Despite vast amounts of capital and resources, established companies have historically struggled to innovate successfully, leaving market disruption to smaller, scrappier startups. This inability to innovate can lead to a loss of market share and, in extreme cases, a firm’s collapse.
With the very real risks posed to market leaders, the question of why innovation is so hard is a critical one, yet many organisations still fail to answer it effectively. In "The Innovator’s Dilemma", Clayton Christensen links the collapse of organisations that failed to innovate with their perfectly sound management decisions – a fascinating yet worrying fact.
Thankfully, there are ways organisations can adapt. To combat these risks, management needs to treat innovation not as just a side project but as one of their top priorities. This requires the right ecosystem to allow innovation to flourish.
Simply put, every new product or service within a company should be run like a startup, at least until it has traction.
What does this look like practically for a company?
- No ties
- No recriminations
- No customers
- No process
- No biases
- No plan
Note: whilst the titles of each point are extreme and would in many cases be impractical, the intention is to highlight the minimum acceptable level for each organisation.
One of the reasons organisations fail to innovate successfully is a lack of separation between a company’s current and future goals. If the responsibility for both lies with all employees, then they will prioritise the short-term every time.
Therefore, any unit tasked with winning the future must, where possible, function independently of the wider organisation. Whether through an internal function or an external partner, a team with the ability to make decisions in the interests of innovation will be the one that creates something of outstanding value and that drives growth.
Most organisations are executing the plans of a proven business model. When those plans fail, it's bad. A disruptive venture, however, is untested, and so failure in pursuit of product/market fit is not the same as failure to execute a known plan.
Yet despite this fact, companies struggle to adopt a mentality of ‘test and learn’ with disruptive ventures. Managers see failure as a risk to their careers, and so organisations remain risk averse, closed to new opportunities.
Companies need to learn to encourage calculated risks, and to accept that the unknown means you will not get it right every time. Having a safety net allows teams to practise things they wouldn't usually try, and practice, as they say, makes perfect.
If the scout comes back from the east without water, you don’t get rid of them – you send them north.
Improving your offer to existing clients is innovation and it’s important – but it’s not disruptive. In trying to meet existing customer needs, companies miss out on new opportunities for growth and ignore emerging or novel markets. Coupled with the fact that product adoption will eventually decrease, it’s imperative that companies find new ways to create value.
The best organisations can and need to value both kinds of innovation.
Therefore, to support disruption, focus on smaller, niche markets to test out your new idea early with more willing participants. Then, look to grow that market into something profitable. This isn’t theory, it’s been done countless times before with startups and their “early adopters”. For example, Monzo had travellers; Facebook had students.
Go after early adopters, and when the product and market are mature enough, bring the new product to your established customer base and reap the rewards.
While the development process in an established organisation may be robust, it struggles to fit within innovation, where speed is critical and information may not be complete.
In addressing this problem, it is important to create processes that complement innovation rather than stifle it. Therefore, use lightweight, fit-for-purpose frameworks to define the market opportunity, business model, value proposition and key metrics for success. In this way, you can focus on delivering - at pace - in the right direction.
The vast majority of successful new business ventures abandoned their initial business strategy on learning what works and what doesn’t (Christensen, 2011). Ones that failed to remove bias from their thinking struggled to develop new products for new markets.
To be truly innovative, you have to let go of what you think you know and start from a position of curiosity over certainty. The first step in that journey is to avoid the trap of “falling in love with your own solution” (Ries, 2011). In doing so, and in creating an environment that favours data over opinions, you will help to create a better offer, faster.
Sometimes, getting a company to spend less money can be surprisingly challenging. To be awarded a budget – most likely annually – initiatives normally require a plan with deliverables. Such a long-term plan hinders innovation by forcing teams to stick to something known or established, something that might actually benefit from a change in direction.
By remaining lean, you take away the misplaced confidence that can come with a long-term innovation plan. The initiative is now able to adapt much quicker, and in this way far more can be achieved.
I’ve seen new business ventures thrive by committing to, at some level, the above points of interest. It’s a privilege to get to work daily with companies that see the tremendous opportunities within technology to create more value outside of their main offering. It’s a game of experimentation and optimisation. Like a science lab, we’re growing ideas - evolving solutions - and with the right team, process and capabilities, we can end up with something that is revolutionary.
Most importantly, innovation is not just an investment, it’s survival – never has "adapt or die" been so relevant.
Some companies will choose not to do so. Others will choose to do so reactively, and with no clear plan. But some will choose to form a clear innovation strategy with teams that can thrive under conditions of uncertainty. In my opinion, it is they that will reap the rewards.
Those who want a better return have to think about tomorrow as much as today. Tomorrow is already here. What are you thinking?
Christensen, C., 2011. The Innovator's Dilemma. New York, NY: Harper Business.
Ries, E., 2011. The Lean Startup. New York, NY: Crown Publishing Group.