What we’ve watched this week…four strategies for sustainable innovation and growth
Top innovators see profit up to 17.7% higher than competitors and beat the overall Standard % Poors index by 3% over 10 years, according to consultant BCG. But innovation is easier said than done. So, how do you drive the type of organisational transformation that shifts leadership behaviours and culture, and that results in a steady stream of ideas, from incremental to breakthrough?
In a webinar on leading innovation from USC Marshall School of Business's Center for Effective Organizations, Soren Kaplan, author of the best-selling books, Leapfrogging and The Invisible Advantage and founder of InnovationPoint, shared his four pillars for an innovative company in today’s disruptive world.
Step 1. Define a holistic innovation strategy
According to Kaplan, successful innovators take a portfolio approach to innovation to balance short- and long-term risk and investment. So, the business should be looking at the short-term, one-year quick hits; the things it can do to add value in the immediate term. At the same time, it should look at mid-term innovation, where that value can come in two-three years, and finally it should be investing in the longer-term disruptive innovation, the three-year plus strategy.
Kaplan suggests a model based on 70%, 20% and 10%.
70% of innovation is incremental – related to the core business such as small changes in processes, products, services and strategies. In other words, continuous improvement.
20% should be evolutionary innovation – major advances in the core business for existing customers and markets
10% is disruptive innovation – those revolutionary breakthroughs that change the game, such as new business models, services and products.
But as he says: “It doesn’t really matter what the numbers are. What matters is that you need a portfolio innovation strategy.”
2. Jump to the Next Value Curve
Referencing leading Silicon Valley internet analyst Mary Meeker’s work (below), Kaplan emphasises that the speed of adoption of disruptive innovation is much faster than in previous years. Now innovation is taking years to be widely adopted rather than decades.
In addition to the speed, the wider adoption of Fourth Industrial technologies such as blockchain, augmented reality, artificial intelligence and 3D printing is on the horizon.
“Lots of companies don’t understand the implications of these on their business and especially on their business model,” he says. They need to have a strategy to enable them to jump to the next value curve.
3. Drive New Business Models
Any new business model has to answer the following questions:
i. How do we add the most value to the customer we serve?
ii. How do we make money doing it?
iii. How do we create the most differentiation in our business model?
“This is where the future is going,” says Kaplan. “It’s one thing to look at technology, your products or your services but business model innovation is the future.”
He points to the San Francisco taxi market before Uber and Lyft launched. At that time the market was worth $140m a year. After Uber came long the market grew to $500m a year in San Francisco alone.
“New business models don’t just disrupt, they can expand the pie,” Kaplan says.
4. Create a culture of Innovation
So, how do you create sustainable competitive advantage? Why, you need to create a culture of innovation. Culture drives innovation at all levels, Kaplan says. Yet, according to PwC, more than 65% of companies see culture and skill gaps as the number one barrier to innovation.
Kaplan has developed a model for creating a culture of innovation, which he discusses in his book The Invisible Advantage.
You need to ask yourself some key questions, he says. Do you measure innovation? Do you tie reward to specific innovation behaviours you are trying to enforce? Are you providing your people with the right skills, tools and training? Do you have technology that enables rapid prototyping?
“A lot of organisations do one or two fairly well but the challenge is that this works as a system,” he says.
“Culture norms and values drive behaviour. If some of these don’t exist it can undermine the ability to reinforce those innovation norms and values.”
He concludes that you also need to make sure you bring the outside in, using innovation labs and external accelerators, for example. “You cannot create disruption alone."