Why do companies fund scientific research?

C. Christensen and M. Raynor, in a footnote in The Innovator’s Solution (p. 144), explain why it is rational for large existing firms to have (or fund) scientific research laboratories.

Disruptive innovations usually do not entail technological breakthroughs. Rather, they package available technologies in a disruptive business model. New breakthrough technologies that emerge from research labs are almost always sustaining in character, and almost always entail unpredictable interdependencies with other subsystems in the product. Hence… the established firms have a strong advantage in commercializing these technologies.

In other words, incumbent firms are more likely than startup companies to successfully bring breakthrough technologies to market (even if those breakthroughs are published and visible to all). So it makes sense for a large incumbent company to encourage new breakthroughs via a research lab, as a channel for new successful products or features.

It strikes me as crucial (and counterintuitive) to remember that startup companies are more likely to succeed if the technology they rely on is not a breakthrough. This was certainly the case with internet companies like Amazon, Zappos, Facebook, and Twitter — only after they gained a foothold did they start to develop breakthrough technologies to scale up their products and add new features.

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