Call it Innovation on steroids, or innovation at warp speed, or just the innovation of rapid innovation. But the essential point remains: Technology is transforming innovation at its core, allowing Companies to test new ideas at speeds and prices that were unimaginable even a decade ago. They 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. And that makes innovation, the lifeblood of growth, more efficient and cheaper. Companies are able to get a much better idea of how their customers behave and what they want. This gives new offerings and marketing efforts a better shot at success. Companies will also be willing to try new things, because the price of failure is so much lower. That will bring big changes for corporate culture making it easier to challenge accepted wisdom, for instance, and forcing managers to give more employees a say in the innovation process.

There will be even better payoffs for customers: Their likes and dislikes will have much more impact on companies’ decisions. In globally competitive markets, they will ultimately end up getting products and services better tailored to their needs.
Already, this powerful new capability is changing the way some of the biggest companies in the world do business, inspiring new strategies and revolutionizing the research-and-development process.

“In the U.S., we do the vast majority of our concept testing online, which has created truly substantial savings in money and time,” says Joan Lewis, global consumer and market knowledge officer at Procter & Gamble Co.

Finding the Link
What does all of this experimentation look like in practice?
For instance consider, Google Inc., which runs 50 to 200 search experiments at any given time. In one case, Google asked selected users how many search results they would like to see on a single screen. More, said the users, many more. So Google ran an experiment that tripled the number of search results per screen to 30. The company found that traffic declined.

What happened? On average it took about a third of a second longer for search results to appear a seemingly insignificant delay that nonetheless upset many of the users. The greater number of results also made it more likely that a user would click on a page that did not have the information he or she was seeking.

In an environment where experimentation is this quick and efficient, many traditional practices make less economic sense. For instance, current research-and-development efforts are often driven by considerations that the company’s technicians think are important but customers really don’t care about. Mobile-phone companies, for one, had a reputation for piling on features that added more cost and complexity than value.

Real-World Results
But it’s not just Web-based companies that are taking advantage of technology to run crucial experiments.
Even retailers who might seem to have tremendous logistical challenges implementing rapid experiments across lots of stores can tap this new approach, thanks to the rise of sophisticated tracking systems that make measuring customer behaviour more agile and less expensive.

These systems which track everything from purchases at the cash register to how products move through the supply chain allow stores to cheaply collect terabytes of data on their customer interactions, the performance of products in the field, employee productivity and other factors. Traditionally, companies have simply rooted through all of that data to look for patterns and trends; they’ve mined their data. But some retailers are beginning to realize that they can get much better results by using their digital systems to run experiments.

Michael Schrage talks with the Journal’s Erin White about how managers can strike the right balance in giving employees guidance on innovation—avoiding being too restrictive on the one hand or allowing a free-for-all on the other.

Take Wal-Mart Stores Inc., which frequently runs comparative in-store experiments with signage, displays and shelf layouts to see what influences shopper decisions. Wal-Mart can test different arrangements in a number of stores for a week or so to see which approach boosts sales the most. If different sign colours or unusual merchandise juxtapositions increase or depress relative sales, the stores can quickly share the information and implement the same plan. That said, store managers also have the ability to make decisions at their store to meet individual customer needs.

Other companies, meanwhile, have blended digital technologies and conventional systems to test out ideas. For instance, Harrah’s Entertainment Inc. uses advanced information systems to analyze data from its Total Reward Card and field experiments throughout its casino and hotel network.

The Speed of Change
• The Evolution: Technology is allowing companies to test new ideas at speeds and prices that were unimaginable even a decade ago.
• The Effect: Innovation, the lifeblood of growth, is growing more efficient and cheaper.
• What’s Ahead: Innovative companies will shift away from traditional research-and-development methods. Managers will change the way they solicit ideas. And much, much more.

Gary Loveman, the chief executive who brought the experimentation mind-set to 70-year-old Harrah’s, quips, “There are two ways to get fired from Harrah’s: stealing from the company, or failing to include a proper control group in your business experiment.”

Experiments to Come
Where will all this lead? Experiments will become far more pervasive and persuasive as information technology improves and testing grows faster and cheaper. More companies and more enterprising individuals who work in them will recognize that experiments don’t have to be time-consuming and expensive, and they will propose more tests that exploit those economies.

Increasingly, the more innovative companies the Google’s and Harrah’s of tomorrow will shift away from traditional research-and-development methods. Five years ago, for instance, a leadership team might have reviewed two or three “big” innovation proposals from consulting gurus; executive teams today might compare the outcomes of 50 or 60 real-world experiments to decide which ones to act upon.