How Microsoft Approaches Innovation
By Adrian C. Ott
The business phrase, “Build, Buy or Partner” has been an industry standard for decades, referring to the decision on how to strategically grow business. But as change is inevitable, the underlying interpretation of this phrase has also changed.
Today, many large organizations say instead, “Build, Buy AND Partner.” Large organizations of today manage a portfolio of products and services that they acquire and organically build over time. And as such, a set of strategic partners and start-ups form a funnel of innovation opportunities into the organization.
In the pharmaceutical industry, it is very common for companies to create partnerships, and then to ultimately acquire and enhance them; hence incorporating each of the build, buy and partner components of growth.
How does an organization optimize their business portfolio and opportunities to ensure that they’re fuelling the innovation pipeline? Let’s take a closer look into the innovation of one of the world’s largest, and most recognized organizations: Microsoft.
A Microsoft View On Innovation
Dan’l Lewin, Corporate Vice President for Strategic and Emerging Business Development with Microsoft, shared with us his perspective on the concept of the innovation pipeline and how it affects growth. (This session was hosted at Microsoft's campus in Mountain View California which Dan'l is also responsible for managing.)
The necessary pace at which innovation must occur is accelerating. Things within the open innovation funnel of an organization must move more quickly, and with more flexibility than in recent years. The primary challenge within Microsoft’s early history was innovating industries or markets which were merging into larger markets. For example, word processing did not stand alone as a market in the end, but eventually evolved into an office automation suite.
Dan’l cites another example within his organizations’ evolution being spell check. Spell check was originally offered as a stand-alone product, but today it is natural to be integrated into most of their office suite programs. The tech industry has rebuilt itself over time to fit this type of evolution.
Ideas must evolve; there must be new innovations and there must be the ongoing dissolution of prior ideas in order to create room for advancements. “Microsoft has excelled at this process and has embraced this global challenge, leading the way for innovation within the industry,” states Lewin.
Does IT Matter Anymore?
Dan’l observed that IT has seen dramatic changes over the past several decades, and it seems as though the speed of change has increased in parallel. But, the question posed by recent press queries, ‘does IT matter anymore?’ has sparked interesting debates amongst industry professionals. As technology continues to advance, how has the functionality of the more traditional IT departments changed?
Dan’l described a fundamental belief within the Microsoft organization that while either creating a new market or dissolving an old market to create a new market, that IT is the essential underlying enabler in facilitating these changes.
The pace at which change occurs has rapidly accelerated. Companies who are embracing IT to help enable how they touch and reach customers are those who will succeed within this new global marketplace. Microsoft fundamentally believes that efficiencies gained by applying computer power in virtually every industry have largely fuelled worldwide advancements.
Virtuous Cycle of Innovation
The Microsoft organization’s point of view for today’s innovation processes can be outlined as follows:
Incentive Systems→ R&D→ IP Incentives→ Collaboration and Competition→ IP Protections → New Products/Services enter the Market →→ Tomorrow’s Foundation!!
The foundation of tomorrow’s business innovation begins with establishing incentive systems. As you follow along the flow chart above, you will also notice the importance of research and development (R&D), IP incentives, collaboration with business ventures and partners as well as enhanced competition, protection of IP as this is at a business’s core value, and launching new products and services into the marketplace. Those businesses which engage and work through this process above are not only laying the foundation for the future of their industries, but will remain the most competitive within their field.
Decades of Open Innovation within Microsoft
Microsoft has withstood decades of innovation, continuing to hold their position as an industry leader worldwide. Dan’l cited key Microsoft milestones or achievements as:
· Platform APIs
· M&A
· Commitment to Standards: XML, WSE
· IP Ventures - Structured relationships through licensing with the outside world.
· Interop Vendor Alliance
· Secure IT Alliance
· MSFP & Open Source/Shared Source
· MSR (Microsoft Research)- Mission “Further the State of the Art” & RFP Process; the largest industry research team in the world
Dan’l shared that while M&A is not the largest contributing factor to the company’s innovation, it has played a role in their ongoing development. Over the past 10 years, Microsoft has been an industry leader in M&A, with over 62 total transactions and a disclosed value of $5.0bn. In comparison, Oracle completed 45 transactions with a $12.2bn in disclosed value, and IBM completed 49 total software transactions with a disclosed value of $9.3bn. Microsoft focused on acquiring smaller organizations over the majority of the decade, but has recently focused on larger, narrowly focused acquisitions.
The company exists today as a strong contributor in the industry large in part as it partners with over 700,000 companies or partners worldwide that do things in and around the Microsoft platform. “And as a platform company, we have made these commitments over time to programming, interfacing, upgrades which have made the company strong.”
In the next generation of web based start ups, the company intends to engage aggressively with the young entrepreneurs and new companies who are bringing about new solutions and underlying web based technologies worldwide. ”We will continue to look for industry patterns demonstrating where the activity is, so that we can strategically approach individuals and businesses to shape productive partnerships, which will fuel our ongoing goal of innovation,” added Lewin.
Many thanks to Dan'l for sharing his interesting perspectives on innovation and for graciously hosting our event on the Mountain View campus.
To listen to Dan’l Lewin’s full podcast presentation, sign up for our Exponential Ideas® newsletter which contains not only this recording but others from companies such as Cisco, NetApp and other industry leaders and visionaries.
Categories: Best Practices,Opportunities,Strategy,Innovation,Technology,Growth
Tags: Best Practices Microsoft Silicon Valley Innovation Growth Technology
Comments