There are several key challenges that prevent companies from pursuing innovation effectively by using emerging and disruptive technology trends. In this Advisor, we explore these challenges and offer some key strategic questions for innovation planning.
Success Bias, Legacy Baggage, and Fear of Failure
Established companies generally have mature business and operating models, including resources, value chains, business processes, IT systems, and a culture that works well with proven technologies and customer segments that have been the core of their businesses over the years. Disruptive innovations might cannibalize some existing revenue streams/customers or divert key resources/investment from the core business. With quarterly and yearly profits reported to shareholders and the market, organizations often focus more on improving current profitable revenue streams than developing future market opportunities.
Thus, the legacy of current business models and historic success make it difficult to have an unbiased perspective and mindset to pursue innovation for a totally different future, which could require new business models, organizational structures, skills, culture, and mindsets. The ambiguity of designing for an uncertain future, risk of failure, and the unpredictability of ROIs are among the factors that make it harder to gain investment for innovation using emerging technologies unless the organization’s culture and leadership are strong enough to take a longer-term strategic perspective.
Strategic Drift Due to Continuous Incremental Changes
Many incumbent organizations are good at the process of incremental innovations, catering to the needs of current customer segments. For example, most IT service companies respond to the potential of digital disruption by improving current business models and value propositions for existing customers using digital technology trends such as Internet of Things (IoT), big data, artificial intelligence (AI), and so on. However, although it is important to innovate to improve services to current customer bases to increase revenues and profits from current business, the focus on incremental innovation leads to overlooking the possibility of new market/customer segments and totally different value propositions/business models that currently don’t exist but can deliver future sustainable competitive advantage. Incremental innovations can, over time, lead to strategic drift (“incremental responses based on existing capabilities and strategies [that] do not keep pace with the speed of the changes in the external environment”). Disruption from new entrants and competitors that leverage the potential of new technologies can leave an incumbent on the defensive back leg in the market, losing critical time and market position when a disruptive innovation digs into its revenues and profit margins.
Lack of External Long-Term Focus and Strategic Flexibility
An external focus is required to avoid situations of strategic drift, which happens when an organization is too engrossed in incremental strategic changes but overlooks the changes in the external environment and the opportunities/threats that have developed there. Of course, too many changes too frequently in strategy might not be beneficial; however, having a continuous external focus that constantly creates or changes strategies to respond to the external environment’s changes, opportunities, and threats by disruptive alterations to the status quo is essential to stay relevant in the market. Designing for an uncertain future requires the strategic flexibility to identify opportunities in the external environment and reconfigure the current set of resources, capabilities, culture, and structure in the most suitable way in order to rapidly bring new ideas to the market.
A wild, shallow pursuit of too many technology trends can result in consuming organizational resources without achieving results. This lack of productive results might make it more difficult in convincing shareholders and the market of the value of continued investments in pursuing innovation on emerging technology trends. Moreover, not setting the right expectations on the depth of work, investment, and time required to make a market-changing breakthrough can create a sense of disenchantment for organizations and people due to delays or failures.
Lack of Supportive Ecosystems, Partnerships, and Customer Adoption
Not considering other collaborators and partners that you can leverage to fasten and strengthen your innovation journey also leads to major blind spots in turning a smart innovative idea into a market success. To benefit the long-term future of an organization, there must be a clear vision, strategy, and focus on a relevant subset of technology trends to pursue. Though innovating for a future market cannot be done using completely predefined targets and expectations, an organization must have some realistic plans in place on expected best- and worst-case outcomes, an idea of what it’s willing to forgo to achieve its future state, an understanding of the risks and failures it can tolerate, and recognize the situations that might lead to a change in course.
Another major challenge is lack of market acceptance for a breakthrough innovative product or solution, which might be due to a combination of marketing, social, economic, technical, ecosystem, or even unknown factors. Consider the Tata Nano, hailed as a success in frugal innovation, which delivered at a price point of 123,000 rupees (US $2,400) in 2009 as the world’s cheapest car. Unfortunately, uptake by the target customers — car owners who could not afford to own a car previously — was disappointing. As illustrated by the case, however, a lack of commercial success does not take away from the brilliance of the innovation or the learnings it creates for further innovation and advancement in the area.
Lack of Strong Leadership, Innovation Strategy, and Organizational Buy-In
Creating an internal sense of urgency within the organization and convincing shareholders and the market of the need to pursue innovation on emerging technologies (even though immediate returns and outcomes might not be promising in the short term) requires strong leadership with vision, tact, curiosity, commitment, and a sense of purpose. Many organizations fail to deliver on innovation due to the lack of strong visionary leadership to champion the innovation process and manage the risks and the need for substantial investments and time to realize the benefit of the investment.
Some key strategic questions for innovation planning are:
Should we have a separate innovation budget with a certain percentage of organization revenue?
What technologies and opportunities should we pursue?
How can we leverage our current capabilities to fuel innovation for future opportunities and what capabilities must be acquired fresh?
Is it better to buy, merge, or spin off a separate business unit to pursue parallel innovations?
What are the required changes to organizational structures, skills, and resources to enable innovation?
[For more from the author on this topic, see "The Innovator's Imperative."]