Innovation has become the definitive buzzword throughout large companies across the globe.
More often than not though when executives encourage the masses to ‘go forward, be bold and innovate’, it often amounts to nothing more than lip service.
Innovation is more than just a state of mind and these vocal pronouncements of intent to innovate aren’t met with strategic inputs, and more importantly, successful outcomes.
Yes, we’ve seen the rapid emergence of ‘chief innovation officer’ and ‘head of innovation’ roles across many large companies. We’ve seen the establishment of innovation teams and the odd hackathon being run. Often times this amounts to nothing more than innovation theatre.
Those same ‘heads of innovation’ are often plucked from inside, from roles that aren’t necessarily aligned with innovative thinking, so much as they’re about executing process. Often it’s benefactors of popularity of political navigation contests. I recently asked a ‘chief innovation officer’ from a large accounting firm about his role and the first thing he said was “don’t ask me what I do...I’m not sure yet.” This same executive was hired from within and was previously a partner in a tax practice after having spent more than 10 years in this field. Now there’s nothing in the rule book that says people who come from traditionally mechanical roles can’t be innovative, but to be overseeing the innovation efforts of a 10,000+ employee strong company?
The establishment of these roles and initiatives such as hackathons are all very positive developments in what up until now has been a predominantly overlooked subject.
Today’s volatile business landscape, where technology is driving change ever faster than before, leaves executives with no choice but to try and embrace disruptive innovation in order to stay competitive, lest the companies they manage go the way of Kodak and leave a big black blemish on their CVs.
The challenge lies in the fact that these same executives got to where they are not by embracing disruptive innovation, but by embracing the antithesis of disruptive innovation - I’m talking about a mindset of risk mitigation and process execution. While this may be perfectly fine under conditions of extreme certainty where we’re dealing with familiar products, customers and business models, when it comes to exploring disruptive innovations, we are dealing with unfamiliar and uncertain circumstances. As such, we can’t rely on set processes and “the way things have always been done around here” to deliver successful outcomes.
According to HBS professor and author of The Innovator’s Dilemma, Clayton Christensen, some of the key characteristics that contribute to the make-up of an innovator include:
- challenging the status quo
- taking calculated risks (manage risk by doing)
- asking questions
- taking many small bets quickly
- seeing failure as a necessary way to learn
- seeing threats as opportunities
Contrast this with the attributes that have made corporate executives successful throughout the 20th Century and much of the 21st Century:
- avoiding risk (manage risk by analysis)
- “failure is not an option”
- conforming with policy and procedure
- taking few large bets slowly
So what becomes of this?
Well, try as they might, corporate executives who have an appetite to follow in the footsteps of their peers at companies like Google and Amazon, tend to fail at their innovation efforts because it takes more than throwing money at something and running what amounts to token innovation events to achieve this success.
Innovation must be holistic, ongoing and more than an isolated one off event.
Key processes: How assets are created
Patterns of interaction, coordination, communication, and decision-making through which resources are transformed into products and services of greater worth.
Some common processes and metrics which inhibit disruptive innovation:
- Gross Margin
- Opportunity Size
- Time to breakeven
- End-product quality
- Owned versus outsourced
- Performance Demands
- Brand Parameters
Key values: Culture and how decisions are made
- Just some of the ways that values can be a thorn in the side of disruptive innovation:
- Short-term, incentive based mindsets
- Risk mitigation by analysis as opposed to managing risk by doing
- “The way things have always been done around here”
- Threats are seen as something to defend against as opposed to opportunities to explore
- Efficiency and predictability take precedent
Key resources: Assets, tangible and intangible, that contribute to what an organisation can accomplish.
- Product designs
- Relationships with suppliers, distributors, and customers.
It is imperative that the processes, values and resources of any innovation initiative are perfectly aligned to support innovation. Otherwise, they are doomed to fail despite best intentions.
For example, idea generation contests are often put forward by many large companies as an example of their innovation efforts but also often failing to bear any real fruit. This is because executives charged with selecting winners do so using an existing value set which means they tend to select those safe ideas which satisfies their existing customer base and for which there is an existing market. The result of this is that small, incremental innovations are selected which won’t help a firm catch the next S-curve, and miss out on disruptive opportunities which by their nature are commercialised in insignificant markets initially.
Disruptive innovations help companies catch the next S-curve.
Often times innovation projects are selected based on the margins that they promise, however disruptive innovations initially promise lower margins and not higher profits, so disruptive innovations will again not be selected for exploration.
Finally, if our values only support projects that generate X$ in revenue within the first 12 months based on existing product lines and markets, chances are if we do select a potentially disruptive innovation for exploration, we are likely to pull the plug because it doesn’t generate an increase in 5% of revenues within the first 12 months.
Corporate innovation is kind of like baking a cake, having one ingredient missing can throw the whole thing off.
It may seem like a Herculean task to redesign an entire organisation to support disruptive innovation and it may also seem like suicide given that the majority of revenues rely on existing processes, values and resources - which is why they were put in place in the first place. However, there’s a number of things that companies can do to help align processes, resources and values without turning the mothership on its head, because after all, while we must not lose sight of where the puck is today, unless we have leg skating to where the puck will be tomorrow we will find ourselves trapped under ice.
Some options for large companies to successfully circumnavigate the challenges that misaligned resources, processes and values bring include the following.
Create an independent organisation
Create an independent organisation with its own processes, values and resources and KPIs small enough to get excited by the initial small market opportunity
Example: GE Fastworks
Father of the lean startup movement, Steve Blank, has discussed the merits of requesting the creation of a new policy or procedure from support functions (legal, HR, finance, sales, branding etc.) to effectively support the exploration of disruptive innovation. He calls this, “getting to yes” for corporate innovation. This approach doesn’t destabilize business as usual because we are not changing any of the existing execution procedures, incentives and metrics, rather we are writing new ones for innovation projects.
According to Blank, if we were successful, innovation and execution policies, processes, procedures, incentives, metrics would then co-exist side-by-side. In their day-to-day activities, the support functions would simply ask, “are we supporting an execution process (hopefully 90% of the time) or are we supporting an innovation process?” and apply the appropriate policy.”
Train the Troops
Train the troops in disruptive innovation theory so that they can make better decisions when charged with overseeing innovation projects.
In product development methodologies:
Methods and mindsets such as human centred design and the lean startupeffectively support taking many small bets quickly, failing fast and iterating towards finding product market fit.
According to Eric Ries, author of the lean startup, “Too many startups begin with an idea for a product that they think people want. They then spend months, sometimes years, perfecting that product without ever showing the product, even in a very rudimentary form, to the prospective customer. When they fail to reach broad uptake from customers, it is often because they never spoke to prospective customers and determined whether or not the product was interesting.”
The lean startup advocates getting ‘out of the building’ and putting prototypes in the customers hands as early as possible to get real customer feedback, validated learnings and co-create solutions to real customer problems.
Given that this approach supports taking many small bets, it supports a ‘portfolio investment mindset’ which is imperative to success. While we have historically had a ‘failure is not an option’ mindset in large companies and bureaucracies. The fact is that failure is necessary when it comes to disruptive innovation, not only in the exploratory phase for a single product but across a portfolio. When a VC invests in startups, they invest in 10, expecting, nay, hoping, that maybe 1 will be the big pay off to cover their costs and get a sufficient return on their investment. This is VCs investing in startups who are built to innovate. So why should large organisations who are not built to explore disruptive innovations have any greater chance at success? Simply, they don’t.
Partner with, invest in and acquire disruptive companies
Corporate incubators and venture arms are becoming commonplace.
Google ventures, Citibank Ventures, Westpac Reinventure, Telstra Muru-D and so on.
This is one way large companies can hedge their bets and diversify into different areas and emerging technologies by taking small investments in startups, offering some mentorship as well as leveraging some of their existing resources such as customers,marketing and distribution networks to give startups the best chance of success and subsequently, generating a ROI.
Engage in OPEN Innovation
Outsource internal innovation to external innovators. According to Henry Chesbrough, the term’s originator and director of the Center for Open Innovation at the Haas School of Business at the University of California, “conceptually, open innovation is a more distributed, more participatory, more decentralized approach to innovation, based on the observed fact that useful knowledge today is widely distributed, and no company, no matter how capable or how big, could innovate effectively on its own”.
So what does this mean? Essentially, sharing your problems, challenges and data with the world, in order to leverage the power of the crowd - external innovators, designers, developers, data scientists, startups and so on.
A great example of this Public Transport Victoria’s (PTV) recent Tripathonefforts. Tripathon was essentially an initiative where the public transport data for the State of Victoria (Australia) was made available to the public during a hackathon. With mandate to create numerous ideas and prototypes came out of the event. Perhaps of most significance was a GPS tracking app for buses so people could know when their bus was due to arrive and not just what it says in a timetable. Doing this internally would have been fraught with cost and resource issues but over the space of one weekend, external innovators were able to develop something credible.
Get the RIGHT people on the bus
Create an innovation team and company wide ‘champions’
People underpin everything. If you are serious about innovation you will get people who have been there, done that, understand the trappings and the realities of trying to be innovative within a large organisation and successfully avoid corporate land-mines that destroy innovation.
When it comes to innovation there is simply no silver bullet. Experimentation is critical to finding what works for any single innovation, however by leveraging off what has worked at other organisations we may find what works a lot quicker than if we were to try and reinvent the wheel from the ground up.
The above is not so much a recipe for corporate innovation, rather more akin to take-out for corporate innovation but they should provide a number of talking points to get the conversation started in your organisation.