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Innovation & Design

Embrace the Edge -- or Perish

The periphery of today's global business environment is where innovation potential is the highest. Ignore it at your peril

Most all of us are familiar with the concept of "the edge"—and not only because we're fans of U2's superb guitarist who goes by that name. Edges are the peripheries of the global business environment, the places where innovation potential is the highest. In today's fast-moving business world, playing on the edge increasingly is the best way to gain an edge.

Edges define and describe the borders of companies, markets, industries, geographies, intellectual disciplines, and generations. They are the places where unmet customer needs find unexpected solutions, where disruptive innovations and blue oceans get birthed, and where edge capabilities transform the core competencies of the corporation.

Edges are increasingly significant as the global business environment speeds up. In a world of accelerating change, what's born on the edge transforms the core with breathtaking speed. A few short years ago, both India and China were marginal players in the global economy. Now they are central players. Not long ago, the Internet was a specialized communication platform for scientists. Now it's a center for commerce and advertising.

Delivering More Value at Lower Cost

Only yesterday, it seems, teenagers stayed in touch outside of school on the telephone or at the mall. Now they log in to a growing number of social networks. Until lately, derivatives and hedge funds were marginal players in the financial marketplace. Now they shape market movements on a daily basis. These examples make a fundamental lesson clear: Embrace your edges or fall quickly behind. Companies avoiding the edge will find their core markets and capabilities under attack from edge players who can deliver more value at lower cost.

Edges are powerful sources of business innovation because they are places of potential and friction, where traditional products and practices are no longer adequate to address unmet needs or unexploited potential. Much tinkering and experimentation occurs on the edge, as well as heated debate about the most promising options to address emerging needs, intensified by the diverse backgrounds, skill sets, and perspectives of participants gathering on the edge. By playing a part in this experimentation, companies participate in rich flows of new knowledge, flows that are the primary sources of innovation.

Edges tend to be risky places: There are no well-established road maps. Order, to the extent it exists, routinely dissolves into chaos, only to reform again in a very different pattern. Market meltdowns and business failures are commonplace. Relationships form quickly on the edge, because people have less confidence in going it alone and are more inclined to seek out others to help them sort through the challenges and share the risks and opportunities created by edges.

The iPod Was Born on the Edge

Recall Bill Gates in the early days of the personal-computer industry, harnessing a fundamentally new technology on the edge of a more traditional computer industry that dismissed these new products as "toys." Or consider the host of companies in China and India seeking to reconceive products and processes to serve consumers more effectively in emerging economies at unbelievably low price points. Or think of the early wave of entrepreneurs who saw an opportunity to harness electronic networks to support social networking, especially targeting the desire of a younger, more computer-literate generation to connect with one another in richer ways. Or think of Apple's (AAPL) iPod, which emerged on the edge of a number of industries, including consumer electronics, music, and the Internet.

Some early and very promising initiatives to harness innovation at the edge of the firm have already been set in motion. For instance, open innovation and so-called co-creation. But these are a small part of a much broader set of edge innovation opportunities, ranging from tapping into the unique dispositions of younger generation employees, who are more "questing" or adventurous as a result of playing online games, to using management practices developed in emerging economies to mount attacker strategies on incumbent companies in the West—a process called innovation blowback.

In future columns, we'll look at these opportunities and the management practices and institutional arrangements required to harness their potential. We'll also investigate the information technology platforms that help companies get the most out of their edge initiatives.

For now, we'll leave you with some bottom-line guidelines for venturing out on the edge:

Engage. Too often, executives get intrigued with the edge and arrange field visits to explore this strange terrain. Insight rarely comes from such casual visits. Instead, executives need to identify and focus on challenging business issues to engage edge participants productively and drive real insight.

Sustain relationships on the edge. A lot of the current effort in open innovation focuses on short-term transactions to gain access to existing resources. To get the full value of the learning that's occurring on the edge, executives need to find ways to build long-term, trust-based relationships with edge participants.

Bring the edge to the core. In too many cases, companies set up remote outposts on the edge that become isolated and alienated from the core of the business. Senior executives need to identify challenges confronted by the core where insights from the edge can be helpful and sponsor initiatives to bring participants from both domains together around these issues.

These broad guidelines have many specific implications this column will explore as we help you get edgier and edgier about innovation.

John Hagel and John Seely Brown are co-chairman and independent co-chairman, respectively, of Deloitte LLP's Center for Edge Innovation. John Hagel writes a blog at Edge Perspectives. Their monthly column, Innovation on the Edge, explores what executives can learn from innovation emerging on various forms of edges, including the edges of institutions, markets, geographies and generations. Sign up here for an RSS feed.

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