Innovation – Do Boards and CEO’s Understand?

How many Boards, CEO’s and Senior Managers are urging their staff to innovate yet lack the understanding of the culture, skills and processes required and the risks inherent in innovation?

Scott Anthony wrote recently in a HBR blog that companies make the mistake of assuming a lack of innovation is a human capital problem and that few of their staff are capable of innovation. From his research almost anyone can, with practice, become competent in innovation.

His ideas and approaches to avoid in supporting innovation include;

  1. Issue highly focussed challenges (e.g. Netflix offered $1m to any team that could din crease effectiveness of algorithm for movie suggestions by 10% or more. Over 250 teams rose to the challenge and 2 exceeded the goal).
  2. Beware the Googlephile approach of 15-20% off work time to develop new ideas. Whilst this has worked at Atlassian, Google and some other organisations it runs the risk of creating a lot of suggestions that are incomplete and require more research, leading to delays and staff dissatisfaction and finally reduced participation. Scott suggests we instead focus on a small number of people who are given a significant amount of time to develop innovations.
  3. Lets go to the moon” – such bold visions may stimulate a big idea but more likely the ideas will be high risk and, given Board risk aversion, and their desire to prove the future, these will often be considered high risk and not pursued.
  4. Wing it – no need for a budget– lets just grab money from elsewhere if the idea is good enough. This rarely works and companies need to budget for the time and resources to support the innovation/enquiry.

There is no single solution to creating an innovative workplace so it is important to approach innovation from a range of perspectives.  In the Innovators Dilemma Clayton M. Christensen describes his theory of “Disruptive Innovation” and shows how large successful companies, in all types of industries, had been beaten by much smaller start-up companies.

These small companies would get a foothold by starting in market areas that were not attractive to larger players. The start-up, by focussing on lower cost, lower value products that still met the needs of the target customer segment, would then march their way up the value chain. Where these start-up companies did NOT adopt the big company models, but instead leveraged their start in unattractive markets to add superior value that incumbents could not match, then the strategy was “disruptive”.

To predict the success or failure of a new business initiative Christensen suggested four rules;

  • An incumbent that launches an innovation that targets the needs of its current customers can expect to succeed (Sustaining Innovation)
  • An incumbent that seeks to disrupt its own markets can expect to fail
  • An entrant that launches a sustaining innovation – one that targets the most valuable segments of an established market – can expect to fail
  • An entrant that launches a disruption can expect to succeed

“Disruption,” used in a technical sense, is a theory of innovation—of how particular types of new products and services, or “solutions,” come to achieve success or dominance in markets, often at the expense of incumbent providers.

Michael E Raynor, who co-authored with Clayton Christenson The Innovators Solution, has recently published The Innovator’s Manifesto.  According to Raynor Disruption is a theory of innovation that explains how particular types of new products and services come to achieve success or even dominance, often at the expense of once-powerful incumbents.

“From the rise of the telephone in the late 19th century to automobiles for the masses in the 1920s to restaurant meals available to all in the 1950s to Intel in the 1970s, personal computers in the 1980s, low cost airlines in the 1990s and social media sites today – disruption captures the essence of the “creative destruction” that has long characterized modern American capitalism.”

“in 2009 and 2010 by conducting controlled experiments to test the predictive power of different approaches to evaluate the survival odds of early-stage businesses. Test subjects were asked to predict outcomes based on whatever approaches they felt might be appropriate. The results were no different from random chance. When test subjects were instructed on a specific framework – Disruption theory – and were directed to use that framework on a new set of business plans, they improved their predictive accuracy by as much as 50 percent.’

The reality for most companies is that new products/services, new markets and growth initiatives are inherently uncertain and many therefore go for incremental growth. The tools provided by the Disruptive Innovation model may assist in evaluating these initiatives and provide a framework for focussing effort.

Who innovates?  We probably believe most innovation comes from big corporations (Apple looms large in the consumer mindset) but innovation is often undertaken by passionate consumers whose needs are unmet by current suppliers and therefore develop their own solution. These early adopters then stimulate increased demand and eventually the major companies realise there is a market large enough for them to serve.  An important aspect for companies is how they interact with and garner consumer ideas for products or services.  See Charles Leadbeater speak at a TED conference about the role of passionate and knowledgeable consumers in innovation on Ted (click below).

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About Curious and Interested

Former Leader and Manager now trainer and Learner. Enquiring, Curious, Buys more books than can ever read but still reads a lot and listens to audiobooks. A sucker for gadgets...Ipad, Kindle, Chromecast, apple watch. I aim to improve understanding and cause reflection. Not claiming to be the expert.
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