Inside H-P's Idea Incubator

Like a baseball scout hunting for a hot prospect, Hewlett-Packard's(HPQ Quote) Phil McKinney has racked up frequent-flier miles and turned over every corner of his home turf.

The object of his quest: the next breakthrough concept with the potential to set H-P's laptop and desktop PCs apart from the pack.

"Those ideas come from everybody. I've gotten them from kitchen workers in the H-P cafeteria," says McKinney, recounting a suggestion for a new type of computer keyboard he picked up while grabbing lunch at the company's Palo Alto, Calif., headquarters.

McKinney will evaluate several hundred new ideas in the course of a year, ranging from computer displays to packaging for computers. Only a handful will get the green light from H-P's innovation program office, the group headed by McKinney, which celebrates its one-year anniversary this month.

In the increasingly commoditized PC business, McKinney's is an odd role. With success in the PC market largely determined by the ability to drive costs down, spending time and money on innovation seems futile, if not counterproductive.

As growth in the PC market slows from its historical double-digit levels, H-P is using its new innovation program office to find ways to expand the business while maintaining the tight focus on containing operating costs that characterize the company under CEO Mark Hurd.

Borrowing a page from venture capital firms, the group doles out funding to the most promising technology and ideas it finds within H-P and outside the company.