Is innovation worth the risk?
Are companies that don’t innovate doomed to oblivion? Examples abound of firms that didn’t keep up with the times, and paid the price by not living to tell the tale. Kodak comes to mind. While rivals like Fuji moved on from manufacturing film to other products like digital cameras and laptops, Kodak persisted with rolls of film that had to be manually installed. Session 7 of the recent IERP Global Conference discussed whether innovation was worth the risk, considering the current environment. Presented by Johnathan Lee, Country Head of RISE, the session covered the importance of innovation particularly in today’s environment, and the major challenges firms face in confronting it.
“Companies that started in the last 50 years have shortened lifespans – and it gets worse,” stated Lee. “Today’s companies will last even fewer than 20 years. But why is corporate lifespan shrinking? The cost of starting business has become lower, and there are fewer barriers to business now. But new business models are disrupting existing companies, and more investments are being pumped into these disruptive entities.” Companies are aware that innovation is disrupting the market and the business environment, he added, but they don’t know what to do. But innovation is subjective. What may be a boon to one organisation, may be the bane of another.
Most environments lack a culture of innovation to begin with. Companies may be unclear about their innovation goals, and lack technical talent. “But it’s not exclusively about talent,” Lee pointed out. “It’s also about how to look for new technologies and solutions, and establish new business models.” Innovation, while undoubtedly a source of disruption itself, can be used to manage it, and support businesses in their efforts at sustainability and growth. But first, organisations need to understand their own situations, and chart an innovation path that will work for them. And they need to change their mindsets.
“Companies are preoccupied with making money, and don’t look around the corner,” said Lee. “They don’t allocate resources to innovation.”
They are also reluctant to replace existing technology with new technology, preferring to protect their existing brand even in the face of slower product development. However, this traditional, conservative approach may damage the brand more than sustain or improve it, particularly because companies are rarely the only ones offering their products in the market. Competition today is fierce, and companies may need to try and disrupt their own markets to get ahead.
“They need to develop new businesses, explore new technologies, and test new products,” he said. The measurement of success and validation of innovation is seen through the learning that the organisation derives, which validates its creativity and innovation. Some businesses have already recognised the need for this, he added. Banks, for instance, have started working with fintech because they know it will disrupt their business. “So they have become the first to use fintech products,” he pointed out. There are other approaches that organisations can take as well, to help them manage their innovation efforts.
They could try what Lee described as “Outside-In Strategies” – invite start-ups to work with them, or incorporate incubators or accelerators as part of their own development plans. These small, sometimes micro enterprises can provide the all-important innovation aspect of the business that the larger organisation may lack. Companies often take on a corporate venture capital role and invest in subsidiaries specialising in technology. Or they could try an Inside-Out Strategy, which involves upskilling and empowering their internal talent. This “intrapreneurship” may unlock the innovation and creativity of current employees, leading to capacity-building within the firm, or spin-offs from it.
Of course, there are still the conventional methods to fall back on as well, such as Research & Development, and vendor development. These tend to focus on technology with potential, that has long-term strategic value to the core business of the organisation. Many companies also prefer to outsource non-core businesses to vendors as well, and may come to depend on the technology and software promoted by the vendor. Despite their generally conservative approach to business and reluctance to accept new ideas, Asian companies – especially the more established ones – are becoming more open to innovation and have shown a willingness to collaborate with others.
They do realise that they will need to move beyond borders to survive. Domestic markets, no matter how large, will not be enough; they will have to look outside to remain competitive. To do this, digital transformation will be necessary; there are already signs that capital diversification is happening. More capital has started flowing to non-traditional technological systems in recent years, Lee said – a trend that is gaining traction. “Even mid-sized companies are joining the space; getting on the bandwagon because the cost of starting business has been reduced,” he stated. Still, innovation on its own is not a guarantee of success.
But not innovating may have even more devastating consequences. “If companies do not innovate, they run a higher risk of failing,” cautioned Lee. It’s not a case of innovate or die; innovation can be done incrementally, with big investments expended over a long period, in order to minimise disruption to operations and the firm’s bottom line. How a company chooses to apply innovation really depends on the landscape at that particular time but attempts at innovation should provide enough opportunity for the organisation to learn from the experience.
“Leaders at the top have to provide the right resources for innovation,” Lee said. “It needs leadership support and buy-in.”
It also needs organisational will to move the agenda for innovation, and this will require, among other things, looking at innovation from a different perspective. Innovation will work when you understand your organisation’s specific needs, determine its resources, apply innovation to optimise these, and sustain the organisation’s growth through mindset changes and transformation.