We live in the age of the entrepreneurs. New startups seem to appear out of nowhere and challenge not only established companies, but entire industries.
Where unicorns were once mythical creatures, they now seem abundant and not only increase in numbers but also in the speed of which they can gain their minimum one billion dollar valuations to achieve this status.
But no matter how well things go for the innovative startups, how many new success stories we hear, and how much space they take up in the media, there’s both bad and good news for the large, established organizations, those that we often call legacy organizations. The bad news is that innovation is much more difficult in established organizations than it is in startups because they have much more complex systems. But the good news is that nobody is more likely to succeed in their innovation efforts than established organizations. Because, unlike startups, established organizations have all the resources. They have money, customers, data, suppliers, partners, and infrastructure, which put them in a far better position to transform new ideas into concrete value-creating, successful offerings than startups.
Becoming an innovation champion in these times of exponential change, however, begs new rules of engagement. Many organizations commit the mistake of engaging in innovation as if it were a homogeneous thing that should be approached in the same way every time, regardless of its purpose. But innovation in established organizations must actually be divided into three different tracks: optimizing, augmenting, and mutating innovation. All three are important. And to complicate matters further, organizations must execute all three types of innovation at the same time.
The first track is optimizing innovation. This type of innovation is the majority of what legacy organizations already do today. It is, metaphorically speaking, the extra blade on the razor. When razor manufacturers launch a new razor that has not just three, but four blades, thus ensuring an even better, closer, and more comfortable shave, only to announce one or two years later that they are now launching a razor that has not only four, but five blades – so you get an even better, closer, and more comfortable shave – that is optimizing innovation. This is where the established player reigns. No startup with so much as a modicum of sense would even try to beat the established company in that type of innovation. Continuous optimization, both on the operational and customer facing sides, is important. In the short term. It pays the rent. But it’s far from being enough, because there are limits to how many blades a razor needs, and ultimately optimizing innovation only improves upon the past.
Therefore, the established players must also prepare for the future through augmenting innovation. If you look at the digital transformation projects that more and more organizations are initiating, they can typically be characterized as augmenting innovation. In the first instance, it is about upgrading core offerings and processes from analogue to digital. Or, if you’re born digital, you’ve probably had to augment the core to become ‘mobile first’. Perhaps you have even entered the next augmentation phase, which involves implementing artificial intelligence. To become ‘AI first’ like we see the Amazons, Microsofts, Baidus and Googles of the world are currently doing. This requires great technological advancements. And it’s difficult. But technology may, in fact, be the minor part of the task. When it comes to augmenting innovation, the biggest challenge is probably culture. Because it is only if legacy organizations manage to transform their cultures from status quo cultures, i.e. cultures with a preference for things to maintain as they are, into cultures full of incremental innovators who thrive in constant change, within certain limit, that they can succeed.
To create a strong innovation culture, an organization needs to thoroughly understand its immune systems. The immune systems are the mechanisms, that protect the organization and which operate around the clock to keep it healthy and stable, just as the body’s immune system operates to keep the body healthy and stable. But in a rapidly changing world, many of these defense mechanisms are no longer appropriate and therefore risk weakening organizations’ innovation power. When talking about organizations’ immune systems, there is a clear tendency to simply point to the individual immune system, people’s unwillingness to change. But this answer is too simplistic and sloppy. Of course, there is human resistance to change, but the organizational immune system, consisting of a company’s KPIs, rewards systems, legacy IT and processes as well as investor and shareholder demands, is far more important. So is the organization’s societal immune system, i.e. the legislative barriers, legacy customers and providers and economic climate. Luckily, there are many culture hacks that organizations can apply to strengthen their innovation cultures by upgrading their physical and digital workspaces, transforming their top-down work processes into decentralized, agile ones and empowering their employees.
Augmenting innovation is crucial if you want success in the medium term by upgrading your core and prepare for the future. But to win in the long run and become as or more successful 20-30 years from now, you need to invent the future, and challenge your core, through mutating innovation. This requires involving radical innovators who have a bold focus on experimenting with that which is not currently understood and for which there cannot be prepared a business case. Here you must also physically move away from the core organization when you initiate and run such initiatives. This is sometimes called ‘innovation on the edges’. Because the initiatives will not have a chance at succeeding within the core. It will be too noisy, as they challenge what currently exists, i.e. precisely what the majority of the organization’s employees are working to optimize or augment.
Forward-looking organizations experiment to mutate their core through X divisions, sometimes called skunk works or innovation labs, like Lowe’s Innovation Labs that built instore robot assistants and zero gravity 3D printers to explore the future; partnerships across all imaginable domains; establishment of brand new companies, rather than traditional business units, as we see automakers such as Toyota now do to build software for autonomous vehicles; and radical open innovation such as the ANA Avatar XPRIZE competition, where Japan’s number one airline experiments with creating the future of travel that does not involve flying people from A to B.
The increasing technological opportunities challenge the core of any organization but also create unprecedented potential. No matter what product, service, or experience you create, you can’t rest on your laurels. You have to bring yourself to a position where you have a clear strategy for both optimizing, augmenting, and mutating your core and thus transform your legacy organization. It’s not an easy job. But, hey, if it were easy, everyone would be doing it. Those who make it, on the other hand, will be the innovation champions of the future.