“The day I took on my new role I said that our industry does not respect tradition — it only respects innovation.” (Satya Nadella, CEO, Microsoft)
Although it may seem strange to some of us to think of Microsoft as being in any way “traditional”, the tech giant is now well into its 40’s and Satya Nadella is their 3rd CEO, taking over from Steve Ballmer in 2014.
Microsoft is of course a cornerstone of the global tech sector, a major multinational corporate. But do Nadella’s words only apply to the technology industry? Finance, Food, agriculture, manufacturing, pharmaceuticals, health, mining, energy, government – do these industries, or their customers, really respect tradition over innovation?
A recent study by IBM, the ‘Global C-suite study’ into what over 5,000 CEOs fear the most, shows that they were most worried about industry disruption. Some of their thoughts are quoted below. Harvard Business School Historian Nancy Koehn said “They are nervous about being made obsolete, being squashed in terms of their profit models, their customers being taken away…by entities like Uber, even if they’re not in the the transport business.”
“Disruptive technologies could change the fundamentals of our business and cause totally unpredictable effects, if they become widespread.” Kazuo Hirai – CEO Sony Corp – Japan
“The biggest threat is new competitors that aren’t yet classified as competitors”Piotr Ruszowski – CMO Mondial Assurance – Poland
“The biggest challenge is developing the future while dealing with the past. It’s like trying to fix a leak house while installing solar panels at the same time.” Rob Briggs – CHRO Aviva Insurance – UK
And CFOs also agree that there is much to fear; a separate study by Accenture, this time on how CFOs view the future, shows that 58% believe that their industries will be disrupted. 41% believe that disruption will take out their competitors, and 24% believe that disruption will destroy their own company. Despite these fears, the Accenture report, titled “CFO Reality Check”, also showed that most are not doing very much about it.
None of this should be surprising. Corporates naturally, and quite logically, prize execution of known drivers of profit above all else. Large companies are set up to do the same thing, over and over, really well, at higher and higher scale and lower cost, that’s how they drive value. As Peter Thiel, co-founder of Paypal, explains in his book “From Zero to One”, Volkswagen and Toyota are not in the business of re-inventing the car – Tesla, Alphabet and Local Motors are much better at that – but rather they are in the business of churning out millions of them each year. The same principle applies to energy companies, retailers, consumer goods manufacturers…even banks. They may occasionally come up with a super-slick new mobile banking app, but that’s not going to transform the banking industry.
In a New York Times interview some time after taking over, Microsoft’s CEO talked about some of the challenges of corporate innovation: “Culturally, I think we have operated as if we had the formula figured out, and it was all about optimising, in its various constituent parts, the formula. Now it is about discovering the new formula. Any organisational structure you have today is irrelevant because no competition or innovation is going to respect those boundaries.”
He went on to discuss the importance of not ignoring small innovations: “When you have a $70 billion business, something that’s (only worth) $1 million can feel irrelevant. But that $1 million business might be the most relevant thing we are doing.”
Driving a culture of innovation in a large corporation is clearly hard, but more than ever before, it’s critical to growth and competitive advantage.
Most corporations are of course currently experimenting with new methods of innovation, in our experience they tend to be somewhere on a journey that looks something like this:
1 – Think about innovation – Realise that traditional methods of internal R&D and external engagement with traditional suppliers or universities certainly aren’t the whole answer or fit for purpose in the 21st century. Visit Silicon Valley, meet with Facebook and Google, set up tours of technology incubators. Send executives on a coding course to learn about apps, tell staff and suppliers to “be more innovative”.
2 – Gather innovative ideas – Create a web page or implement software that encourages staff and external innovators to “Send us your best innovative ideas..!” Sponsor a hackathon. Realise that there is no way to execute any of the ideas.
3 – Appoint someone as “Head of Innovation” – Typically someone who knows your company, probably a maverick, seen as intelligent and too valuable to lose, but who doesn’t really fit properly into an existing role – Abdicate responsibility to them and give them just enough budget to fail.
4 – Create a “Lab” – A “funky, creative space” often slightly separated from the HQ in the creative part of town, with sofas and bean-bags, artificial grass, expensive video screens, a ping-pong table, and some Virtual Realty headsets. Most senior staff and maybe some clients visit once – nobody goes back.
5 – Partner with or create an Accelerator – Pay someone a million dollars to invest another million dollars into 20 startups, each of which is a “super-cool” idea created by a couple of really enthusiastic and clearly intelligent young people wearing track shoes and hoodies who have no real insight into your business. 2 years later most of them have spent the money and are now trying to raise more to finish building their prototype, or working on developing a new and very different idea, normally involving delivering food or picking up laundry.
6 – Realise that innovation is hard, but needn’t cost the earth – identify partners that can help your innovation team deliver a pervasive innovation strategy across the whole enterprise – Start creating a culture of innovation that ripples down from the top, is seen as central to the future of the business and part of every senior manager’s remit. Implement a methodology that enables rapid testing of ideas, with technology that already exists, quickly and at low cost against real business issues. Increase the rate and decrease the cost of innovation, learning from, rewarding and yet killing failure early, while doubling down and scaling successes quickly. Start to uncover truly transformational innovation that will drive your company forward and keep you ahead of the competition and defend against external disruption.
Sridhar Balasubramanian, Associate Dean of the MBA Program and Professor at UNC Kenan-Flagler, has carried out research that shows that successful corporate innovation strategies fundamentally come down to three key elements:
Motivation:”Are people motivated to be innovative? If people deep within their hearts don’t want to change, they don’t want to be innovative and nothing’s going to happen. This is where leadership comes in. Is the leader a champion for innovation? Are they lighting the fire inside their people about the need to change, about the desire to change and are they getting the team rolling in that direction?
Opportunity: “If managers spend the entire day fighting fires and thinking about next quarter’s results, they are not going to be innovative. You have to create the time, the whiteboard, and the room where people can get together and have the opportunity to think about change and to be innovative. You’ve got to create it, otherwise innovation will not automatically happen.”
Ability:“Are the managers really equipped to be champions of change? They may create the time every Friday from 3:00 – 5:00 and say, “We’ll not talk about this quarter, we’ll talk about what new things we can do, and how we can do existing things differently.” Then they all get-together and they all want to change, but they’re looking at each other and they’re thinking “How do we make this happen?” They need to have the ability.
His research shows that all three of these are critical, and any one can be a blocker for the other two. “You could be highly motivated. You could create the time and the space, the opportunity, but if you don’t know how to be innovative, nothing’s going to happen. Likewise, you could be highly motivated. You could have the ability, but if you don’t create the time and the space to be innovative, nothing’s going to happen. Finally, you could have the time and the space, you could know how to do it, but if you don’t really want to do it deep inside you, nothing’s going to happen.”
Facing these challenges, it’s way too easy for companies to restrict innovative thinking to the R&D department, or perhaps to building some kind of internal “future thinking lab” under the direction of someone with “innovation” in their title. Many decide that collaborative innovation starts and ends with the corporate venturing team
At The Bakery we’ve developed a complete methodology to help executives within any industry address these challenges. We focus on creating a Pervasive Culture of Innovation by enabling corporates to embrace the innovators; not just those frustrated few that already exist inside the business, but the hundreds of thousands that are outside and are already working on the your industry’s huge, unsolved problems, and who, as Peter Thiel points out, are “completely incentivised to do it 10 times better than the next available alternative.”
It’s critical that CEOs don’t just tacitly encourage this kind of collaboration, but become visible and vocal champions and actively remove obstacles to enable both internal and external innovators to flourish alongside your corporate environment, in order to reap the rewards of faster growth.
To successfully achieve a pervasive culture of innovation, corporate cultural shifts and changes in thinking may be needed in areas such as tolerance of risk and attitude to failure, leading to more experimentation and greater breakthroughs. Strong, visionary leadership and a top-down approach is therefore, unsurprisingly, highlighted as one of the key ingredients of success.
Some CEOs may feel that their company’s scale, position or history means they can hold back the tide. Perhaps there are others who consciously choose to simply carry on innovating as they always have, believing that they have all the best brains and their industry cannot be transformed or disrupted from outside.
As Satya Nadella says “To me, that is perhaps the big culture change — recognising innovation and fostering its growth. It’s not going to come because of an org chart or the organisational boundaries. Most people have a very strong sense of organisational ownership, but I think what people have to own is an innovation agenda, and everything is shared in terms of the implementation.”
If you’d like to find out more, or would like to start the transformative process we call “Accelerated Corporate Innovation”, why not get in touch to find out how The Bakery can help you create an agenda to start to transform your corporate culture, innovating with and like startups.