When Corporations Own Innovation
By the Disruption Lab
It is an amazing time to be working in innovation and disruption and to see how different industries are responding to the quickening pace of change. Living in an exponential world, it is easy to be lulled into a sense of security only to be awoken by the reality that things have changed overnight. When the exponential curve on the graph of innovation turns up — game over for competitors!
We see example after example across industries, with retail being the most recent dramatic example. To identify the most vulnerable companies and industries, look for products and services that are complex, difficult to access and expensive. Industries like healthcare and higher education, along with individual companies in almost every industry, check all the boxes. Leaders in these companies are beginning to recognize the warning signs, but are we moving quickly enough to become the disruptor and not the disrupted?
Even with all the changes and advances in management science, and the ushering in of the fourth industrial revolution, the fundamental dilemma for organizations remains unchanged — how do we execute a business model and reinvent it at the same time? Or more to the point, how do we change out the transmission of a car while going seventy miles per hour down the interstate?
For me, the journey answering this question first began when doing graduate research on the structure of organizations to support both productivity and innovation. This series includes lessons learned from my experiences as a practitioner of innovation — drawing upon sustaining, efficiency and now disruptive innovation.
Over the years and across industries the approach to innovation has taken different forms. During the first industrial revolution when manufacturing dominated, innovation was primarily delegated to R&D departments. Almost every company had an R&D budget and internal R&D department. Some were massive with Bell Labs coming to mind. Even countries had large labs — I worked at Oak Ridge National Labs early in my career. Even now 3M remains a beacon of R&D success, with over 30% of the products they sell today not having been available five years ago.
As we have transitioned from a primarily manufacturing to an information and digital economy, organizations have struggled to find the best path to innovation, trying multiple approaches.
Many have delegated innovation to the marketing function, with some good results, including a focus on empathy for the customer. Many marketing departments, however, do not have deep expertise in strategic innovation.
A lot of organizations have approached innovation from an incremental perspective and have adopted lessons learned from Japan and companies like Toyota. While critical to improving operating efficiency and meeting customer expectations, this approach does not protect against disruption.
Others have simply taken an acquisition approach. These organizations search for startups with innovative products and services and purchase the companies they believe will scale. The problem is that the failure rate for acquisitions may be as high as 70% to 90%, and the approach does little to make the acquiring company’s culture innovative.
Serial entrepreneur turned business school professor, Steve Blank, perhaps best explained the challenge when he contrasted an established organization with a startup. He noted that a company is a permanent organization designed to execute a repeatable and scalable business model while a startup is a temporary organization designed to search for a repeatable and scalable business model.
The key words are “execute” and “search.” Everything from culture to risk tolerance to reward system to organizational design is different for executing an existing business model and searching for a new model.
A lot has been learned about these differences and what works and doesn’t work in the “search” process. In an exponential world, only relying on small improvements will not guarantee survival. In addition to what sometimes is referred to as core and adjacent improvements, a focus on disruptive or transformative innovation is also required.
Disruptive or transformative innovation requires a very different approach than efficiency or sustaining innovation. Attempting to do these innovations inside most incumbent organizations is self-defeating. The system attacks. We have to find alternatives. (to be continued next week in Part 2).
The Disruption Lab helps corporations develop innovative strategies for success. https://thedisruptionlab.com
