This is a five-part series challenging corporations to take a fresh look at innovation, especially disruptive innovation.
It is an amazing time to be working in innovation and disruption and to see how different industries are responding to the quickening pace of change. Living in an exponential world, it is easy to be lulled into a sense of security only to be awoken by the reality that things have changed overnight. When the exponential curve on the graph of innovation turns up—game over for competitors!
We can see example after example across industries, with retail being the most recent dramatic example. To identify the most vulnerable companies and industries, look for products and services that are complex, difficult to access and expensive. Industries like healthcare and higher education, along with individual companies in almost every industry, check all the boxes. Leaders in these companies are beginning to recognize the warning signs, but are we moving quickly enough to become the disruptor and not the disrupted?
Even with all the changes and advances in management science, and the ushering in of the fourth industrial revolution, the fundamental dilemma for organizations remains unchanged—how do we execute a business model and reinvent it at the same time? Or more to the point, how do we change out the transmission of a car while going seventy miles per hour down the interstate?
For me the journey answering this question first began when doing graduate research on the structure of organizations to support both productivity and innovation. This series includes lessons learned from my experiences as a practitioner of innovation—drawing upon sustaining, efficiency and now disruptive innovation.
Over the years and across industries the approach to innovation has taken different forms. During the first industrial revolution when manufacturing dominated, innovation was primarily delegated to R&D departments. Almost every company had an R&D budget and internal R&D department. Some were massive with Bell Labs coming to mind. Even countries had large labs—I worked at Oak Ridge National Labs early in my career. Even now 3M remains a beacon of R&D success, with over 30% of the products they sell today not having been available five years ago.
As we have transitioned from a primarily manufacturing to an information and digital economy, organizations have struggled to find the best path to innovation, trying multiple approaches.
- Many have delegated innovation to the marketing function, with some good results, including a focus on empathy for the customer. Many marketing departments, however, do not have deep expertise in strategic innovation.
- A lot of organizations have approached innovation from an incremental perspective and have adopted lessons learned from Japan and companies like Toyota. While critical to improving operating efficiency and meeting customer expectations, this approach does not protect against disruption.
- Others have simply taken an acquisition approach. These organizations search for startups with innovative products and services and buy the companies they believe will scale. The problem is that the failure rate for acquisitions may be as high as 70% to 90%, and the approach does little to make the acquiring company’s culture innovative.
Serial entrepreneur turned business school professor, Steve Blank, perhaps best explained the challenge when he contrasted an established organization with a startup. He noted that a company is a permanent organization designed to execute a repeatable and scalable business model while a startup is a temporary organization designed to search for a repeatable and scalable business model.
The key words are “execute” and “search”. Everything from culture to risk tolerance to reward system to organizational design are different for executing an existing business model and searching for a new model.
A lot has been learned about these differences and what works and doesn’t work in the “search” process. In an exponential world, only relying on small improvements will not guarantee survival. In addition to what sometimes are referred to as core and adjacent improvements, a focus on disruptive or transformative innovation also is required.
Disruptive or transformative innovation requires a very different approach than efficiency or sustaining innovation. As noted, attempting to do these innovations inside most incumbent organizations is self-defeating. The system attacks. We have to find alternatives.
In the next installment, we will look at how exceptional organizations are innovating today and dealing with the threat of disruption.
We ended the first part noting that attempting to do disruptive or transformative innovations inside most incumbent organizations is self-defeating. The system attacks and we have to find alternatives.
Ironically, the answer is kind of obvious . If we can’t do the innovation in the organization, move it to the edge or outside of the organization. This often takes the form of a new initiative or “startup” at the edge or outside of the organization. It also may take the form of an innovation lab that generates multiple initiatives and new growth opportunities for a company or even an industry.
An excellent example of a global company doing this is Daimler’s Mercedes-Benz. At the recent opening of its new U.S. headquarters in Atlanta, the company announced a new Lab1886 that will open this summer.
Lab1886, one of four in the world, is a strategically driven approach to innovation, focusing on four themes of the future of mobility: networking (connected), autonomous driving (autonomous), flexible use (shared & services) and electric drive systems (electric). And Daimler points out that, “In addition to state-of-the-art hardware and software, Lab1886 provides qualified staff to give Daimler employees expert support in turning their ideas into new business models, going as far as the spin-off of new subsidiaries.” This recruiting video for Lab1886 employees tells an inspiring story.
Interestingly, as reported by the Atlanta Journal-Constitution, Lab1886 will be separate from the operations of the mothership so that it will have the autonomy to pursue promising internal and external ideas.
Daimler understands that its core automobile business is being disrupted and transformed into a mobility industry. The company isn’t waiting for entrepreneurs to come up with industry-saving solutions that Daimler can acquire. Neither are they just focusing on small core or adjacent innovations. As noted in a recent company release, Lab1886 has launched a competition under the title Daimler in Search of “100 Million Idea.” They are looking for new ideas and business models targeting the number 100 million that could be clicks, new customers, sales, kilowatt-hours, autonomously driven passengers or freight containers. They are searching for big ideas.
Another example of a large global corporation responding to disruption by moving to the edge of the organization to reinvent itself is FedEx, a logistics and supply chain company with package delivery at the core of the business. Along comes a new technology—actually an old technology rapidly moving up the exponential curve—that is threatening the core business. In the supply-chain world, customers have relied on FedEx and its competitors to deliver critical inventory overnight. If instead, these customers could just 3-D print the critical inventory onsite, there would be a major reduction in shipments that could be disruptive to the shipping industry.
Rather than doubling down and just trying to innovate around delivery, making it more efficient and less expensive, or looking to entrepreneurial startups to come up with a solution the company could acquire, FedEx is innovating. In March, they launched Forward Depots, a new company under the leadership of Richard W. Smith, son of founder Fred Smith, that provides FedEx the opportunity to respond to the threat, create a new business with new revenue streams, and better serve its logistics customers with integrated supply chain solutions. It includes Critical Inventory and Service Parts Logistics; 3-D Printing; Repair Center; and the FedEx Packaging Lab.
Leading up to the opening of Forward Depots, FedEx validated these new services at the edge of the organization in Collierville, Tennessee, outside of the core business, in what is referred to as the “proving ground.” Now the company is able to respond to the threat from 3-D printing. The new 3-D print on-demand service is responsive to customers’ needs, providing the capability for customers to reduce inventory, and costs, while still having convenient and timely access to critical inventory.
In the next installment, we will look at a third example involving Cisco and a collaborative innovation process with other corporations.
Image used with the permission of http://thenetwork.cisco.com/.
In the second part, we looked at examples of how large companies Daimler and FedEx are approaching innovation.
A third example is from Cisco and takes the innovation lab concept to another level by bringing together multiple companies collaboratively innovating with customers. The approach is labeled CHILL for Cisco Hyperinnovation Living Lab. It is more event focused than an ongoing process but is notable because it brings together multiple companies, including customers, to co-innovate in sprints using Lean methods.
At the end of a CHILL event, participating companies may choose to invest in the products and services that have been developed. As noted in a Harvard Business Review writeup,
“…[CHILL] focuses on the fast and agile commercialization of ideas without a complicated intellectual property agreement. It also differs from traditional partnership efforts, because it brings multiple partners together at a very early stage all at once. ‘We believe that no one company can deliver the full breadth of technology solutions that customers need at the pace the market requires,’ says Chuck Robbins, Cisco’s CEO. ‘This process brings our teams together with partners, customers, and other companies working to find new business opportunities. Through intense analysis and collaboration, these lab sessions result in breakthrough ideas that can be implemented or invested in by those that participate, including Cisco.’” Managing Multiparty Innovation, HBR, Nov 2016
CHILL is about improvement and innovation, but also is about new revenue streams and growth. Cisco and CHILL participating companies are taking initiative and actively committing resources to the innovation process, as the HBR authors point out,
“Instead of relying on start-ups to create innovations and then buying in to them, organizations taking part in this new process, which we call ecosystem innovation, collaborate to develop and then commercialize new concepts.”
When we look at companies like Daimler Mercedes-Benz and FedEx and Cisco that represent three major industries—mobility, logistics and technology—we see very successful companies that recognize small improvements are not enough. They understand that disruption could be just around the corner, but also recognize that there are opportunities to add new revenue streams and grow. And they are not waiting for startups to come to the rescue. That does not mean that startups are not part of their innovation ecosystem. But it does mean that these companies are owning the disruptive innovation process.
In the first three installments, we looked at Daimler Mercedes-Benz’ Lab1886, FedEx’s Forward Depots and Cisco’s CHILL collaborative innovation process and noted how companies in mobility, logistics and technology are owning the disruptive innovation process.
A basic indicator of whether large companies are following Cisco and Daimler and FedEx in proactively working to counter industry disrupting innovation is the frequency that innovation is a lead topic on executives’ agendas. However, having an agenda item obviously is very different than taking action. Participating in innovation events like CHILL and labs like Daimler’s 1886 represent a much higher level of commitment. We know a company has stepped up when they commit very significant resources to launch a new business like Forward Depots that has the potential to reinvent the company.
The innovation labs popping up around the country are a welcome addition. Many, however, seem to be focused on providing platforms for startups to solve innovation challenges rather than being centers of corporate innovation. This model, while perhaps unintended, appears to delegate innovation to the startups on the gamble that companies can search the startup ecosystem and “plug and play” the solutions they need. Startups are an important part of the innovation ecosystem and can play a critical role in a company’s innovation strategy, but should not be the focus.
While some companies seem to be moving in this direction, the limitations of startups are beginning to be recognized. A recent article published in innov8rs highlights Madrid IE Business School professor Joe Haslam’s concerns about startups.
“Haslam points out that we’ve moved into a new era of exponential technology…that heavily favors the big over the small. And these technologies are not ‘startuppable’ in the same way previous innovations have been….
“‘They require closer integration with corporates who understand regulation, who have specialists, who can put products using these technologies into their supply chain. We are starting an age where the big is favored over the small.’
“The shine of the startup is beginning to fade….
“‘I thought, going back ten years, that more startups would mean more scaleups. What we’re learning is that more startups just means more startups. It doesn’t mean they’re going to be better. In general, saying “I have a startup” is about as interesting as saying “I’ve joined a gym.” Talk to me when you scale.’”
Over reliance on startups is a risky strategy. The high failure rate of acquisitions remains a challenge. Even if the acquisition is successful, most startups will not have a transformative impact on the acquiring company. As indicated by Haslam, they simply do not have the resources to create large-scale initiatives like FedEx’s Forward Depots. With approaches like FedEx, Daimler, and Cisco’s CHILL, because the large companies not only fund but are involved with the new initiatives from the beginning, there is greater opportunity for success.
In the final installment, we will delve more deeply into what owning innovation means for large corporations.
This is the final installment in this series challenging corporations to take a fresh look at innovation, especially disruptive innovation.
In the fourth installment, we discussed how over reliance on startups is a risky strategy. In this final segment, we will look more closely at what we mean by owning innovation and how we know that an organization is really owning it.
When an organization owns innovation, they take responsibility for it, they make it a strategic priority, and they fund it. Rather than leaving it to chance, they create an infrastructure that supports search and discovery, and develop a process that guides agile experimentation and validation. The C-suite is accountable to the board for innovation. And accountability means they measure it, not just report on it—note 3M’s thirty percent of products sold today did not exist five years ago, discussed in the first installment on Monday.
For some industries, owning innovation means not only a company response but also an industry response. When the potential for disruption is so daunting and the challenge so complex, as in healthcare, companies come together, take responsibility and commit resources to co-innovate. And sometimes the co-innovation includes industry customers. When industries own innovation, they not only schedule conferences, set up innovation days, sponsor studies, create challenges and invite startups to pitch contests, they also bring industry incumbents together to actually do innovation. Industry incumbents collaboratively innovating may be the ultimate test of owning innovation.
An example of this type of industry response is currently coming together around the transformation of healthcare. The Disruption Lab is working with industry leaders to create the Center for Healthcare Disruption at OneC1TY in Nashville, Tennessee. The Lab initially will bring together three large healthcare companies—one hospital provider, one ambulatory provider, and one technology/supply chain company—committed to growth and reinventing the delivery of care, to become Anchors of the Center. In addition, three non-healthcare corporations, who are large customers of healthcare, will participate as Founders and drive the work of the Center as customers. The Center will launch in the existing Innovation Commons at OneC1TY and, upon completion of the new building at OneC1TY, move into a much larger innovation lab space. The Center will provide the space, the process and the infrastructure for individual companies, and the industry, to own innovation.
Ultimately, we will know that a company and an industry are truly owning innovation when we start to notice that their products and services are becoming more accessible and affordable—and the companies and industry are growing and thriving.
Experience world-leading innovation models and bring insights to your organization with The Disruption Lab. Learn more about our Global Executive Innovation Program.