The enterprise as it currently stands needs a reboot
Everything around us is being disrupted right now. Media, education, entertainment, energy, finance, food, health, retail and transportation just to name a few examples. Startups once considered Unicorns have been disrupted faster than they can respond.
We have now reached a point where even our grandparents realise that the world as they knew it has gone. Their enlightenment isn’t because they have read about The Singularity hypothesis — they see it happening all around them.
The history of modern society has shown us that this sort of change has happened before (as brilliantly investigated by Paul Johnson in some of his books). So why should we be concerned? Because we have never faced this level of acceleration in the rate of disruption. This will have a great impact on people’s lives, something I am going to write about it in the future, but for now let me focus on its consequences for the enterprise scene.
Rethinking the enterprise towards new horizons
Companies have been aware of this massive disruption in our economy and have tried hard to respond to it, so hard in fact, that there is a frenzy of innovation initiatives currently going on. Sadly for the majority of corporations, their efforts are not reaping many benefits.
There are some initiatives that are going in the right direction, but unfortunately they are the exception. There is a silver lining in all this failed experimentation with innovation, and that is the unique opportunities to learn and evolve.
The enterprise as it currently stands requires a reboot. This requires current leaders, those with skin in the game to have the courage to do something really transformational. Steve Blank, a thought leader in corporate innovation, sums it up perfectly when he says that “we need to rethink the enterprise towards new horizons”.
The good news is that we already reached a point where interesting solutions are beginning to appear — and as we depart the Frenzy phase and enter the Synergy phase, the clearer it will become.
Before we move on, I am not saying that there is no longer any uncertainty, even as an experienced innovation practitioner and black swan hunter, I have not yet fully validated this hypothesis and there is still much to learn.
Adapting to rapidly changing environments
One of the most difficult things of this phase of innovation frenzy is trying to separate the wheat from the chaff. Some people are saying that most of the initiatives we are seeing today, specially from the corporation side, are innovation theatre.
While this may have some basis in fact, we need to be careful in using this kind of expression, because it can also be used as an excuse to keep stuck in old beliefs and not to break the paradigms needed to survive in these days of disruption. While there may be some of these “theatre actors” there are also the true innovation visionaries, who are able to foresee the best opportunities and driving the right initiatives in rapidly changing environments.
In order to drive our vision into the right direction let’s start by understanding what innovation is. We all heard about incubators, accelerators, hackathons, open innovation, startups, mentors, VCs, agile, design thinking, lean anything. It’s true that they are all related to innovation, but having them does not guarantee that any innovation will actually happen.
According to Steve Blank’s definition, one of the best in my opinion, “innovation is satisfying users current or future wants/needs by turning an idea into a product or service with speed and urgency, using minimal resources and costs”. What makes this description so good is not only its focus on driving our vision to see innovation as venture building, but also its context to rapidly changing environments.
When we analyse corporate innovation using this lens it becomes easier to realise why their initiatives are failing. Facing a reality of continual disruption, where the rate at which technology is disrupting existing companies is increasing and the number of entrants is growing, current corporate organisational strategies and structures have failed to keep pace with the rapid rate of innovation.
Despite a large number of superficial initiatives of change, the main reason why these companies are struggling to find their way to compete is because their leaders are trying to use the same venture building formula that they have always used and we know that this is no longer a solution.
However, where some see crisis other see opportunities. The winners will be the enterprise leaders who have the courage to innovate the core of their venture building formula and to transform the corporation into an agile organisational structure.
According to Steve Blank, the average time of a corporate lifecycle — startup, growth, peak, decline — once 60 years in the 20th century has drastically dropped to 20 years today. In order to adapt to the rapidly changing environments, an organisation needs to be transformed into a continuous innovation enterprise, which takes the best practices from startups and applies it to the corporation.
To illustrate this problematic situation, let’s take a look at the disruption that is currently happening in the fashion industry. The change that ecommerce has been causing is not new, a recent report from Cowen and Company suggested that Amazon will displace Macy’s as the number one US apparel retailer in 2017, but, the biggest impact is yet to come.
Its name is Global Supply Chain by Amazon, a platform that combines capabilities in cargo and freight (airports, cargo planes, ocean freight licenses), fulfilment (warehouses, Fulfilled by Amazon), last mile delivery (Prime Now, drones) and much more, which basically is the Amazon Web Services of supply chain. Its impact can disrupt the fashion industry like never before.
There is a high probability that this new backbone will trigger a gold rush of new fashion startups, which will take the opportunity to fill design-driven niches and sell to consumers in quicker and more efficient ways. So, how are traditional companies like Macy’s going to be able to compete in this battlefield?
Building an ambidextrous organisation
To be able to answer that question we need to first understand the main difference between operating a startup and a corporation. Startups are focused on searching for new business models, while corporations are optimised to execute existing business models.
Innovation plays a crucial role in both models, but there is a fundamental difference between them — startups do disruptive innovation while corporations do incremental innovation.
We are basically talking about two completely different approaches, sometimes opposites. For example, while incremental innovation focus on improving existing capabilities, have low risk, allocates 60–70% of the budget, and expects a ROI in 1–3 years. Disruptive innovation needs new capabilities, has high risk, allocates 5–10% of the budget, and expects a ROI in 4–10 years.
Bearing that in mind, how can we build an enterprise that is ambidextrous, which can achieve breakthrough innovations while relentlessly improving the ways it executes its current business model and serve existing customers?
The answer is by operating independent business units that are integrated into an end-to-end corporate innovation cycle. This means having business units that have different decision makers and teams, which are independent of one another but respond to the same board of directors and are coherently aligned under the same company’s vision and strategy.
These two units are focused on building an agile organisational structure and they need to work together to achieve it, but it is crucial to understand how to integrate them while maintaining their independency.
In the current corporate innovation landscape, organisations are more comfortable when they are focused on incremental innovation. This is natural because they are innovating over an existing, well understood business operating model.
Many organisations have issues when trying to deal with disruptive innovation, but that’s exactly where they need to start if they want to transform into an ambidextrous organisation.
My main focus in this blog post was to bring some awareness about the Corporate Innovation problem and its huge impact today and to drive our vision to some hypothesis to solve it. In future blog posts, I will explore the topic deeper and delve more thoroughly into end-to-end corporate innovation and how organisations can successfully execute this transformation.
This was co-created with Michael Rembach and originally published at the Elabor8 Blog under the title “The Rise of The End-to-End Corporate Innovation”.
