Who would have guessed that a movie about blue aliens could teach us anything about new product innovation? Of course, I’m not talking about the movie itself, but the story of how it was made – something that was chronicled in a recent Business Week article – King of the World (Again)

James Cameron, the creator and director of Avatar, has a reputation for making Blockbuster movies with cutting edge special effects that deliver billions in revenue. Films like Terminator, Aliens, True Lies, and Titanic. That’s why Fox was all ears when he came to them with a screenplay for a new 3D film that promised to change the way that people viewed movies and return people to the box office.

But Cameron also has a reputation for going over budget – way over budget. That’s why Fox made a really smart move in managing the innovation risk for this film. They used an assessment and feasibility step in deciding whether to resource the project.

The idea of proving feasibility before funding product development might seem a little buttoned down at first. But it seems to make sense even in a free-wheeling and big-spending industry like Hollywood. With a proposed budget of $237 million, Fox decided that the investment was just too big to jump in one go. Instead they gave Cameron $10 million for proof of concept.

Fox’s approach with Avatar demonstrates another important point too – that invention and innovation are separate activities. The proof of concept wasn’t about the invention or the technology. Cameron had already invested his own money in the invention of simultaneous 3D and 2D film making technology. The feasibility step was to prove that it would be commercially viable.

The movie industry has been hammered by an abundance of leisure time choices including Hi-Def movies on home big screens, video games, TV and the internet. If Avatar was going to be successful, Cameron had to create something so compelling and so unique that people would pay more to go to the theater.

The proof of concept demonstrated that Cameron could deliver on his vision and Fox eventually lined up the entire $237 million. Of course, with box office results hitting the $1 billion mark in its first 17 days, the rest of the story is quickly becoming history.

History that we should try to learn from.

So let me know. What do you think about Fox’s approach and what might you have done differently?

This article appears by permission of the author and was originally published on his Simplifying Innovation blog.

Dalton on Innovation

Mike Dalton is the author of Simplifying Innovation: Doubling speed to market and new product profits – with your existing resources