The Architecture of Innovation: The Economics of Creative Organizations
Josh Lerner
Harvard Business Review Press (2012)

How to combine two traditional models for innovation “within a powerful system that consistently and efficiently produces new ideas”

By nature, books about innovation should contribute something new and/or something better to our understanding of what innovation is — and isn’t — while also explaining how to develop a mindset and skills that will enable us to (yes) contribute something new and/or something better. Josh Lerner makes such a contribution as he explain how to combine the best features of two traditional models – the corporate research laboratory and the venture-backed start-up — for innovation “within a powerful system that consistently and efficiently produces new ideas.” What he proposes is a “hybrid” model that ensures that the powerful motivations and focused goals associated with venture capital will be preserved, “while the limitations that circumscribe the effectiveness of this intermediary can be overcome. The path that led us to this hybrid is firmly laid out by economics.” More specifically, the power of proportionately appropriate rewards throughout the innovation process.

These are among the dozens of passages I found to be of greatest interest and value, also listed to suggest the range of subjects covered during the course of the book’s narrative:

o The Real Beginning (Pages 23-27 )
o Away from the Center (39-43)
o The Appearance of Incentives (48-53)
o Milestone 3: Going Global (73-78)
o The Boom-Bust Venture Cycle (93-100)
o The Case for Corporate Venturing and What Can Go Wrong (110-125)
o A short list of potential steps than can improve the health of entrepreneurial firms (143-150)
o Lessons for Venture Capital (158-168)

As I worked my way through Lerner’s lively and eloquent narrative, I was again reminded of Jack Welch’s remarks years ago when GE’s then chairman and CEO, and Jack Welch, explained why he admired small companies: “For one, they communicate better. Without the din and prattle of bureaucracy, people listen as well as talk; and since there are fewer of them they generally know and understand each other. Second, small companies move faster. They know the penalties for hesitation in the marketplace. Third, in small companies, with fewer layers and less camouflage, the leaders show up very clearly on the screen. Their performance and its impact are clear to everyone. And, finally, smaller companies waste less. They spend less time in endless reviews and approvals and politics and paper drills. They have fewer people; therefore they can only do the important things. Their people are free to direct their energy and attention toward the marketplace rather than fighting bureaucracy.”

Welch could well have been describing the “hybrid” business model that Lerner proposes in this book. Indeed, Welch was preoccupied (obsessed?) with making certain that GE combined the best features of a large corporation with those of what he called a “small” company, one driven by a entrepreneurial spirit at all levels and in all areas.

Lerner concludes with an acknowledgement that new organizational models continue to be developed, with a few succeeding, others failing. “The corporate innovation model is changing as well, but more slowly. Embracing a rigorous trial and error pocess concerning the ways in which innovation is pursued is likely to yield substantial benefits, both to the corporate experimenter and to society as a whole.” With rare exception, the best business books are research-driven and that is certainly true of Lerner’s book, as his heavily annotated “Notes” (on Pages 179-195) clearly indicate. The concept of a “hybrid” innovation model has obviously evolved and will continue to do so.

However, that said, no brief commentary such as mine can possibly do full justice to the scope of material that Josh Lerner provides in this volume but I hope that I have at least suggested why I think so highly of it. Also, I hope that those who read this commentary will be better prepared to determine whether or not they wish to read the book and, in that event, will have at least some idea of how to master the economics of creative organization, developing core competencies that would be of substantial benefit to their professional development as well as to the success of their organization.

Those who share my high regard for this volume are urged to check out Gerald Tellis’ Unrelenting Innovation: How to Build a Culture for Market Dominance as well as Reverse Innovation: Create Far From Home, Win Everywhere co-authored by Vijay Govindarajan and Chris Trimble with Indra K. Nooyi and The Other Side of Innovation: Solving the Execution Challenge co-authored by Govindarajan and Trimble; also, Steven Johnson’s Where Good Ideas Come From: The Natural History of Innovation and two co-authored by Tom Kelley and Jonathan Littman: The Art of Innovation: Lessons in Creativity from IDEO, America’s Leading Design Firm and The Ten Faces of Innovation: IDEO’s Strategies for Defeating the Devil’s Advocate and Driving Creativity Throughout Your Organization.