Why big companies must become ambidextrous
Big corporations stand today at a crossroads. Under the pressure of new political, social and technological forces, they cannot solely focus on short-term performance any longer. Balancing short- & long-term perspectives has always been key for thriving corporations, yet today this duality has become critical.
Much like Janus, the Roman god of gates & passages, corporations must keep one face looking to the future and one to the past. This duality translates into two corresponding types of innovation: incremental (exploitation) and radical (exploration).
Most corporations traditionally focus on incremental innovation, namely routine improvement through small fixes, aiming at efficiency & operational excellence. Efforts focus on what the corporation excels at and doesn’t go beyond optimizing the core business. Radical innovation, on the other hand, follows a much more hazardous path and doesn’t stick to experience-based action plans. Companies engaging in radical innovation seek to ignite changes that will alter the very rules of the game, be they driven by technology, customer experience or a new business model. Those two ways of innovating constitute corporate ambidexterity.
Incumbents must learn how to juggle both types of innovation. As historical players in all verticals have already seen, core businesses do not resist the assault of new entrants for long. Only the companies managing to balance short-term execution and exploration of the future will remain at the forefront of their industries.
Now, it is common knowledge that corporations already master incremental innovation. The issue at stake is really what’s still holding back radical innovation and how can big corporations better foster ambidexterity?
Companies must create a culture that values the implementation of their innovation strategy
Back in May, Pathfinder hosted its first Dinner to the moon, gathering digital leaders from France’s top companies. As we were all starting to mingle, glasses of champagne in hand, one of the guests shared an interesting anecdote from her first few months as Chief Digital Officer of a global conglomerate. After deciding to terminate an ongoing & costly experiment, she’d organized a small event to celebrate the failure, much to the surprise of her team. ‘Everybody thought I’d gone bonkers’, she laughed. This struck me as a prime example of how large corporations can install organizational change to be more open to the riskier radical innovation. When a leader decides to openly reward failure it sends a message about what type of performance the company values. This is something I have learnt from many corporate figures: to work, a new innovation strategy must be coupled with new metrics. Thus fostering radical innovation internally requires two things — a clear & compelling vision and new incentive programs that value exploration.
Define & share a new vision. The leadership team should first clearly formulate the overarching innovation strategy that they want to implement to reach long-term growth. In a context where ‘innovation’ has become an ubiquitous buzzword, employees expect guidance & clarity from their company on what it wishes to achieve. This is key to boosting motivation and creating fresh momentum internally.
Update the incentive programs. Designing and circulating a new vision around innovation isn’t enough. As illustrated by the anecdote shared by our dinner guest, it is important to also deeply transform the reward mechanisms to institutionalize this new spirit. Concretely, traditional performance metrics must be updated to better reward risk-taking projects. The essential rationale is that what allows a corporation to function today is different from what will make it thrive in the future. Metrics must be adapted accordingly as performance isn’t as predictive as it used to be. For instance, for an employee working on a new & exploratory project, the rewards mechanism shouldn’t be linked to a strict 100% completion of goals but rather to how far they went into the experiment and what insights they collected.
Setting a new performance scheme is a key foundation to build a company more prone to radical innovation. However, deep organizational change takes time and old mental mechanisms can prove very resistant. In order to speed up their exploration, companies must complement their internal undertakings with experiments carried on outside of their institutional borders.
Companies must go where the magic happens: outside
Build a brand-new culture outside of the company’s walls. In order to quickly experiment for self-disruption, large corporates must experiment beyond their institutional borders, fully embracing their ambidexterity. Indeed, operating radical innovation projects while constrained by the legacy organization can slow down project completion. By allocating dedicated human & financial resources to breakthrough innovation, companies can create a new unit aligned with its interests but operating with a new culture and with structures and processes shaped according to its needs, not the corporation’s needs.
Stay focused and thrive on that feeling of urgency. This tactic of externalizing radical innovation while somehow maintaining its connection to the corporation’s main interests isn’t exactly new. Nestlé experienced this with Nespresso in the 1980’s, operating it as a separate entity which grew into its most profitable business unit. As it was focused on the B2C market and threatened to cannibalize the Nescafé cash cow, Nespresso was clearly an early example of self-disruption. This kind of setup allows a team to focus on small markets first, driven by a sense of urgency due to limited resources and a higher likelihood of failure. In the long run, operating outside the company also allows you to experiment with new financial metrics, envisioning a near-future where the collapse of core business is plausible.
In the end, both types of innovation have to be tackled in parallel by ambidextrous organizations, as these two types of initiative are part of a symbiotic dynamic. Clearly, robust performance of the existing business achieved by incremental innovation is needed to fund radical innovation. Eventually, the key is optimizing current performance while building the potential for long-term growth.
