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Reasons why ” Innovation ” in Enterprises is a Challenge

Every company wants to disrupt their market or category. But most game changers tend to be new entrants from other categories, entrepreneurs or small, regional, niche players.

It is rare for established brands and companies to really upset the apple cart and upend their competition.

Why is this ?   Why is it difficult for enterprises to develop a new product / service or a business model that is significantly different from the status quo ?

Because of –

1.  A focus on Revenues – from Current Products / Services

Recognizing established businesses prioritize on extending existing revenue streams, yet a big game changing innovation often means changing the rules so that it offers a cost saving to the consumer. A good example of this is Robinsons Squash’d. The consumer can add a few drops of this portable concentrate to water instead of splashing out on a more expensive bottled drink. This is a huge challenge since most enterprises would be incapable of changing things that could jeopardize a profitable line or brand or cannibalizing a profit stream. Bottom line, because enterprises are driven by delivering on their financial commitments to shareholders, limits their ability to innovate.

2.  Near Term Thinking

Established, successful enterprises usually measure themselves against current market players and dynamics, such as direct competitors, market share, corporate capabilities, achieving incremental growth of sales / profits, etc. While this is understandable, few organizations are able to also look at the future from a different perspective / another lense as well as allocate enough resources, including appropriate internal and external expertise – to determine how to better position the enterprise to become more entrepreneurial and agile, change to be more sophisticated at managing risk, expand business opportunities, further increase relevance and revenue, etc. While difficult to do when things are running smoothly, enterprises tend to get braver and more challenging of the status quo when disruption or adversity affects their business – which, over time, will occur to all enterprises. As a result, the ability to balance near term and longer term thinking is very important for long term success of the enterprise.

3.  Narrow Thinking

Companies like P&G and Unilever have a long track record in innovation – but within safe parameters, such as new ingredients, packaging or product formats. They also innovate via breakthrough advertising campaign such as Dove and Cadbury’s Gorilla. They’re very good at tweaking – but rarely change the rules of the game. This is because, as businesses grow, they tend to get fragmented and siloed. Employees are rewarded and promoted for understanding a very small part of the business in great detail. The consequence is that few people in operations, if any, get good at understanding the whole organization, how to examine whole business processes, etc. While it’s good the focus is on the Customer Experience and Engagement Touchpoints, to truly challenge the status quo, the whole proposition – all along the value chain – needs to be rethought. Even seeing the potential possibilities can be very challenging for people in enterprises because it’s difficult to perceive change, the familiarity and comfort with current business, people, products, processes, Customers, markets, etc. and the assumption things will continue, etc. With ” outsiders ” not having this perspective and very motivated to effect change driven by opportunity and self-interest – is why enterprises don’t typically recognize there is a problem until it’s too late.

4.  Product Marketing Over Experience

Most established brands take a product marketing approach rather than focusing on the customer experience. Because this limits the ability to be truly innovative, marketplace disruption usually involves creating a new scenario about how a new product or service is being delivered or utilized. This new story explains to people important benefits from the innovation. Aldi is a good example where they created a new supermarket business model by reducing customer choice and explained why that is a good thing for consumers. The Dollar Shave Club took a provocative and educational stance where they asked – Why anyone would want to pay for overpriced razor blades – when they could have a quality supply delivered to their door every month for less ?

5.  Relationships With Retailers / Wholesalers

Major brands and companies have the power and scale to build strong relationships with current channel partners. These relationships mean a stronger presence in their business, store, etc. and thus increased sales of their products. So of course, these relationships are cherished. However, this reliance can become a barrier for change – especially if there is a need for an enterprise to expand their channels to market – including going direct through online sales, partnering with Amazon, etc. When trying to disrupt a category, new players have no problem with generating revenue in new ways and challenging traditional business models, routes to market, etc. Because of this, it takes a brave company, with great vision and commitment to a new strategy, to establish new terms of business with established Customers, Retailers, Wholesalers, etc.

How to Overcome the Challenges with Enterprise Innovation ….

To enable enterprises increase the rewards from “Innovation” to facilitate a successful “Corporate Transformation”, the needs include having –

  • Enlightened leadership willing to hold themselves accountable to meaningfully improving business outcomes
    ie: double digit growth, successfully entry into new market(s), impressive traction of new products / services, corporate re-structuring so the organization is better positioned for the future, higher P/E multiple, etc.
  • Organization leadership to encourage entrepreneurship and reward innovation – both the successes and failed attempts
  • ” Innovation ” and ” Transformation ” Groups include Internal and External people with high and complementing competencies that are highly believable and excellent at communications
  • An open culture that aspires to develop and has respect for the hard and soft skills required to ” Innovate for Impact “
  • To educate yourself on developing the entrepreneurial mindset, get better at perceiving and managing change, becoming more evidence based and data driven to improve decision making, etc.

…. for example, learn from insights in the book ” Principles ” by Ray Dalio, as well as other books, plus the many articles by firms in the Innovation ecosystem, etc.

Jan 26, 2018   –   CAIL   –   Enterprise Innovation / Transformation Insight commentary