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The authors have collected key insights from the Best Innovator competition, launched in 2003. Six early-stage practices are critical.

The Best Innovator competition, annual benchmarking against the best in innovation management, focuses on the how-to of innovation and examines what leading companies are doing to achieve better yield with their innovation strategies.

By studying the competition winners, the researchers found a strong correlation between specific innovation management practices and sustainable, profitable growth.

Best Innovators establish explicit expectations for making the business case for innovation. They name a specific set of deliverables to which they are committed.

The article offers specific guidelines for setting the stage for continuous innovation that results in profitable offerings and services.

This article reports on the findings of the Best Innovator competition, which was launched in Germany in 2003, to identify and communicate the best practices of innovation management of the country’s businesses. After ten years of research, the contest has not only been expanded to identify the most innovative companies in much of the developed world but also to document the success of their best practices over time.

This article details five tested sets of best practices.

A major research finding is the strong correlation between superior innovation management capabilities and sustainable, profitable growth. Another finding was that, given the mix of industries, the diversity of businesses and the range of sizes in the Best Innovator club, it is striking that there is no correlation between R&D budget and innovation.

Best Innovators first develop and then manage their innovation portfolios. All of them pursue clarity on a fundamental question: what do we want our innovation strategy to do for us?

The researchers found that to get their innovation strategies right, Best Innovators invest upfront in understanding market, technology and service dynamics. They are investing time more than money. Leaders can learn how Best Innovators address innovation management “from the market to the market” and manipulate five areas to improve their innovation performance and propel sustainable and profitable growth.

In a dynamic environment where underlying competition is “for the market,” this chapter examines what happens when entrants and incumbents can instead negotiate for the market. For instance, this might arise when an entrant innovator can choose to license to or be acquired by an incumbent firm (i.e., engage in cooperative commercialization). It is demonstrated that, depending upon the level of firms’ potential dynamic capabilities, there may or may not be gains to trade between incumbents and entrants in a cumulative innovation environment; that is, entrants may not be adequately compensated for losses in future innovative potential. This stands in contrast to static analyses that overwhelmingly identify positive gains to trade from such cooperation.

The Bureau of Economics in the Federal Trade Commission has a three-part role in the Agency and the strength of its functions changed over time depending on the preferences and ideology of the FTC’s leaders, developments in the field of economics, and the tenor of the times. The over-riding current role is to provide well considered, unbiased economic advice regarding antitrust and consumer protection law enforcement cases to the legal staff and the Commission. The second role, which long ago was primary, is to provide reports on investigations of various industries to the public and public officials. This role was more recently called research or “policy R&D”. A third role is to advocate for competition and markets both domestically and internationally. As a practical matter, the provision of economic advice to the FTC and to the legal staff has required that the economists wear “two hats,” helping the legal staff investigate cases and provide evidence to support law enforcement cases while also providing advice to the legal bureaus and to the Commission on which cases to pursue (thus providing “a second set of eyes” to evaluate cases). There is sometimes a tension in those functions because building a case is not the same as evaluating a case. Economists and the Bureau of Economics have provided such services to the FTC for over 100 years proving that a sub-organization can survive while playing roles that sometimes conflict. Such a life is not, however, always easy or fun.

In this paper we look at patents as alternative to trade secrets. We disentangle the disclosure motive for patent protection from the traditional reward motive by adjusting the level of patent protection so as to make the innovator just indifferent between patenting and keeping the innovation secret. Thus, we keep the reward (expected profits) to the innovator fixed and focus on ex post efficiency. When duplication is not feasible and secrecy only entails the risk of public disclosure (a leakage), patents and secrets are perfect substitutes. Yet, a distinctive features of trade secret protection is that it allows for independent creation. The duplicative efforts to reproduce a concealed innovation make patents and secrets imperfect substitutes. If such duplicative efforts are actually exerted under secrecy, patents provide the pre-specified incentive to innovate at least social cost. If, however, the threat of duplication induces the innovator to preemptively license her trade secret, and such licensing agreements allow the innovator to appropriate all the saved duplication costs, then secrets can reward innovative activity more efficiently than patents. Thus, the issue of whether patents are socially preferable to secrets boils down to an assessment of the prevalence and the efficiency of trade secret licensing. The available empirical evidence suggests that licensing of trade secret information is limited and so hints at the superiority of patents.

To explain how technology will replace a great deal of human labor in knowledge markets using a theory of reasoned action applied to demand and theories of procedural rationality, cost structure and system dynamics applied to supply.

Two illustrative scenarios are presented. The first is a third-party Best Treatments site, and its effect on the expert advice pharmaceutical representatives provide doctors. The second scenario is an online higher education business course module with embedded AI.

Both scenarios demonstrate the advantages of online expertise and teaching platforms over the in-person alternative in variable and marginal cost, ease and convenience of use, quality conformance, scalability, knowledge reach and depth and most importantly, speed of evolutionary adaptability. Despite such overwhelming advantages, a number of reasons why the substitution might be slowed are presented, and some strategies firms might adopt are discussed. Opportunities for service scholars to confirm, challenge and extend the conclusions are presented throughout the paper.

Increasing cost structure and adaptability advantages of online technology and AI over in-person delivery of expertise and training services are demonstrated. It is also demonstrated that the innovation-imitation cycle is accelerating because of exogenous innovation in knowledge access and online influence networks and an endogenous effect where imitators accelerate their innovation that drives innovators to accelerate their innovation, which drives imitators to further accelerate their imitation.