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Strategies to Reduce Innovation Risk

Innovating for Impact, like all meaningful change, involves ” Risk “.  The issue is it’s relative whereby what is risky to some is trivial to others.  This is a perception problem that is having a major impact on enterprises – where their risk tolerance is low compared to smaller companies or startups.  So while there are advantages to being a big established organization, over time these become eroded to new companies with new solutions and new thinking.  What is the proof of this ?

A.  52 % of Fortune 500 companies in 2000 are gone !

B.  88 % of Fortune 500 companies in 1970 are gone !

C.  40 % of current Fortune 500 companies are expected to be gone in 10 years !

D.  Enterprises –

  • typically realize incremental gains on new initiatives
  • have much to lose if they screw up

E.  Young companies –

  • have much to gain with a – new solution, business model, a new way to monetize value creation, etc.
  • have little to lose

To enable enterprises get past the challenges and an uneven playing field, the following are important to improve the probability of a successful corporate transformation to be able to Innovate for Impact to meaningfully improve business outcomes –

1. Recognize the Business Model Needs to Evolve

Yale’s Professor Richard Foster recently reported that the lifespan of a company on the Fortune 500 in 1958 was 61 years. Today, that figure has dropped to just 18 years. The first ever Fortune 500 list was drawn up in 1955 and only 12% of those originally listed companies are still in business. Few people will remember the stars of that period – Studebaker, Collins Radio, American Motors, and Zenith Electronics. All gone. More recently we have witnessed ongoing sales declines at Xerox, GE, IBM and others as well as a decline in the rankings of many established companies in the Fortune 500.  Another example of change is the extraordinary story of success and failure at Eastman Kodak. At its prime, the photographic company turned over more than $10 billion a year and employed 120,000 people. By 2012 the 132-year-old company was bankrupt, despite the fact that one of its own engineers first pioneered digital photography and Kodak owned an extensive patent portfolio on the technology. Kodak was so wedded to its wet-film developing service, and photographic consumables businesses that it underestimated the digital imaging market opportunities. The apparent barriers to become an industry leader in novel semiconductors just seemed too great, and they failed to see how new business models might be realized. With a different perspective at that pivotal time, Kodak could have been at the heart of many of today’s products and services.  Interestingly, with the faster rate of change,  the need to deliver new digital services with high stickiness, as well as being more sophisticated in technology, business innovation, managing risk, and monetizing value creation in enterprises – it’s an ongoing challenge to increase relevance and revenue.  Based on history and recognizing meaningful change is difficult – some will evolve, and many won’t !


2. Balance the Attachment to Current and New Products 

Following on from the example of Kodak, it’s all too easy for companies to become fixated on their current products. Successful formats can create a bubble in which the product experience is largely assumed to be a constant, and fear of change can become a suffocating force that stifles all but the most minor of tweaks. This product bubble can be created by a range of factors including mature product categories, power brands, established manufacturing infrastructure and current regulation. But complacency can be a killer. Even apparently mature technologies that have remained unchanged for a long time can be disrupted. Consider the way e-books disrupted the printed book market. And who would have foreseen the rise of vape technology a mere 15 years ago, when the first e-cigarette was launched in the West? Recently the US e-cigarette market leader Juul Labs, founded just over two years ago, was estimated to have achieved a market cap on par with the Ford Motor company !  Who could have foreseen that traditional tobacco brand-owner Philip Morris, would declare its intention to leave cigarette products altogether and invest in reduced risk technology instead? Loving your current product, processes, etc. too much is restrictive and hinders your ability to see new opportunities, potential threats, paradigm shifts, etc.


3. Launch New Products / Services  –  Fast

What do start-ups have that large global companies don’t?  Answer – They’re future oriented, agile, focus, greater risk tolerance / appetite, shorter development cycles, more creative development approaches, lower cost structure, more efficient operations and go-to-market capabilities involving partners and early adopters, etc. These qualities fast-track getting sales and evolving the product to expand opportunities. In contrast, the decision making process, politics, and frameworks of enterprises typically makes new initiatives or disruptive innovation a daunting task. Because of this, M&A is appealing to address the question –  Where’s the next $ billion in revenue going to come from ?  However, with + 70 % of M&A transactions not achieving the desired outcomes, it’s a good reason for enterprises to become more entrepreneurial and get much better at disruptive innovation .


4. Focus on Tomorrow’s Customers

While recognizing traditional market research is important, it’s also like looking into the rear-view mirror to assess the road ahead !  Further, a historical perspective frequently hinders creative exploration of potential breakthroughs and opportunities. In acknowledging the merits of historical information to advise of markets, norms, what existing customers think of your current products and those of your competitors , etc. –  market disruptions rarely come from looking backward.  While a rear-view mirror can provide a perspective on how we got to where we are, to meaningfully move forward, it’s much more important to develop very strong look ahead and innovation skills – to assess and make good on future opportunities. This includes an understanding that to Innovate for impact requires a mindset that is very entrepreneurial, creative and opportunistic – with insight on what organizations will want and what people will expect to improve outcomes. This is a different mindset than incremental or sustainable innovation – which also needs to be done – to address current and near term organization and Customer needs. And recognize to make innovation more rewarding there is a need to get past the status quo or constraints of current products, markets, technology, etc. to deliver new capabilities, improve the User experience, create new ecosystems, etc. that empower people to better perform, deliver new value etc.  This is essential to making a difference, attracting top talent and meaningfully improving outcomes.


5. Question Traditional Innovation Methodology

The classic ‘ innovation funnel ’ model that collects ideas and filters them as development progresses is typically not concerned with where they come from or their quality. Indeed, it often anticipates a ‘ fuzzy ’ or scattergun, concept-generation approach, relying on the Stage Gates to cull and refine ideas in due course. But without high quality insights and targeted solutions, no amount of subsequent refinement is going to help. So before starting to develop a new idea it’s useful to reflect that ideas resulting from narrow market research can have a very short-term horizon. It is often much wiser (not to mention more successful, faster and, in the long run, more cost-effective) to step back and explore the whole field of interest to have a broader context of business potential and market opportunities. Then use the insights and evidence gathered to develop new concepts addressing the areas which are most promising.


6. Connect to the Outside World

Current market or brand leadership, constrained budgets, in-house teams, onerous internal processes, legal misgivings, quality systems, lack of open innovation frameworks, etc. inhibit corporate innovation teams from effectively engaging with the outside world. All too easily the attitude in the enterprise is : “ we’re the market leader, we know what we’re doing, we have processes, we know the market and our customers, what we don’t know isn’t worth knowing, etc.“ While this may work for incremental or sustainable innovation, it is a huge liability when the need is for disruptive innovation. Further, sometimes, other organizations who aren’t even working on your problem inadvertently stumble over something you might be able to use – an insight, an algorithm, a different technology, a new digital approach, a trend that’s changing how your customers think, a new business model, etc.  Should this occur, your product or organization is on the road to me being marginalized or irrelevant, either by a current competitor or a technology based company coming into your space. Many thought-leaders have written on the topic of creativity and the tools and techniques that boost associative connection-making. Amid this, the consistent theme is that the most creative people are constantly making new and novel connections, and the most successfully creative businesses tend to work in a networked, collaborative and multidisciplinary way. Often the catalyst for a game-changing breakthrough comes from stimulus outside the core field of interest. So while deep domain expertise is essential, ignoring the opportunity to engage with external teams and stimuli from other sectors frequently means you miss the early stages of important innovations and future breakthroughs .


7.  Think Long Term, be Lean, and Partner

It’s true that if a business doesn’t look after today, there won’t be a tomorrow. But a balance is needed between what marketing, product management and R&D teams are doing today with how the business is going to thrive in the years to come. This especially matters if delivering a game-changing product or service is your aspiration. No matter how much firefighting is necessary in the short term, in today’s highly competitive world you need to preserve time and budget to focus on the medium and long-term innovation strategies. This time doesn’t have to be limitless, indeed evidence suggests that too little time pressure on your R&D capability has an adverse effect. Reflect on the way start-ups achieve accelerated technology advances during periods of limited time and resources. Many businesses find that selectively supplementing their in-house teams with external expertise stimulates fruitful development, to explore opportunities, determine innovation strategy, targeting startups to fast track evolving enterprise capabilities, developing the innovation mindset, doing an innovation ‘sprint’ or to leverage a new technology, or to free up internal resources by sharing some of the development burden etc. When there isn’t the bandwidth to do everything in-house, internal / external partnering can keep longer-term initiatives moving forward at the same time as running the business while expanding organization capabilities, relevance and opportunities.


Final Thoughts

Today’s businesses need to be more agile and creative to meet the demands of ever more informed, connected and savvy consumers. Organizations are expected to be faster and better at innovation with strong look ahead skills, learning fast, timely pivoting, to be highly competent in delivering new business capabilities that matter, monetizing value creation,  have a top notch innovation team with in-house and external personnel, effectively leverages partnerships, being Customer centric, very good at communications and collaboration, do venturing investing and acquisitions to fast track business progress, etc.  And accomplished at delivering new capabilities with personalized services and a great User experience to evolve the business model, be more sophisticated in digital and in managing risk, developing a more entrepreneurial culture, having leadership effectively articulating an updated vision for the organization.  As mature markets and brands are increasingly threatened with disruption from businesses just a few years old, it is increasingly clear that the old ways of carrying out market research and developing products are becoming less effective. Because of this and knowing how to win in  in an on-line, real-time, all-the-time world, it’s essential to adopt new ways of thinking and working. This is critical to expanding opportunities, increasing relevance and revenue, as well as the creation of significant stakeholder value.  And given the  number of companies dropping off the Fortune 500, it’s clear enterprises need to get much better at innovating for impact.


Feb 19, 2020               –      Ben Strutt / CAIL  Innovation  commentary