Number 1: Innovation, the area CEO’s most want to strengthen: above human capital and digital technologies
Almost a quarter of CEO’s see strengthening innovation as the most important area to create and drive new opportunities, according to a recent PWC survey. Placing it above human capital and digital technologies. Combine this with their aim of becoming disruptors and an understanding innovation and its vital role in accelerating disruption is critical. What follows is a brief introduction.
Innovation is commonly associated with technology and frequently combined with digital. However, it’s important to recognise that innovation is about the creation of something new. This may or may not involve technology and where it does, it’s the purpose to which the technology is deployed, that’s critical. It’s this purpose or to put it another way the question the innovation is answering that determines its meaning and value.
In Disruption Theory you can have sustaining and disrupting innovation. It’s the Disruptive Innovation that allows companies to both enter markets without the legacy of the incumbents or create wholly new markets. Both of which cause disruption.
It’s important to recognise that both types of innovation are important to organisations. Sustaining keeps profitable business competitive, whilst Disruptive is a way of changing the market in which they operate. Positive Disruption requires the right mix of innovation to support a company’s ambition.
Sustaining and Disruptive are useful labels. However, they don’t help in understanding where your innovation efforts fall. So let’s overlay them with two concepts companies are very familiar with: Customers and Products & Services. This shows innovation impacting at 4 levels:
- Improve: your current product for your current customer. Such as Nintendo streamlining the design of its hand held gaming device, the DS, and adding a brighter screen to create the DS lite.
- Extend: your product or service so that it becomes more meaningful to your current customers. Taking the DS lite adding a camera to make the DSi
- Adapt: your product so that it becomes meaningful to a new customer segment. The introduction of new puzzle games extended the market for the DS to an older generation
- Create: a new product for a new market. Such as Nintendo introducing the Game Watch, the first hand held game with a screen.
Just because an innovation could be disruptive doesn’t mean it will be. That depends on the impact it has on other businesses. Do they lose customers at volume?
When CEO’s say they want to be disruptors, they are likely to mean that they want to gain new customers. This means they need to understand their ambition in terms of innovation, is it to sustain or improve a profitable position in their current markets or to enter new markets, causing disruption. It is important to recognise that it is extremely difficult to innovate so as to disrupt your own market (without risk of negative disruption to self).
Companies incumbent in markets have an inertia due to their legacy that can be extremely difficult to alter, especially if there is no imminent threat. This includes their employees and employment practices, business relationships, infrastructure and culture. So even if you innovate in a way that would allow you to disrupt your own market you may struggle to realise the benefits of this.
The challenge can be seen in short haul air travel. The business model of the low cost entrants was developed by Southwest and copied by other airlines including easyJet. Therefore, there are few external barriers to innovating to enter this market. However, when the incumbent carriers, including BA tried to respond with their own low cost offerings they failed.
The fact CEO’s want to strengthen innovation is great news. For their companies and for consumers. In doing so it’s important they understand the ambition of that innovation and create the right mix between sustaining and disruptive. In doing this they need to understand their own ambition and also be aware of what might disrupt them, not only through new players in their own market, but also through the developments in and creation of new unconnected markets. It’s this awareness and choice that empowers Positive Disruption, which we believe CEO’s actually desire.
To find out more about Positive Disruption and the role of Design Thinking, Thought Leadership and Strategic Innovation in making it happen: contact us or hear us speak at the BA Conference Europe on the 27th September.
Ian Huke & Paul Fletcher. Contact us at firstname.lastname@example.org. Find out more about us at throughideas.com
PWC Global CEO Outlook: https://www.pwc.com/gx/en/ceo-survey/2017/pwc-ceo-20th-survey-report-2017.pdf
A History of Handheld Games: https://www.engadget.com/2006/03/03/a-brief-history-of-handheld-video-games/
A look at Southwest Airlines strategy; exploring its cost advantages and plans to move to long haul: https://fortune.com/2015/09/23/southwest-airlines-business-travel/