In recent years we’ve witnessed not just dramatic creation of value — Instagram, WhatsApp, Uber and Airbnb being the poster children — but also cataclysmic value destruction. Pottering around on Daring Fireball the other day, I noticed Gruber reminding us that Nokia had a market cap of $245 billion as recently as the year 2000. $245 billion. It beggars belief, and they’re not alone — several seemingly too-big-to-fails have, well, failed. We salute you Kodak, Blockbuster and Borders, and on the technology front we’ve bid a speedy hello and goodbye to the digital point and click camera, the un-smartphone and the all-conquering iPod. Even in the software world, iTunes had a monopolistic lock on the music scene, and moments later Spotify and Pandora provided stiff competition.
But no-one cries for that long because, well, they deserved it, didn’t they? We all know that companies that fail to innovate eventually get disrupted, and dismantled, and we all purse lips and nod knowingly as they go down. After all, it’s always been the nature of business to go out of business. I’d say go and ask the original Fortune 500 companies what they think, but only 60 of them are still on the go. The only companies with genuine longevity are those who are always evolving and adapting.
And most CEOs know this. They always save a segment to talk about how important innovation is, and if they’re smart they’ll talk about the value of their R&D portfolio (although maybe don’t look too closely at those numbers). Building resilience into the business will always be a top table priority, and rightfully so. But if that’s the case, then why do so many large companies struggle to drive the patterns of innovation that produce genuine results?
The fact is that many large companies have built their success on a certain way of doing things. Even though many CMOs talk about the fabled 70/20/10 budget split, in my experience it’s more like 90/10/0 – even though it’s the riskiest work that makes the biggest impact. It’s human nature to keep doing things that have been successful in the past even though, to coin a phrase, ‘what got you here won’t get you there’.
So, what to do? In my experience, the challenges can be grouped into one of three buckets: culture, people and process. Let’s look at these one by one.
Culture is usually the appropriate starting point, and the hardest one to fix. There are usually some tell-tale signs. Does the company support and promote innovative practices, such as experimentation and test-and-learn? Does it adopt agile software development practices, driving focus on delivering the highest value first? Does it focus almost exclusively on the same practices it was doing ten years ago? Is there wiggle room for line managers to identify and support the interesting activity that might generate new value? How close are people to customers and their changing needs? By working through these knotty, political cultural issues, and resolving the patterns of communication that suppress innovation, seemingly insurmountable obstacles can start to erode.
And while fixing a culture is hard, finding the right people comes in a not-too-distant second. It can be as scary as hell to change tried and trusted methods, and the people involved need support, training and encouragement. At the same time, you can’t wait around too long to find the right people — especially if the culture is unlikely to attract them — so partnering with someone who can help turbo-charge innovative behaviour, and can help bring your people up to speed, pays quick dividends. No one has a monopoly on good ideas, and so extending the diversity of the team outside your business will generally pay off.
Finally, there’s the process. Boring but essential — it’s the difference between doing innovation, and doing it well. How can you generate the right ideas, and make sure the right ones are selected for advancement? This is one situation where you don’t want the HiPPO to dominate, because they’re often less well connected to the emerging markets. And once you’ve identified interesting ideas to explore, how do you test and learn your way to validation? What time frames should you work to, and what funding and endorsement gates are put in place? For one of our clients we run a regular process that goes from identifying a promising challenge to a customer-tested prototype, a business model and a commercial sponsor in 10 weeks. Your mileage might vary, of course, but getting everyone to understand the process is half the battle won, and de-risks activities from slipping into more conventional, expensive and time-consuming sinkholes.
We’ve seen from recent years that the cycles of disruption are getting shorter and shorter. This should terrify and excite us in equal measure, and spur us into action. One thing’s for sure: the longer we wait to make change, the greater the prospect of someone else doing the disrupting. Just ask Nokia.