By John Hagel and John Seely Brown
FORTUNE – Just a few years ago, it would have taken a corporate empire to design, build, and market a hardware game-changer like Apple's (AAPL) iPhone. Today, there's far more hope -- and excitement -- surrounding the little guy, and for good reason.
Many people have noted a shift in the hardware landscape and the emergence of new, smaller companies. In his book Makers: The New Industrial Revolution, Chris Anderson writes extensively about the rise of the "Maker Movement." Paul Graham's recent essay "The Hardware Renaissance" mentions the recent uptick (7 out of the latest class of 84) in hardware startups at Y Combinator. In his blog, Erick Schonfeld wrote that "Hardware is the New Software," and that VCs are pursuing hardware startups more aggressively as well.
The developments in the hardware space are in part driven by the improving price and performance of technology. Industrial tools, such as 3-D printers, CNC routers, and laser cutters, which were previously only available to high-end design teams, are becoming consumer products. An entry level 3-D printer costs less than $1,000. The components for hardware products, such as motors, control devices, and Arduinos (tools to help computers interact with the physical world), are all increasingly powerful and affordable as well.
On the software front, there are intuitive CAD programs available for modest prices or for free. There's even an app that uses a cellphone camera to capture 3-D images of objects so they can be 3-D printed.
New infrastructural elements have also helped new hardware products move from the hobbyist's basement to the startup garage. Before, to get a contract manufacturer's attention, you had to commit to producing high volumes (say 50,000 or more units). But a new class of factories -- mostly in China and Mexico -- will manufacture batches as small as 5,000 units. By filling low-volume orders, these factories have filled an important structural hole in the market: They allow entrepreneurs to launch new products for small consumer groups with little investment. And new funding platforms such as Kickstarter and online distribution channels (also amenable to selling products at low volumes) have decreased barriers to entry.
These developments have provided the right ingredients for the classic model of disruptive innovation: Start by providing a new product to a niche, underserved market and then scale to displace a larger competitor. They have also opened the door for new businesses that can be highly profitable without scaling. Individuals or small design teams can design niche products to cherry-pick profitable sections out of a market while avoiding the high overhead of storefronts and manufacturing.
But the advances in hardware haven't been driven by technology and infrastructure alone. The "maker movement" has been driven by a flourishing of talent. We've watched the emergence of what we call creation spaces: communities, networks, and cultures that encourage learning and improvement. We've observed this phenomenon in many fields, from the arts to professional gaming to extreme sports -- fields where people are striving to do things that have never been done before. Here are some of the common elements we've found among these creation spaces:
As we've studied the creation spaces that have developed around the Maker Movement, we've been impressed by how naturally people learn new skills. In contrast, many of the executives we speak with list talent development and innovation as top priorities, but for all they push, progress remains a struggle. Part of the problem is that most businesses' institutional structures, hierarchies, and cultures actually limit the connecting, exploration, tinkering, and improvisation that make learning and innovation possible. Here are three questions that executives should ask themselves to improve their companies:
John Hagel III, director in Deloitte Consulting LLP, is the co-chairman of the Deloitte Center for the Edge based in Silicon Valley. John Seely Brown is the independent co-chairman of the Deloitte Center for the Edge.
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