5 Lessons from Enterprises and Startups
Digital Disruption and The Pace of Change is treacherous for Companies of Any Size
Here’s a trend that might keep you corporate-types (and your service partners) awake at night: companies are exiting the S&P 500 more quickly than ever. In 1958, the average tenure on the list was 61 years, while companies today last an average of 18 years. As this trend continues about half of America’s most valuable corporations will be replaced in the next 10 years. In his piece for MIT Technology Review, author Antonio Regalado discusses how technological change is shortening the lifespan of great companies. More importantly, he hints that we may be seeing Richard Foster’s “creative destruction” process playing out to a tee; large companies are starting to “get crushed” by innovations made elsewhere.
“Any innovation delivery project — no matter its size — must account from Day 1 for the eventual transition to build and scale.”
In this context, a larger question looms. Can big companies learn to turn their operational mindset into a process to out-innovate the market, much like a start-up? In this post, we dive into the factors that typically hold enterprise innovation back, and explore whether a large company’s core competency in execution can enable the startup mindset to flourish, despite the odds against it.
Why Innovation Stalls in Enterprise Environments:
- Absence of true personal passion and organization alignment for fixing problems
If we take it on faith that necessity is the mother of invention, there’s a distinct divergence in the perception of “necessity” between enterprise executives and their startup founder brethren. Founders innovate because they find a problem that bothers them personally, and are willing to put their livelihood on the line to solve it.
In the enterprise, on the other hand, this desire to drive change can be more aptly characterized as “unexceptional.” Sometimes, innovation is perceived as nothing more than an executive’s pet project, which inherently holds back buy-in. Other times, it starts with someone in the organization who isn’t happy with what they are being asked to do “from above,” so they set out to effect change themselves. Either way, the missing component is usually passion. In the enterprise, innovation is almost always tied to the prospect of a better performance review or a monetary bonus, but the people backing the initiative are always going to receive their regular compensation regardless. There’s a fundamental lack of hunger – reputation and livelihood are rarely on the line, even though the very survival of the company may be.
There’s so much that has been written about alignment in innovation that we won’t be able to do it justice in this article. However, in our experience, an external catalyst of change may be needed – whether it’s a separate business unit with fresh management structure and incentives, a start-up acquisition, or working with an external partner.
- Organizational purpose and alignment of risks and rewards
There are a number of factors that implicitly work against internal advocates who are pushing enterprise innovation forward. Chief among these is the fundamental tenet that everything an enterprise does is designed to mitigate risk, rather than take on risk. Unfortunately, in the innovation delivery journey, playing it safe seldom works.
As big companies attempt to play it safe, it is very rare for a committed project champion to receive carte blanche from their leadership sponsors. More often, the drivers of innovation are not “empowered” to fail. They are told to go forth and get results, but the directive stops short of providing them with comfort to spend what is necessary and if it doesn’t work out, move on. Instead, the sunk costs and the desire to preserve an initial investment turn into a misguided impetus to push a project through, even when it may have lost a clear path to value.
Finally, innovation delivery is rarely granted priority status on the internal IT agenda. IT and development resources focus has always been keeping the lights on. Even if you succeed at getting a project started, the natural regression to mission-critical issues typically means dedication will be short-lived.
All too often we’ve been called on to redirect and save those “run-away trains” of projects. Perhaps better late than never, but many companies have learned the hard way how difficult and time-consuming it is to build innovation as a core competency. Working with an experienced partner for whom innovation delivery is the “day-to-day” not only assures against project failure but also helps create the internal competencies on a set of proven frameworks.
- Addressing the wrong problems – The need for market validation
Most large companies have hundreds and hundreds of problems they could address at any given moment in time. The challenge is choosing the right ones to innovate on. Market validation is crucial to identifying true priorities, but it is a step that is often ignored in service of “being innovative.” At the two extremes, we’ve observed companies going from “this is our vision and if the customers don’t like it, they don’t understand” to attempting to address every customer whim.
More importantly, to address the perennial product design debate about Henry Ford’s: ““If I had asked people what they wanted, they would have said faster horses.” – it’s not about what customers want – that is the wrong question! Customer validation is about understanding what the customer problem is and what needs to be solved. The solution part comes later. Therefore, innovators need to develop empathy with the customer and get to the heart of their issues and understand where the opportunities lie. Digital innovation aside, if Blockbuster Video had taken this simple step to empathize with its customers’ fundamental issue around late fees and then solved for it, Netflix may never have seen the light of day. History wrote a crueler narrative.
Rules of the road for market validation:
- Ask the dumb questions
- Believe you don’t know the answers (alternatively, be less arrogant that you know the answers and what outcomes to drive)
- Start with the premise, “We may not learn anything.”
- Hold “design thinking” sessions to pull out all the possible ways to solve a problem, without regard for whether the company has the ability to execute.
- Expose the friction points early to set the stage for success.
- Validate the pains, opportunities, solution features as well as the business case
- At the end, maintain a mindset that aims to discover all the ways a proposed solution will fail and solve for those.
Remember, without first vetting with customers the reason and business case for innovation, an enterprise may be caught drinking its own Kool-Aid. On the road to innovation delivery, that’s a very dangerous proposition.
For example, a medical waste company we worked with recently believed its electronic service infrastructure and educational add-ons were a key innovative advantage in the market, but after talking to customers, we discovered some basic truths – majority of them were always on the move, did not have the time be at a computer, and did not care enough about compliance even though the provider felt compliance training was one of its unique selling propositions (USPs). The customers outright challenged the company’s perceived USP! And we ended up going back to the ideation phase to better define the necessary digital innovations.
- Misinterpretation of core competencies and what’s needed for innovation delivery
Because of the above factors, smart and effective enterprises generally look to outside partners to help strategize, drive and execute their innovation projects. But again, there’s a subtle flaw in the process. Enterprises do not realize they are actually quite strong in the ideation and prototyping phases of innovation delivery, yet they consistently retain innovation partners who are likewise only competent in ideation and prototyping. Then, at the critical moment when the project is to transition to the build and scale phases, when it needs the most support, the same external partner all too often proves bereft of motivation and resources to move innovation delivery forward. They ultimately view the prototype as the deliverable.
Again, our experience over hundreds of projects over the years has taught us that any innovation delivery project — no matter its size — must account from Day 1 for the eventual transition to build and scale. If there’s no mention at the outset of getting to scale, consider it a red flag on the project.
- The Need for Speed
With the pace of change only accelerating, it is impossible to underemphasize the importance of scalable, agile delivery. The examples of companies inventing or developing solutions that are later seized as billion-dollar market opportunities by others abound. The ability to move from ideation and prototyping to digital innovation solutions that work within the timeframe that the customers expect, or more accurately – demand, is what sets apart the winners in this race.
Focus on PREPARING to make faster yes/no decisions – narrow the goals of your MVPs… give your people more authority to shorten the chain of command … lighten up and let mistakes be part of the learning process. The momentum will inspire your team, fuel participation AND make it easier to acknowledge what works and what doesn’t.
Grasp the Unreachable
Without a proper understanding of their own and their partners’ fundamental strengths and weaknesses, enterprises end up turning what is already a tug-of-war between Ideation and Innovation Delivery into an outright incarnation of Aesop’s Fable “The Fox and the Grapes.” Build and Scale eternally remain just beyond the outstretched hands of ideation, and the innovation project falls flat… y’know, we never wanted those sour grapes anyway…
Creative Chaos – CreativeChaos.co – has been helping companies large and small, new and old, shrink the chasm between Ideation and Innovation Delivery for almost 2 decades. Over these years we have formalized, in our frameworks and processes for innovation delivery, the best of both worlds. We are uniquely equipped to help enterprises emulate the entrepreneurial mindset to be successful in their innovation efforts and also assist start-ups and fast-growing companies operationalize and scale their innovation delivery processes.
Most of the people we talk to are worried about the same risk – keeping up with the speed of disruptive innovation. We are here for you by constantly assessing the best options across technologies and business goals… then applying these to your specific situation with the commitment and velocity needed to deliver.