Disruptive Innovation: Nothing ventured
In a recent post I emphasised the importance of failure in the innovation process. My engagements suggest that whilst leaders understand this, they struggle with putting it into practice. It’s in our nature to want to remain in our comfort zone, particularly if stepping outside it might have a high reputational cost.
Disruption is not something limited to markets and companies. Disruption should be the calling card of modern-day leaders. Your job as a leader is to shake things up, particularly in respect of organisations where the business model is out-moded. Such business models are process factories, where efficiency is the goal and where the strategic plan acts as an anaesthetic in respect of market sensitivity.
Factories are valuable when they generate cash. But they are a high-risk proposition if they are insensitive to the vagaries of the market and/or are enthralled by the metronomic ticktock of their processes.
Turning up the tick-tock to drown out the sound of reality often leads to overheating in the system. The first elements to burn out are the employees.
Burnt out employees, along with extreme costs management and an obsession with process engineering are all investment ‘sell signals’.
Sack me, I dare you
We need maverick leaders who are comfortable working in an environment where clashing with the leadership team, and thus always being one step away from contract termination, is a sign of progress. Equally important is being in possession of the narration skills needed to convey a vivid and disturbing image of what lies ahead if radical transformation is not embraced.
But I get it!
Some leaders tell me that they get innovation. They are digitalising right, left and centre. They have a variety of new and exciting products in development. They have even acquired businesses along their market’s value stream.
This is all good, but it is not enough. Plus acquired businesses are often subsumed into the mothership. They are reengineered into a mini-me and thus lose what made them attractive in the first place. They are then typically jettisoned at great overall cost.
Disruptive leaders treat the current business as plan A. The focus here is to ensure the factory generates cash for as long as possible. Digitalise where necessary. But don’t buy ping pong tables or leave fruit lying around. It will just make the staff nervous. Create exciting new variants of your products. Just don’t expect this cash flow to last forever.
Disruptive leaders start to build the portfolio out from just a Plan A. They create plans B, C, D etc. Disruptive leaders are in the incubator business. These new plans are not new products, they are new business models with new go to markets and new financial models.
They are not just businesses solely located up and down stream of Plan A, they also occupy non-adjacent markets.
Many of these plans will be home-grown, but some will be acquisitions, which you will leave alone.
However you can share Plan A infrastructure services if they represent better value than the startup can find elsewhere.
Remember not to get carried away with these new businesses. Unsettling your staid colleagues in the c-suite might be fun, but Plan A is critical at this point in time. Do not take your eye off the ball. GE got excited about becoming a software company and largely lost interest in what made it successful. The market wasn’t happy.
Incremental or radical
This feels quite radical. One way to de-risk this is to innovate incrementally, but at pace. Choose your metrics carefully and monitor progress against growth. The sooner you find your new business experiment is an unpivotable failure, the sooner you can dispose of it and reallocate the resources. You are running a portfolio of experiments and like a gardener, weeding is part of the management process.
Building the portfolio
Think of the portfolio as a Rubik’s Cube. A 3 by 3 matrix. Imagine it has three axes:
- Technological advancement.
- Market adjacency.
On the Technological Advancement axis, you have:
- Established technology – Eg. Database, app.
- Emerging technology – Eg. 3D printing, IoT.
- Cutting edge technology – Graphene, Generalised AI.
On the Disruptiveness axis, you have:
- Not disruptive.
- Disrupts your business.
- Disrupts the market.
On the Market Adjacency axis, you have:
- Primary market.
- Adjacent market.
- Non-adjacent market.
Conversations with clients tell me that their innovative activity is often confined to 1,1,1 on the cube, ie. they are using established technologies to develop something undisruptive for their primary market.
This is like having an investment portfolio comprising just Treasury Bills.
The innovations need to be spread throughout the 27 (3 x 3 x 3) cells. You don’t need to have an innovation in every cell, but like any portfolio there needs to be a spread, and perhaps even a bit of crypto in there, just in case.
Running a portfolio of businesses, particularly those that you have built in-house, provides you with an opportunity to develop the next wave of leaders. Those coming up through plan A who are not yet spoiled by an industrial era mindset will make ideal leaders for the portfolio businesses.
Disruptive innovation puts you in the venture capital business. Every business should be in the venture capital business. This in turn will disrupt the venture capital market. Disruption begets disruption. The dominoes are falling…