Part one in our corporate innovation series
Innovation is an act of creation, right? Well … sort of.
Sure, it takes great creativity to be innovative. Tellingly, usage of the word “innovation” really took off during perhaps the most creative periods of the modern era: the early space age, the 1950s, right alongside the UNIVAC (the first commercial computer), the computer language Fortran, the first artificial satellites, TV color broadcasting, optic fiber, the integrated circuit, and most historic of all, Mr. Potato Head.
But nowadays, “creativity” and “innovation” are too often used interchangeably. And while we needn’t split hairs over it, suffice to say, as Theodore Henderson suggested, that the reality looks more like this:
Creativity + Work = Innovation
Too often, “innovation” is associated with startups, with pioneering entrepreneurs, with the solo genius who revolutionizes some sector of industry with a magical new invention. In that context, innovation as creation may be apropos.
But despite the ubiquitous use of the word in incubators and accelerators throughout the world, one question about innovation is even more important in terms of scale and economic impact:
Why is innovation imperative for large corporations?
There’s an irony here. According to CB Insights’ 2018 State of Innovation report, nearly 85% of executives in large corporations said innovation is very important, yet 78% of corporations focus on incremental change.
And corporate innovation is agonizingly slow. Sixty percent of companies said it takes a year or longer to create new products. So there’s a corporate propensity for building rather than partnering or acquisition, and that bogs down innovation. CB Insights found that, while nearly 85% of corporations say innovation is very important and most corporate leaders worry about disruption, most corporations do not invest in preventing it.
CB Insights reports that more than half (57%) of corporations have no formal innovation process in place; rather, execution is “ad hoc and unstructured.”
Today, it’s no longer a question whether large companies should innovate; rather, it’s about how to do it—how to integrate innovation into an organization that may have ossified in its core competencies.
The imperative for innovation is a positive feedback loop between providing value to customers and preserving or growing the company’s place in the market (even in the economy more generally). One sustains the other.
Moves the Needle, the Lean-method consulting firm for large organizations, puts the “Innovation Imperative” in existential terms; essentially: Innovate or die. They argue, as others have done, that the economy is being reinvented, that the economic collapse of 2008 marked the end of the Industrial Age, that the digital Third Industrial Revolution (the sharing economy) is upon us, and there’s no going back.
We’re in an age of accelerated creative destruction.
The 2018 Corporate Longevity Forecast by Innosight indicates that, whereas the average lifespan of S&P 500 companies in the late 1970s was about 35 years, now fully three-quarters (75%) of S&P 500 companies will not be there 15 years from today. Innosight’s “gale force warning” to industry leaders is that “at the current churn rate, about half of S&P 500 companies will be replaced over the next ten years.”
That’s pretty sobering.
Currently the top five industries at risk of disruption are industries we’ve come to expect to be among the most stable, the most resistant to change:
- Media and entertainment
- Financial services
- Education, and
- Insurance (CB Insights)
Not so resistant any longer.
Among the most urgent takeaways from the Innosight forecast is this: “Disruptive change across industries highlights the importance of continual business model innovation.”
In other words, innovation is essential to avoid obsolescence.
Sridhar Balasubramanian, associate dean of the MBA Program and professor of marketing at UNC’s Kenan-Flagler Business School, notes that the importance of successful organizations to build core competencies must be balanced with “strategic flexibility,” that is, “the ability to be good at change, the ability to challenge their past, to challenge their core competencies.”
The necessity for corporate innovation oftentimes collides with what A.G. Lafley and Ram Charan called the “myths of innovation” in their book The Game Changer: How Every Leader Can Drive Everyday Innovation (2008). One such myth is that all innovation is about creating new products when, in fact, successful companies innovate in so many other ways:
- A process like Dell’s supply chain management,
- A tool like Google’s monetization of search,
- A method like Toyota’s Global Production System,
- A practice like Wal-Mart’s inventory management,
- A concept like Starbucks’s reimagining of the coffee shop,
- A corporate structure like Alfred Sloan’s that for decades made GM the world’s leading car company,
- A brand-management model like Procter & Gamble’s.
Also essential to our purpose here is Lafley’s and Charan’s assertion that “Size doesn’t matter.” Companies as large as P&G, Best Buy, GE, Honeywell, DuPont, and HP can innovate just as well as businesses a fraction of their size.
- Innovation allows companies to scale up more effectively, taking on more employees, more customers, and a greater share of the market pie.
- Innovation makes companies stand out by producing something unique or by uniquely improving upon an existing product.
- Innovation helps a company meet customers’ changing needs.
- Innovation helps companies attract the best talent.
Altogether, innovation increases efficiency and productivity, reduces marginal costs, serves customers better, allows companies to capture greater market share, and returns value to stockholders.
Put simply, innovation is necessary for corporations to stay alive, productive and relevant. Or, as innovation consultants RocketSpace puts it, “Those who fail to innovate will become irrelevant in tomorrow’s business and societal landscape.”
tekMountain specializes in analyzing, forecasting and consulting on innovation, entrepreneurship, and critical trends in technology advancement. Be sure to visit us again as our corporate innovation series continues.