It doesn’t take much to realise that most innovation success stories seem to be eerily similar. That is, they all start with an entrepreneur with a great idea. This idea evolved from the need to solve a problem the entrepreneur experienced.
To solve their problems entrepreneurs use methods and tools that intellectuals now call ‘design thinking’, 'startup methodology', 'ideation' and a voluminous number of other labels relating to techniques that generate creative ideas. Yet despite the similarity of these traits there is one thing that is absent, in the most part, from the success stories - Large corporate businesses.
This is not from a want of trying though. There is no doubt big business is attempting to challenge itself to change, to keep up with it's competitors and impending threats of disruption from small startup businesses and entrepreneur.
But why are so few succeeding?
John Kotter in his HBR article best summarises the reasons when he says;
“We cannot ignore the daily demands of running a company, which traditional hierarchies and managerial processes can still do very well. What they do not do well is identify the most important hazards and opportunities early enough, formulate creative strategic initiatives nimbly enough, and implement them fast enough.”
However one thing is clear, it is to easy nowadays for large companies to claim they need to be more innovative, even if they do not fully understand what innovation is or how to drive a culture of innovation in their businesses. Generally speaking, innovation, and in particular disruption, has generally come from small entrepreneurial businesses with agile teams and few organisational restrictions such legacy systems, customer dependancies, staff dependancies or shareholder expectations and requirements.
But why can small organisations, entrepreneurs, out innovate large corporates? After all you don’t need to be an Einstein to see that entrepreneurs generally lack adequate funding, have limited technical skills, limited management experience and lack access to their target market. It would seem they are destined to failure.
However when you compare this to the large corporates it becomes even more bewildering because the large corporates have few if any of these challenges. They have easy access to capital, in-house resources and skills, (or at least the access to find and fund them), deep management experience and access to customer markets, existing and new. It would seem they are destined for success.
So why can’t they achieve the ground breaking innovations and disruptions we would logically expect to come from such well funded and resourced companies?
Depending on which books you have read and what articles you subscribe too, there are a number of reasons you could argue why these big businesses here in Australia fail to deliver like an entrepreneur;
First and foremost, if you are striving for disruption, whether big or small, you cannot do it easily if you are 'inside the egg' (commonly referred to the walls of your own business/industry). Few established businesses I am aware of have the management strength, commitment to change and foresight to disrupt their business to the point where they themselves become irrelevant. In most cases, well almost all cases, their requirement to protect their 'cash cow' simply forbids it, so is unlikely to ever happen.
One very obvious example comes to mind - Kodak. Kodak had the digital camera well before any of their competitors but they did not act on it. Their film business was their cash cow and disrupting it did not make commercial sense. This is referred to as 'resource dependancy’. A term coined by Clayton Christensen in his book ‘The Innovators Dilemma’.
This lack of desire to disrupt your own market is not uncommon. You need only look at some of the early disruptors, the success stories, who now focus on disrupting adjacent markets rather than their own. Some examples;
1. Tesla disrupted the home energy storage market with the tesla Powerwall.
2. Amazon disrupted the ebook market with the introduction of the Kindle.
3. Uber disrupted the food market with the launch of Uber Eats.
4. Red Bull disrupted the publishing market by producing a range of sports content for media houses.
5. Fujifilm is working to disrupt the cosmetics industry with the launch of Astalift.
6. Google disrupted the mobile phone market with the launch of Android and its range of Nexus phones.
And the list can go on. These are just a few famous examples of adjacent market disruptions.
The CEO mechanic
A second likely reason is the focus and strategy of the CEO. A healthy majority of CEO’s will tell you that their mandates often do not extend to include significant change of the business model. Rather, their mandate focuses on making the machine run smoother and more profitably. You only need consider organisations like big banks or Telco’s that have contracted out their workforces' to cheaper international options, rather than drive a culture of innovation that could change their business.
Lack of senior management support
Included in this list is likely to be lack of 'real' support. Unlike the product or R&D department who can push out a new product into a market, implementing a new business model which requires wide range executive support across an entire business is very difficult, if not impossible for most businesses. More so than any other items here this has to be a major contender for the most common limitation of companies who struggle to innovate.
Lack of experimentation
Less obvious than previous points could be the mere lack of a culture which encourages experimentation. No matter what the idea or how good the team that comes up with the idea is, it is exactly that - an idea. It has been built on a range of assumptions and therefore needs to be trialled and tested before it is developed into a product ready for launch. It is the experimentation stage which allows you to adjust or improve the idea based on real time feedback and response (often called a 'pivot'). This all or nothing approach can stifle businesses from launching new products and services.
Failure to pivot
Probably the most important aspect of any process of innovation is to accept failed test results as an indicator that something needs to change, not that something failed. This is where start-ups excel and large businesses struggle the most. Entrepreneurs don’t really have a choice, if their product does not perform well (as this is the only product they have) they must change it to survive. Large businesses on the other hand have a choice to kill a product off or hold it back until it does work. This has the effect of slowing or killing off the product. It's exactly what Kodak executives did.
Well, many of these points and ideas stemmed from books we have read around innovation and experiences we have had with our clients. One of those books, which happens to be my favourite read, is Clayton Christensen’s book ‘The innovators Dilemma’.
However, Clayton’s book and its subject matter was largely based on American organisations, their structures and styles of management. And while there are strong similarities between Australia and the United States, our business and economic environments run to different beats.
Our natural tendency was to question how real these challenges were in Australia, within our large corporates.
That is not to say that Clayton’s book was not relevant, we just wanted it to be directly relevant to the organisations we know in Australia. More to the point, we wanted them to be directly relevant to our business networks.
As part of an innovation consultancy, if there is one thing I know it’s that you can’t learn this stuff from a book alone or from just your own startup experience. Every startup is different and when you are in the egg, you see things differently to when you are in a large corporate where the emotional tie to the organisation is less intense.
It’s easy to say all this, but how do you go about getting the information? You do your own research and use the structure of what you have read to find the supporting facts. And that is pretty much exactly what we did.
We challenged ourselves.
The interview series
We set our consultancy a goal to interview several of the senior innovation managers in large Australian based corporates to get an understanding of exactly why they felt innovation eluded large organisations. It is important to note that the interviewers were not making direct comments about their current employers. In fact most were drawing from their years of innovation experience and their challenges to get colleagues and executives to think differently.
The best people to talk about innovation are people who work in the industry every day. You may be thinking that this seems senseless. But think about it. We were just about to interview some of the most influential people in their respective businesses who are tasked with the job of driving innovation and in some cases disruption, in their organisation or industry.
Over the next few months we will publish all 8 interviews from these innovation professionals from companies like;
- Australian Unity,
- Lion Nathan,
- Downer group and a few more.