I often get a lot of people asking me “what are the biggest challenges of moving large organizations into an open-innovation zone?” My answer is we need to deal with this on a strategic level. The quick answer is “Size” is the No.1 enemy. Most large organizations still prefer to develop/own those innovations even knowing that the chance for success to do it in-house is much lower. The second reason is, it’s not something a division head can do. This has to come from the CEO and the management team to commit to this fundamental shift. They need to admit that their current model is not delivering the needed levels of top line growth and there’s a need to innovate and find new ways to create shareholder value.
It is not easy for any CEO to admit that their current strategy sucks and cannot provide them with the pace they need for accelerated innovation and growth. It is the CEO’s job to place that wake-up call to the management team to help them realize that this is a different kind of game they’re playing. It’s not that they don’t want to be innovative, but it’s just that they don’t know how. My advice is first stop talking about innovation. I have been counting how many times this word appears on annual reports and corporate statements. Innovation is not a slogan; it is about a plan and taking action. It is “doing by learning”. It is “structured play”. It is about experimenting with the unarticulated customer’s needs (often unmet) and what is possible with the business’ capabilities (including technologies). When the two things come together, that’s where magic happens.
Some folks at BCG have written a book called Payback about innovation and their argument was basically companies running out of ideas. In fact, there are too many ideas. The real challenge is taking those ideas and getting them and implementing them in a way that you can make innovation pay for itself. But to say that companies don’t need a lot of ideas to feed the top of the funnel may not be the case. There’s nothing called too many good ideas. The real challenge is how to see the true potential of those ideas and how to bring that into the organization business boundaries. Only by doing that, one can truly decide which ideas should go up the list and which are to come down.
HBS’ professor Christensen has a good theory explaining that large companies have problems dealing with disruptive technologies. Disruptive technologies are "innovations that result in worse product performance, at least in the near term." They are generally "cheaper, simpler, smaller, and, frequently, more convenient to use." Disruptive technologies occur less frequently, but when they do, they can cause the failure of highly successful companies who are only prepared for sustaining technologies. Large companies have large barriers to innovation which make it difficult to invest in disruptive technologies early on. Baggage from precedents (both capabilities and mindsets) hinder any efficient response to disruptive business models. Large companies usually have an established customer base that they must be accountable to. These customers often ask for better versions of current products rather than completely new technologies.
Christensen has correctly stated that it is highly uncommon for firms that manage established lines of business effectively, to anticipate and respond well to a disruptive technology coming from an external agent, much less being able to commercialize one themselves. It is always about the attacker and the defender. But there’s more to this that Christensen did not cover. It goes beyond the general business strategic thinking and goes against the notion that any strategy’s ultimate goal is to maximize shareholder value. We must recognize the fact that if we are going to drive the effort to shape the future of our organizations and societies, rather than have our future defined for us by corporations, all of us need to radically rethink how we can engage in the work of strategy and innovation.
As a strategist for almost 30 years, I can tell you that there what are the 5 big problems with strategic planning that make it virtually impossible for any kind of innovation to emerge or happen:
– Traditional strategic planning assumes that industry boundaries are given
– Traditional strategic planning assumes all firms behave rationally
– Traditional strategic planning assumes predictability
– Traditional strategic planning does not believe in giving away value in the early phase of a big industry shift (open source or open innovation)
– Traditional strategic planning does not value sustainability and social responsibility
Many of those innovations brought by the “Attackers” all have elements that are goes against traditional strategic planning approach. Web 2.0 is powering up a wave of new “Attackers” that can potentially take tens of billions of shareholder value off from the “Defenders”. It is not only about technologies, many are simply riding the Web 2.0 wave to democratize old business models… from crowd sourcing to direct music distribution and peer-to-peer financing. The list goes on and on ….