Company Innovation - IELTS Reading Answers & Explanations

You should spend about 20 minutes on Questions 28-40, which are based on Reading Passage 3 below.

Company Innovation

A In a shabby office in downtown Manhattan, a group of 30 AI (artificial intelligence) programmers from Umagic are attempting to mimic the brains of a famous sexologist, a celebrated dietitian, a popular fitness coach and a bunch of other specialists. Umagic Systems is an up-and-coming firm, which sets up websites that enable their clients to seek advice from the virtual versions of those figures. The users put in all the information regarding themselves and their objectives; then it's Umagic's job to give advice that a star expert would give. Even though the neuroses of American consumers have always been a marketing focus, the future of Umagic is difficult to predict (who knows what it'll be like in ten years? Asking a computer about your sex life might be either normal or crazy). However, companies such as Umagic are starting to intimidate major American firms, because these young companies regard the half-crazy 'creative' ideas as the portal to their triumph in the future.

B Innovation has established itself as the catchword of American business management. Enterprises have realised that they are running out of things that can be outsourced or re-engineered (worryingly, by their competitors too). Winners of today's American business tend to be companies with innovative powers such as Dell, Amazon and Wal-Mart, which have come up with concepts or goods that have reshaped their industries.

C According to a new book by two consultants from Arthur D. Little, during the last 15 years, the top 20% of firms in Fortune magazine's annual innovation survey have attained twice as much the shareholder returns as their peers. The desperate search for new ideas is the hormone for a large part of today's merger boom. The same goes for the money spent on licensing and purchasing others' intellectual property. Based on the statistics from Pasadena-based Patent & Licence Exchange, trade volume in intangible assets in America has gone up from $15 billion in 1990 to $100 billion in 1998, with small firms and individuals taking up an increasing share of the rewards.

D And that terrifies big companies: it appears that innovation works incompatible with them. Some major famous companies that are always known for ‘innovative ideas', such as 3M, Procter & Gamble and Rubbermaid, have recently had dry spells. Peter Chernin, who runs the Fox TV and film empire for News Corporation, points out that ‘In the management of creativity, size is your enemy.' It's impossible for someone who's managing 20 movies to be as involved as someone doing 5. Therefore, he has tried to divide the studio into smaller parts, disregarding the risk of higher expenses.

E Nowadays, ideas are more likely to prosper outside big companies. In the old days, when a brilliant scientist came up with an idea and wanted to make money out of it, he would take it to a big company first. But now, with all these cheap venture capital around, he would probably want to commercialise it by himself. So far, Umagic has already raised $5m and is on its way to another $25m. Even in the case of capital-intensive businesses like pharmaceuticals, entrepreneurs have the option to conduct early-stage research and sell out to the big firms when they're faced with costly, risky clinical trials. Approximately 1/3 of drug firms' total revenue is now from licensed-in technology.

F Some of the major enterprises such as General Electric and Cisco have been impressively triumphant when it comes to snatching and incorporating small companies' scores. However, other giants are concerned about the money they have to spend and the way to keep those geniuses who generated the ideas. It is the dream of everyone to develop more ideas within their organisations. Procter & Gamble is currently switching their entire business focus from countries to products; one of the goals is to get the whole company to accept the innovations. In other places, the craving for innovation has caused a frenzy for 'intrapreneurship'—transferring power and establishing internal idea-workshops and tracking inventory so that the talents will stay.

G Some people don't believe that this kind of restructuring is sufficient. Clayton Christensen argues in a new book that big firms' many advantages, such as taking care of their existing customers, can get in the way of innovative behaviour that is necessary for handling disruptive technologies. That's why there's been the trend of cannibalisation, which brings about businesses that will confront and jeopardise the existing ones. For example, Bank One has set up Wingspan, which is an online bank that in fact compete with its actual branches.

H There's no denying that innovation is a big deal. However, do major firms have to be this pessimistic? According to a recent survey of the top 50 innovations in America by Industry Week, ideas are equally likely to come from both big and small companies. Big companies can adopt new ideas when they are mature enough and the risks and rewards have become more quantifiable.

I Can all the creative destruction, cannibalisation and culture tweaking render the big firms more innovative? David Post, the founder of Umagic, cast doubt on this issue, ‘The only successful intrapreneurs are ones who leave and become entrepreneurs.” He also recalls with glee the look of incomprehension when he tried to convince the idea lab of a big corporation such as IBM of his ‘virtual experts' idea three years ago—though, he delightfully adds, ‘of course, they could have been right. Innovation, unlike sex, parenting, or fitness, is one area where a computer cannot tell people what to do.”