Rossetti: First of all, I would like to draw a distinction between innovation and invention. Invention is hard stuff, don't get me wrong, but I would say that after the invention there's a tremendous amount of hard work that's required to get a good idea all the way out to the street. And what we try to provide when we talk about technology incubation is an environment where you can fully develop and deliver on those good ideas.

Pelton: It's really about getting out ahead of the market. Understanding where the new opportunities are going to be and then doing the work to take those opportunities and qualify them and understand if they have real value and can really help drive the top line for the company. So you need to do enough work to understand if an idea is a good idea and if it's a relevant idea, and if it's an idea that can generate a reasonable amount of revenue so it then can be driven into the mainline business.

Rossetti: I think it's really important to have a team that's 100-percent focused on what it's trying to accomplish with the innovation process.

Secondly, there's nothing that breeds succeeds like success, which is a way of saying that credibility is important. If you build credibility, people will actually trust you to come up with the good ideas and to follow through on what you said you were going to do.

Finally, it's important to have customers. Now what is a customer in a situation like we're discussing here? The customers that we have in our innovation groups here are actually other groups at Cisco. The output absolutely needs to be clients who want the stuff that we do and who are willing to pick it up when we're done with it.

Rossetti: There's always a struggle between short-term goals and long-term goals. What we're talking about here in terms of innovation and incubation is a more patient process in which you have to focus more on your long-term goals. There's a natural resistance within any organization to doing things differently, so if you're really focused on the short term, doing things in a more long-term way is a challenge. I think you need to find talented, risktaking people who can actually think more in a long-term way and go against the grain of the short-term thinking that many organizations have.

Pelton: I think it's critical to balance business with technology. There are a lot of companies that are able to set aside a group of people and invest in technology incubation, but they don't add business process or business relevance to that.

Pelton: It helps to look at the overall organization. We have a series of groups of different charters focused on further out versus nearer in, and small scale versus large scale.

We have the Technology Center, which incubates new technologies and new ideas and tries to understand what the opportunity are and get them to the next step of being ready to bring into the company. We have our Emerging Technologies Group, which takes nascent ideas that have begun to show promise and turns them into business units. Then we have our traditional Technology Groups, which then systemize those business units and scale them up. So we have a pretty good pipeline for dealing with ideas.

Pelton: The Technology Center is part of Corporate Business Development at Cisco. We take a model similar to the venture capital community. We manage a portfolio of ideas and we try to make sure we've got good balance in that portfolio so that the risk is mitigated. We're covering different markets, and different products segments, and different customer segments.

Within that portfolio we identify good ideas and fund them and invest in them, but we're very careful about not running them on too long. It's not hard to find good ideas and to put them in portfolio. It's really hard to take out the ones that aren't showing promise.

Pelton: One that's on top of everyone's mind today is TelePresence, which began as an idea that one person within the Technology Center was working on. It then moved out from the Technology Center into our Emerging Technologies Group to be incubated into a business unit. Now, it's a brand new business unit for Cisco.

If we go back ten years or more to think about Voice over IP, that also began as a small idea within the Technology Center. We began building our first Voice over IP products; these were voice gateways that had some value for our customers in saving money on leased lines. Today it's a multi-billion dollar business, and we grew that business through lots of internal investment and internal innovation.

We grew it through acquiring companies to add to the portfolio. And we grew it through building an ecosystem of partners and developers that built on top of our voice solution. To me, this is the best example, showing how we apply all of tools in our tool kit to take something from a very small idea to a multi-billion-dollar business.

Pelton: It's important not to get locked into existing assumptions about the market, about products, about ecosystems. And finally, the only way to sum it up is get great people and then manage it like a business. It's not a lab, it's not an experiment. It's a business. So apply business process to what you're doing.

Rossetti: You need to enter technologies and markets that are not yet settled. Those are the areas where you have an opportunity to innovate without spending inordinate amounts of energy trying to make progress.

Another lesson is that it's important to show pragmatic—and by that I mean customer-applicable—results. I would also say that it's important to make your innovation efforts separate but highly connected—a separate organization, working in a focused way, but highly connected back into the organization so that you're always relevant to the show, so to speak.

The most important aspect, I think, is to take risks. Make failure okay. We have talked about pruning your bad ideas as soon as you possibly can. Fail early and fail often is the mantra that I think that we all ought to have.

Finally, have fun. Make sure that it's fun because I think a fun, creative environment is where you really get great pay off.