Fostering Innovation or How to Become Zombie-Friendly. Part I
This is a repost of my old writing from 18.11.2016. This was my outlet to pour out my frustration with how big corporates are dealing with innovation and my trying to fight it (as it later appeared to some extent succesfully).
This is Part I of a series of posts about innovation and why I think the opportunities to innovate are increasing exponentially and why they are not taken advantage of. Here is Part II.
Marc Andresseen once famously said that the software is eating the world (and if you now me well, you have probably heard me quoting it already). I really like the quote since it predicts future of so many industries in just five words. Technology is slowly devouring industry after industry, biting off larger and larger chunks from each one. It is not as much about if this happens, as much as when does it happen. Perhaps the most prominent case is the automotive industry right now, which is under a great threat from tech companies like Google and Apple (gossiped-around project under codename Titan) with their self-driving cars or blockchain companies like Ethereum Foundation, who are threatening to completely render major intermediaries like banks and even governments obsolete. Not even the most traditional industries are safe from the tech companies. It is like a horror movie with “zombies” being some young eccentric entrepreneurs in their 20s, founding companies which make huge financial corporations (Goldman, UBS, Deutsche) and automotive corporations like Daimler and VW hold top-level emergency meetings and sit down with these “youngsters” at the same table and discuss the future of their companies. These “zombies”, “monsters” or “tele-tubbies” (select one based on your horror movie preferences) are creating their own companies and driving the old-school companies out of business. Famous examples are Kodak and Nokia. You might say, “But hey, you named just two companies so what are the odds?”. And I would say that these two companies were market leaders at the time and had huge amounts of capital, analysts, R&D facilities, you name it. But even they failed to keep up, so it is only up to our imagination to figure out how many smaller or lesser-known companies operating in B2B for example have vanished thanks to their more innovative peers.
So far large corporations have not been a very welcoming habitat for “zombies” due to their inflexibility and really thick hierarchical structures. From my observations innovation in big companies happens in two ways. One way is top-down, or in other words a top-level executive calling for a meeting and telling all managers under him to introduce some new process or tech tool which is already successful on the market. The second (which I think is more common) is completely outsourcing all innovation to some external consulting agency, conveniently shifting the responsibility. They also take a best practice out of the industry and without much of a tinkering around it deliver it to their tenth client and cash their hours. Just as there are two ways of “fostering” innovation, I see two major or “huuuuuuge” (hand and lip motions are compulsory) problems with this approach.
Firstly, innovation and best practice is not the same thing. Taking an already-working concept and introducing it to another company is not exactly being innovative. Imagine Edison taking a candle and making it burn brighter. Is he an innovator? I don’t think so. (Nicola Tesla approves this message). The problem with consulting companies is that they do not have any incentive to risk their reputation and implement something completely new because by the end of the day, if this innovative project fails, they are the ones to blame and their reputation (main source of revenue) is damaged. Innovative projects are risky and profitability most likely will kick in only after a year or two, whereas the odds of a best practice project failing are miniscule. They increase several KPIs, which makes some executives happy and hopefully optimizes some processes within a company. Everyone is happy. For now.
Story Time! A while ago I had an honor to witness one major consulting company in action (Hint: the name contains a city in US, industry where they operate and a word meaning there is more than one consultant employed there).
Disclaimer: Characters, companies and businesses in this example are fictional. Any resemblance to actual events or companies is purely coincidental.
So the biggest asset of the consulting team was a long Excel sheet with names and phone numbers of former employees working in the same industry as the company they were currently doing a project in. So what they did is call those people one by one and ask them different questions about how their company is doing X and how successful is the X. They might have done something spectacular after that, something which completely revolutionized the company… but unfortunately I was not there to witness it and I saw what I saw. The problem with external agencies is that for them your company is just one of many accounts, if you fail, they will lose one client, if you fail on the other hand, will lose the whole company. This is why the responsibility for innovating in my onion should be exclusive to the company and be coming from within rather than from the outside.
Second issue in my opinion is the age of people responsible for making innovate/not innovate decisions, this case being the most relevant in the top-down approach to innovation. There is a mismatch between the age of a typical top manager who can push innovation through the thick levels of corporate hierarchy and the age of digital natives, being able to spot the newest trends and technologies and turn them into business cases. A 60+ year old board member deciding how the mobile experience should look like is similar to your grandfather (roughly the same age) advising you what to wear. I in no way am saying experience does not count, but with experience and working for so many years in the same industry, the option of taking an outside and most importantly fresh look at what is going on in the industry is getting less and less likely. This is why there needs to be an active exchange and a bottom-up idea promotion process has to be facilitated.
So to stay competitive and not to succumb to more innovative competitors, big corporations have to find a way not to distance younger and innovative talent from themselves. Daimler is a good example of the corporation which found a way to lure such people with entrepreneurial mindset. They created an initiative called Betahouse. They rented out a house in Berlin, filled it with young talents from various startups, mostly from IT industry and let them work on innovative topics such as AI, autonomous driving etc. Thus they were able to include the “zombies” into their company without scaring them off with the worst enemy of any undead — thick corporate hierarchies by keeping Betahouse separate from red tape and infamous Daimler hierarchies, or levels as they are called.
So if not going the Daimler way or through various entrepreneurial initiatives, what can corporations do in order to get innovators into their company? The answer is M&A. In a recent Tech Crunch article it was reported that we are currently finding ourselves “on a verge of an M&A avalanche”. Old and well-established consumer good companies have been steadily losing market shares, being squeezed out by smaller and more agile companies. They are hardly doing any R&D, since historically those corporations were able to exercise market power and create barriers of entry for new incumbents. Big brands spend so much effort selling their existing products that they fail to plan for the future, then struggle shifting to solve for a problem they weren’t born into. So in order to solve this and to cover up the lack of R&D, corporations are going the easy way and acquire hundreds of various smaller companies and start-ups. This article made me suddenly very much concerned about the industry where I currently work — fashion.
In Part II I will tell why I think fashion industry has very little protection against tech companies, which are already starting to enter clothing industry. Stay tuned!
If you have made it this far, first of all you cannot imagine how thankful I am for your time and as a reward I can offer you this video of pandas playing with a zoo-keeper, enjoy :D
