According to the Oxford English dictionary the definition of innovation is “the introduction of new things, ideas or ways of doing something.” It’s probably the biggest business buzzword of the twenty first century. Why then, does the term have such negative connation? And, crucially, why is so hard to get right?
The word ‘innovation’ has been pitted as the solution to every business ill – keep thinking ahead and you’ll see off competition from other companies in your industry and any startups trying to get a slice of your sector’s pie. Businesses have invested billions into innovation programmes, with varying success. In fact, according to a survey from IESE’s Entrepreneurship and Innovation Center, just 23% of companies said their innovation units have delivered a significant innovation. No wonder so many people are getting sick of hearing about something that just isn’t delivering results.
The cycle cannot go on. Businesses are being impacted by a multitude of market forces, such as rising costs, increased competition and new business models. The average age of an S&P 500 company is under 20 years, down from 70 years in the 1950s, according to Credit Suisse. In a recent Fortune 500 review, almost 50% of companies a decade later were gone. It’s the classic ‘innovator’s dilemma’ as described by Clayton Christensen:“companies rarely die from moving too fast, and they frequently die from moving too slowly.”
If sitting back isn’t an option, but current investments aren’t working, what is the solution? The best place to start is by looking at what hasn’t worked, so we can rethink the approach. First thing’s first, we need to think about what ‘innovation’ actually means. To date, it has been seen as either a bit of theatre, running hackathons, sponsoring accelerator programmes or technical activity, typically the digitisation of parts of the existing business. It’s perhaps no surprise that ‘AI’ and ‘machine learning’ are viewed to be so exciting; if we can automate swaths of the company then we can save costs and boost profits.
However, it’s much more than that. To succeed you need to look beyond theatre and digitisation to a driving a sustainable and scalable transformation programme that evolves your business model and value proposition to meet your future customer needs, so you can maintain and grow shareholder value.
The issue with typical ‘innovation’ programmes are they ran in silo, devoid of buy in from the business and addressing challenges that solve for today’s issues not tomorrows. Therefore, it becomes a project, which is more of a tick-box exercise run on a budget that isn’t enough to adequately test, build and measure initiatives.
And, measurement is key. Without a doubt the biggest challenge with enabling business transformation is balancing the programme with business-as-usual, as this is measured on KPIS and short-term financial targets.An MD of business unit is not incentivized to spend budget on a team where he cannot see the outputs.
Squaring this requires a fundamental shift in the way organizations are designed. Business transformation will only succeed if it led by the top and supported with a budget that isn’t short-termist. The culture needs to support the drive to change and adapt to customer needs. If you focus on what other players are doing and react to them then you’ll always be on the back foot.
New models succeed when customers embrace them, so customers must always be the starting point – what do they want, how you can do it differently and actually lead? It’s not enough to say your company is innovative – you need to be actively transforming to what customers want.