Imagine a corporation, operating for 50 years, employing hundreds of people, and making impressive revenue with, let’s say, milk pumps. Nowadays, advisors and newspapers tell the board of the factory about new threats to their status quo and that they have to reinvent themselves, rather quickly. The threat comes from potential new entrants in the shape of technology-driven start-ups, who are eager to find a better solution to their customers’ needs and problems and will take over their market share in no time.
After all, the milk pump company succeeded in their business for 50 years — so are these voices running around and shouting “innovation” just creating bubbles of fear?
Absolutely not. The milk pump factory’s research and development efforts simply are not sufficient anymore. The reasons are manifold: new market dynamics influenced by globalization, shorter product life cycles, faster technology development, customization and many more industry specific movements. Changes that, in the past, took decades but happen within a year today, have to be addresses with entirely new strategies that allow for the needed flexibility in such a fast paced environment.
A New Kind of Competition
Young companies like AirBnb reach the 1 billion USD market value around ten times faster than traditional Fortune 500 Companies like Apple or Volkswagen. How do they realize such immense growth? They find better and faster ways of reaching, treating, and satisfying the customer and do not stop once they found one way. They are innovating 24/7.
Challenges of Corporations
If it is constant innovation that characterizes the new stars, why can’t the milk pump company take a chance and be innovative, too? Every manager or board member must first know why a corporate structure often impedes change in order to trigger a shift. At BRIDGEMAKER, we identified four major hurdles:
We see high-level managers trembling in front of the board. The omnipresent question when working with a corporate team is “What will the board think about that?”. Alteration is challenged too early with these questions and often rejected to avoid exposure. Idea development is limited, and ideas stay prudent or do not reach decision makers. Innovation by its nature does not conform. It must have the freedom to develop.
Established companies focus on enhancing existing processes. Imagine a machine producing cow milk pumps. The machine is optimized in manufacturing this exact product — but when the demand for goat milk rises, our milk pump factory cannot adjust the machine to the new requirements and instead must buy another specialized one. The company’s production line is not adaptable, and this example is also reflected in the organization’s processes. Innovation requires the rethinking of entire systems to be able to react. Corporations and their teams must be agile and adaptable to succeed in the fast-changing market.
People focus and optimize based on their own department rather than keeping in mind the bigger picture of the business, let alone the market. Siloed departments and their employees are more focused on internal struggles and politics than on the challenges they face outside of their organization. Being aware of the customers’ pain points, knowing new players, and understanding the trends of a market is essential for innovation.
Corporations have financial resources but, with their rather conservative, risk-averse culture, they tend to lock up money and talent for too long. Managers are trained to plan and tediously execute those plans and perform according to their predicted numbers, sometimes over time spans of more than 3 years. The unpredictable nature of new ideas does not align with such practices. It has to be OK to change direction when worthwhile alternatives pop up.
What can the milk pump factory do?
Now that it is aware of the problems, what can the milk pump factory do? Most importantly, the need to start thinking about an “innovation portfolio”. A high risk of failure lies in the nature of ideas. We need to get used to the thought that projects will collapse but provide us with important learnings about the right solution, timing, or set-up. Spreading investments over different projects and giving them the freedom to pivot or fail is essential.
For a well-diversified portfolio, the milk pump factory will invest in its own company culture and structure, including a dedicated and comprehensive innovation team. Decades of knowledge and data is a great opportunity to build on, but you need to allocate time and resources in order to strategically leverage these assets. At the same time, corporations cannot become a backyard start-up, so instead of becoming one, they can try to reap all the benefits of a more radical approach to new business models and technology by investing in or cooperating with start-ups. The ideal strategy consists of several different projects, combining internal strengths and external impulses. The initiatives can range from mergers & acquisitions over accelerator programs and venture capital to company building.
In our next article, we will dig deeper into these different initiatives and explain how to combine the strengths of corporations and start-ups.
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