successes, tions will succeed, identifying milestones to achieve

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may not be the best approach. “In such scenarios,” companies had a high failure rate: 47%. Importantly,
Rice, O’Connor, and Pierantozzi wrote, “it is more the authors found that being a market pioneer was
reasonable and useful to identify and prioritize un- less advantageous from a market-share perspective
certainties that must be resolved, to define alternative than being what they called an early leader, one who
approaches to exploring them, and to continually enters the market after pioneers but becomes a leader
assess the value of cumulative learning compared to in the market’s early growth phase. Early leaders, the
the costs incurred.” authors wrote, tend to have low failure rates and sig-
Rice, O’Connor, and Pierantozzi suggested that nificantly higher market shares than pioneers.
companies develop what they call a “learning plan” Tellis and Golder found that the early leaders
to help teams examine four types of uncertainty: they studied excelled in comparison to pioneers on
technical, market, organizational, and resource. five factors. Early leaders had a “vision of the mass
Managers can use the process, the authors wrote, “to market” for the product; they persisted through
uncover gaps in knowledge and create a record of business challenges; they were able to commit re-
what is known, to prioritize which uncertainties are sources in line with their vision; they innovated
most critical and propose alternative assumptions relentlessly, even if it meant risking (or cannibaliz-
about the reality behind each uncertainty, and to ing) their other products; and they leveraged their
find ways to test assumptions and resolve the uncer- assets. In the disposable diaper market, for exam-
tainties as quickly and inexpensively as possible.” ple, a well-reviewed product called Chux predated
The authors provided some helpful suggestions Procter & Gamble’s 1961 introduction of Pampers
about how to apply their approach effectively. by decades. But P&G managed to leverage its tech-
Rather than approaching the process in a linear nical and financial resources to build a position in
fashion, they called for multiple passes, or “learning the mass market. Likewise, in the U.S. market for
loops,” to allow teams to review results, clarify light beer, several products predated the introduc-
assumptions, and identify new tests to initiate. A tion of Miller Lite in the 1970s. To build market
critical aspect of the approach, they argued, is share for Miller Lite, its parent company was will-
proper oversight by people with experience in ing to spend heavily on advertising (something one
highly uncertain projects. One risk of using people of the market pioneers, Gablinger’s, didn’t do).
without such experience is that they may kill prom- The takeaway, Tellis and Golder concluded, isn’t
ising projects too early. that it’s better to be a follower than a pioneer. It’s
that paying attention to the five leadership factors
Remember that being will have more impact on long-term success than
INNOVATION
INSIGHT first to market is no whether or not you enter the market first. “Being

4
guarantee of success. first,” they wrote, “does not automatically endow an
One of the most enduring advantage; it only provides an opportunity.”
axioms of business is that, ir-
respective of whether you’re Let your customers
INNOVATION
running a startup or an established company, it pays
INSIGHT develop your next

5
to be first to market. But as authors Gerald J. Tellis product.
and Peter N. Golder explained in a 1996 article titled When developing new prod-
“First to Market, First to Fail? Real Causes of Endur- ucts, how do you determine
ing Market Leadership,”4 the case for entering the what customers want and what
market before anyone else can be — and often is — they need? This, of course, is a classic challenge, one
overstated and distorted by the nature of the data. that managers have labored over for many years. But
The authors pointed out that previous studies find- in a 1977 article titled “Has a Customer Already De-
ing that pioneering companies gained an advantage veloped Your Next Product?”5 Eric A. von Hippel of
had only surveyed surviving pioneers. the MIT Sloan School of Management pointed out
The authors studied the history of 50 consumer that many companies fail to take into account critical
product categories and found that pioneering information that’s available to them. In studying

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manufacturers of scientific instruments and process few having some value, and only a very few repre-
equipment, von Hippel identified a pattern: “Most of senting breakthroughs.
the innovative products commercialized in those As a result, Fleming argued that if companies
industries were invented, prototyped, and used in want to achieve breakthroughs they should: (1) make
the field by innovative users before equipment or lots of “shots on goal,” since only a few of the inven-
instrument manufacturing firms offered them com- tions they come up with will be breakthroughs;
mercially.” Von Hippel found further that “the (2) try to increase the average value of each inven-
manufacturer who takes advantage of user efforts tion; and (3) increase the variability of the ideas they
needs only to contribute product engineering work to explore — in other words, “take wild shots at a rich
obtain a first-to-market product innovation.” target (or preferably a set of rich targets) because the
Users are willing to do innovation work and wider range will be more likely to contain scores of
provide valuable information, von Hippel wrote, if maximum values.”
they need the new product “as much as or more Taking such “wild shots” is one spot where lone
than you do.” This can save companies a good deal inventors come in. Fleming’s research indicated
of money. A big challenge, though, is convincing that inventors “working by themselves can be the
internal people to accept the validity of informa- source of more failures as well as more break-
tion and ideas that come from the outside. throughs.” On average, lone inventors are not as
Von Hippel further explored the “user innova- creative or as successful as innovative teams — but,
tion” theme in subsequent MIT SMR articles, paradoxically, the loners are more likely to be the
including “The Age of the Consumer-Innovator,”6 source of breakthroughs because the value of their
which he coauthored with Susumu Ogawa and inventions is so highly variable. One challenge for
Jeroen P.J. de Jong in 2011. In that article, von Hippel, companies, then, is finding ways to support and
Ogawa, and de Jong reported on new national sur- manage their lone inventors.
veys finding that individual consumers play an
important role in both creating and modifying Understand your op-
INNOVATION
products. What’s more, the authors noted, ad-
INSIGHT tions for working with

7
vances in areas such as computer-aided design external innovators.
tools and 3-D printing mean that “consumers Knowing when and how to
should realize that it is getting progressively easier open up product development
to design and make what they want for themselves.” to outsiders is difficult. Which
Businesses, von Hippel, Ogawa, and de Jong ad- approach is better, working with external innovators
vised, “need to think about how to reorganize their organized into collaborative communities (as typified
product development systems to efficiently accept by Linux and other open-source software projects) or
and build upon prototypes developed by users.” tapping into the competitive marketplace for prod-
ucts and services to complement your product?
Think of invention as According to Kevin J. Boudreau and Karim R.
INNOVATION
INSIGHT a process of creating Lakhani, it depends. In their 2009 article titled “How

6
new combinations of to Manage Outside Innovation,”8 the authors wrote
elements — with re- that the decisions companies make about external in-
sults that have a highly novation should be based on clarity about (1) the type
skewed distribution. of innovation they need from outside innovators;
In a fascinating 2007 article titled “Breakthroughs (2) the motivations of the outside innovators; and
and the ‘Long Tail’ of Innovation,”7 Lee Fleming ex- (3) the nature of the company’s business model.
plored the dynamics of invention. Defining
invention as a “new combination of components, The Type of Innovation Some forms of innova-
ideas, or processes,” he explained that invention tion are simpler to manage than others. When the
samples show an extremely skewed distribution, technology and consumer preferences are clear,
with the vast majority of inventions being useless, a Boudreau and Lakhani wrote, companies generally

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Companies that are seasoned innovators have a set of
capabilities that can take them from a plan for growth
all the way through execution.

don’t need external innovation: They can develop sense for their business. Companies can either inte-
products internally or hire contractors. However, in grate external innovators’ work into their platform,
cases where some of the design elements are still allow external innovators to sell products on top of
being determined, opening up the innovation pro- the platform, or create two-sided markets where
cess can lead to significant benefits. Collaborative external innovators and customers can interact.
communities generally work best when dealing with Luckily, the authors noted, a company’s innova-
problems that draw on cumulative knowledge that tion strategy needn’t be “cast in stone.” As the needs of
extends beyond what individuals are likely to know. the business change, the innovation strategy can
Competitive markets, according to Boudreau and change as well. Initially, for example, Apple had a
Lakhani, are better suited for problems that would small group of partners producing applications for its
benefit from “broad experimentation across a set of iPhone. But within a matter of months, outside devel-
technical approaches or customer groups.” opers had developed more than 100 unauthorized
applications, prompting Apple to rethink its decision
The Innovators’ Motivations Just as there are dif- and to establish licensing terms and revenue-sharing
ferent forms of outside innovation, managers need to arrangements. The lesson, Boudreau and Lakhani
recognize that what motivates external innovators wrote, is that “a company needs to tailor its particular
varies. Participants in competitive markets tend to be approach to the context of its specific business.”
motivated by extrinsic factors such as financial re-
wards, while collaborative communities involve a Create systems and
INNOVATION
greater emphasis on intrinsic rewards, such as intel-
INSIGHT structures that support

8
lectual challenge. When evaluating whether to work ongoing innovation.
with collaborative communities or competitive mar- The most innovative compa-
kets, companies should be aware of the different nies know how to do more than
motivators and consider the type of mechanisms simply produce occasional
needed to align with them. winners. As Scott D. Anthony, Mark W. Johnson,
and Joseph V. Sinfield explained in their 2008 arti-
The Business Model The third issue managers cle “Institutionalizing Innovation,”9 companies
need to take into consideration when deciding to that are seasoned innovators have a set of capabili-
open their products to external innovation is how ties that can take them from a plan for growth all
that will affect their company’s business model. In the way through execution.
determining whether to work with a collaborative The authors developed their insights into inno-
community or a competitive market, the authors vation from interviews at more than 40 organizations
noted that it’s helpful to ask, “Who sells to whom?” in an array of industries, a survey, and fieldwork at
The answer will affect the income streams, the more than 50 companies. They found that “compa-
company’s relationship with its customers, and the nies that create blueprints for growth, construct
future role external innovators will play. innovation engines, and support the engines with
Opening your product to external innovation the right systems and mindsets can establish favor-
means that it will become a platform, Boudreau and able conditions for substantial innovation.”
Lakhani explained, and executives must decide which So, how can companies move in this direction?
type of platform business model makes the most As a starting point, management needs to develop

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a “growth blueprint” that articulates what the com- through personal networks in companies. Whelan,
pany “wants to be” — and the specific options it Parise, de Valk, and Aalbers explained the importance
will and won’t consider to reach its objectives. of both “idea scouts” and “idea connectors.” Idea
Another important element, according to An- scouts excel at identifying novel external ideas, often
thony, Johnson, and Sinfield, is determining how via the web. But, to effectively implement such ideas,
the company wants to allocate resources — both the external focus of idea scouts needs to be comple-
money and time — to satisfy its growth objectives. mented by interactions with employees who have
One approach is balancing the innovation portfo- extensive networks and influence within the com-
lio with a mix of improvements to the core business, pany and a broad knowledge base — a group the
extensions to it, and growth initiatives in new areas. authors called idea connectors.
If a company fails to consciously allocate innova- Many R&D leaders pursuing external ideas
tion resources among different types of projects, through open innovation tend to emphasize only
the authors noted, it will often end up with mostly the role of idea scouts — which the authors see as a
incremental innovation projects. What’s more, “if mistake. Companies, they advised, should be think-
the core business runs into trouble, there is an over- ing about formal mechanisms that bring idea scouts
whelming temptation to tap resources that the and idea connectors together. “Promising ideas,”
company has allocated to more speculative ven- the authors wrote, “will not mature into innovative
tures in order to save the company,” they wrote. “In outcomes unless they reach the parts of the em-
the short run, this may make perfect sense; in the ployee network that have the expertise and influence
long run, it can be disastrous.” to exploit them.”
Although Anthony, Johnson, and Sinfield high-
lighted numerous questions that would-be Innovation doesn’t have
INNOVATION
innovators need to confront, they were careful not
INSIGHT to entail major break-

10
to be overly prescriptive about the answers. Even throughs; it can also
within a single company, they argued, managers involve making new
should be prepared to manage and measure differ- product development
ent types of growth opportunities differently. faster and cheaper.
Companies also need to construct what the According to Peter J. Williamson and Eden Yin,
authors called “an innovation engine” — which Chinese companies are tackling innovation in a funda-
involves structures to screen, develop, and oversee mentally different way: Rather than going for major
innovative projects. The authors pointed out that breakthroughs, they aim for faster development cycles.
there are a number of different innovation struc- For their 2014 article “Accelerated Innovation: The
tures that companies can use. New Challenge From China,”11 Williamson and Yin
studied more than 20 Chinese companies in a variety
Connect the people of industries and found that by breaking the innova-
INNOVATION
INSIGHT in your organization tion process into small steps and parceling it out to

9
who identify new ideas teams, companies were able to complete projects and
with those who can deliver results faster. These companies, the authors
commercialize them. wrote, are “pushing the boundaries of systemization
Companies are increasingly and scale to a whole new level in their efforts to
trying to bring outside ideas into their innovation accelerate innovation, leverage the potential of a
processes. To do so effectively requires an under- large pool of competent but often unexceptional
standing of two types of innovation brokers, technicians and engineers, and reduce costs.”
according to Eoin Whelan, Salvatore Parise, Jasper de For example, an outsourcing company serving
Valk, and Rick Aalbers. In their 2011 article “Creating the pharmaceutical, biopharmaceutical, and medi-
Employee Networks That Deliver Open Innova- cal device industries was able to complete projects
tion,” 10 the authors drew on research they had two to five times faster than comparable projects
conducted on the diffusion of innovative ideas using conventional techniques. Similar gains were

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achieved by Lenovo Group Ltd., which had acquired by users (for example, a computer-aided design soft-
IBM’s personal computer business. By breaking ware program for designing Lego models) began
product designs into modules handled by small appearing. As the authors pointed out, many of the
teams in parallel, it managed to cut its new product innovations from fans “improved and extended the
development cycle time in half. Williamson and Yin Lego building system or introduced new ways to use
acknowledged that many of the processes and tech- it that dovetailed well with how Lego itself thought
niques used by Chinese companies are also being of its products.” The company began reaching out
employed by technology companies in places like to the fan community to solicit marketing ideas or
Silicon Valley. What’s significant, they wrote, is how feedback on products in development.
Chinese companies are bringing “accelerated inno- Collaborating with users has it challenges. At
vation, with rapid scale-up, low cost, and ‘good times, Lego management found that adult fans lost
enough’ quality” to many different industries. sight of the fact that the company’s primary end
users were children, not adults. In some cases, fans
Make customer com- suggested applications that went “beyond the pa-
INNOVATION
INSIGHT munities your allies. rameters of what the products were designed for.”

11
It’s common for companies to From its experience working with its user groups,
solicit ideas and feedback from Lego developed a number of principles for working
their customers and then in- with customers in product development. One key les-
corporate what they learn into son was the importance of setting expectations up
future products and services. But few have taken front. After all, users may be eager to contribute their
customer knowledge as seriously or as far as the time, but they also have busy lives. (This includes being
Lego Group. In recent years, the Danish toy com- as clear as possible about the company’s parameters for
pany, whose multicolored plastic construction toys when projects are expected to begin and end.) Another
have been popular with children for decades, has ac- lesson management learned was that relationships
tively explored new and productive ways to engage can’t be one way: They need to be not only good for the
with the users of its products. As Yun Mi Antorini, company but also rewarding for users. “Instead of
Albert M. Muñiz, Jr., and Tormod Askildsen noted, regarding collaboration as something that needs to be
“Through trial and error, Lego has developed a solid managed exclusively by the company,” the authors
understanding of what it takes to build and maintain wrote, “it is fruitful to think of it as an ongoing dialogue
profitable and beneficial collaborations with users.” between two allies. Both sides contribute important
These collaborations have led Lego to surprising resources to a common purpose. Frequently, the two
new areas of growth, the authors wrote in their 2012 sets of resources complement each other and advance
article “Collaborating With Customer Communi- the conversation and collaboration.”
ties: Lessons From the Lego Group.”12
Historically, Lego built products for younger chil- Don’t antagonize your
INNOVATION
dren, but in the 1990s, it unveiled a new series of creative people.
INSIGHT

12
products that appealed to older users. At the same In the past, corporate managers
time, the internet facilitated the growth of Lego user often rose through the ranks and
groups consisting of adult Lego fans. Lego user groups thus were very knowledge-
expanded globally, and innovative products produced able about the activities they

As Austin and Nolan wrote, “Putting up with a certain


amount of maddening behavior by creators may be a
price worth paying to keep great talent.”

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supervised. But the rapid changes brought about by different from the more traditional challenges” man-
technology have created a widening gulf between agers face, the authors observed. But managers who
the expertise of managers and specialized technical don’t learn how to manage creators run the risk of
employees — something Robert D. Austin and Richard missing big opportunities, and they “won’t have
L. Nolan warned that companies aspiring to be techno- much fun in the process, either.”
logically innovative will need to address or suffer the
consequences. In a 2007 article titled “Bridging the Gap Bruce Posner is a senior editor at MIT Sloan Manage-
ment Review. Martha E. Mangelsdorf is the editorial
Between Stewards and Creators,”13 they wrote: “Being a director of MIT Sloan Management Review. Comment
good supervisor traditionally meant encouraging on this article at http://sloanreview.mit.edu/x/59125, or
contact the authors at smrfeedback@mit.edu.
sound business practices and introducing changes to
those practices as conditions changed. … Now the REFERENCES
changes sometimes come from key employees whose
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work managers don’t completely understand.” Different Ways for Companies to Innovate,” MIT Sloan
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technical employees aren’t new. Almost 50 years ago, 2. C. Markides, “Strategic Innovation,” Sloan Management
management guru Peter Drucker highlighted both the Review 38, no. 3 (spring 1997): 9-23.
importance of knowledge workers and the challenges 3. M.P. Rice, G.C. O’Connor, and R. Pierantozzi, “Imple-
menting a Learning Plan to Counter Project Uncertainty,”
companies face in managing them. From a study of
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efficient allocation of resources. Creators, on the other of the Consumer-Innovator,” MIT Sloan Management
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To a certain extent, Austin and Nolan concluded, 8. K.J. Boudreau and K.R. Lakhani, “How to Manage
disputes between stewards and creators are an inevita- Outside Innovation,” MIT Sloan Management Review 50,
no. 4 (summer 2009): 69-75.
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The challenge, they explained, is learning how to 9. S.D. Anthony, M.W. Johnson, and J.V. Sinfield,
“Institutionalizing Innovation,” MIT Sloan Management
manage the tension, for which they put forth a set of Review 49, no. 2 (winter 2008): 45-53.
guidelines. One of their guidelines for managers is to 10. E. Whelan, S. Parise, J. de Valk, and R. Aalbers, “Creat-
avoid antagonizing creators, even if it means putting ing Employee Networks That Deliver Open Innovation,”
up with someone who is difficult to manage; an effort MIT Sloan Management Review 53, no. 1 (fall 2011): 37-44.

to get rid of one creator could snowball into losing two 11. P.J. Williamson and E. Yin, “Accelerated Innovation:
The New Challenge From China,” MIT Sloan Management
or three, leaving the company short on key creative Review 55, no. 4 (summer 2014): 27-34.
talent. As Austin and Nolan wrote, “Putting up with a 12. Y.M. Antorini, A.M. Muñiz, Jr., and T. Askildsen, “Col-
certain amount of maddening behavior by creators laborating With Customer Communities: Lessons From
may be a price worth paying to keep great talent.” An- the Lego Group,” MIT Sloan Management Review 53,
no. 3 (spring 2012): 73-79.
other recommendation is to cultivate people who can
13. R.D. Austin and R. L. Nolan, “Bridging the Gap Be-
speak the language of both creators and stewards — tween Stewards and Creators,” MIT Sloan Management
they may be helpful in mediating internal conflicts. Review 48, no. 2 (winter 2007): 29-36.
“The challenges in managing someone who Reprint 59125.
never wants to do the same thing twice and who Copyright © Massachusetts Institute of Technology, 2017.
keeps going off on tangents are substantial and quite All rights reserved.

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