One of the many paradoxes of business is that success exposes a company to the risk of ultimate irrelevance. Companies that are conscious of this risk avoid the success trap by integrating disruption or innovation into their business models. The trouble is that it is fiendishly difficult to do, and many fail to get it right. As always, understanding the problem is the first step in solving it.
It’s easy to see why success can act as a trap. While business success is typically built on the back of innovation, the reality is that when it all pays off, the focus shifts from thinking out of the box to creating an institution – the focus shifts to putting in place the processes to maximise profits and minimise costs. Conceptually, the business’ mindset moves from how to get ahead to how to stay ahead. The two can seem mutually exclusive, especially if, as is almost inevitable, the company structures itself in traditional ways.
To cite one glaring example: the typical corporate structure of business units focused on meeting targets can work well in the short term, but it actually militates against innovation. This article aims to understand why that should be so and how to put a company into a stronger position to build innovation into its “business-as-usual” structure and mindset.
First, one needs to understand how innovation works. Then, based on this basic understanding, we can begin to extrapolate some principles for how a company could integrate innovation into the way it does things. At the same time, it will become clear how traditional ways of doing business are often inimical to the development of innovations.
Steve Johnson’s insight about the English coffee house as the epitome of a space that nurtures design suggests how inhospitable to innovation the industrial design of many workplaces is. By contrast, the “cool” workplace of the archetypal technology company, with its chill rooms and campus atmosphere, starts to make more sense. Such companies depend on par excellence in fostering innovation.
But for more conventional companies, all is not lost – Johnson cites the work of researcher Kevin Dunbar, who filmed how work was done in several science labs around the world. On analysing the videos, he found that the most important ideas did not emerge from the classic lab environment. Almost all of the breakthrough ideas emanated from the weekly lab conferences. Everybody got together to share their latest findings and thoughts – often, it was sharing mistakes or frustrations that sparked the innovative thought. Johnson calls this environment in which different people from different backgrounds and interests come together to share what they are doing during a “liquid network”.
So it might not be necessary to spring for acid-green beanbags and a ping-pong table – the good old-fashioned conference table with everybody around it regularly will work just as well. It’s all about creating a semi-chaotic environment that allows people to see how seemingly disparate things could collide and create that spark of something new.
Equally important is organisational design. The typical organisational design tends to create silos (business units, functions like marketing, sales or IT), making it very hard to create the kind of physical environment, as described above, in which a wide variety of ideas, data, and interests can fruitfully collide. The silos (inadvertently) created by typical organisational designs also prevent people from seeing the company as a whole. Useful insight comes from Dr. Russell Ackoff, an organisational theorist: “In any system, when one improves the performance of the parts taken separately, the performance of the whole does not necessarily improve and frequently gets worse.”
Great innovations in marketing, for example, do not necessarily translate into innovation that makes the company more competitive or serves its customers better. One should never forget that most of the important business processes are horizontal, and that way of thinking needs to permeate the organisational design.
It’s no exaggeration that this problem of silos and the negative impact they have on all aspects of a company’s performance, not just its ability to innovate, is one of the perennial business challenges. The often-heard desire for as flat a corporate structure as possible is essentially a wish to solve the silo problem.
One way to encourage employees to see the company as a whole, as a codependent and interdependent system, could be to look at how performance is measured. Too often, performance measures mirror the organisational silos or the crude bottom line, but careful design could link them to common goals and objectives. This approach could nudge people to think about running the business better and how to change it for future relevance.
Culture is a notoriously slippery concept and difficult to change, but it is a potent force in any organisation. A company that wants to integrate innovation into its DNA certainly needs to take steps to promote a culture of reinvention. As discussed in the previous point, rethinking how performance is measured will lay the groundwork.
Another important foundation for a culture of reinvention would be to change how failure is viewed. As Steve Johnson argued, it is often when people discuss their failures with colleagues that connections are made that spark innovation. One of the things that people have always noticed about the business culture in the United States, compared with that in the United Kingdom or South Africa, is the diametrically opposed way that failure is viewed. Typically, in the United States, failure is seen as a learning experience that makes entrepreneurs better able to succeed; here, it is something to be swept under the carpet. In the corporate environment, in particular, failure is very much a dirty word. In contrast, in the United States, it can be seen as identifying an individual prepared to try new things. (I suppose the quantum of failures would be important!)
Every corporate website you ever read references its people as being its greatest asset. It’s a cliché because it’s true, but at the same time, talent is only an asset if it’s the right sort of talent and tapped into effectively. A company that recognises the importance of innovation needs to know what an innovative individual looks like and how to attract and retain them. This may involve rethinking job criteria and even role descriptions.
The Fourth Industrial Revolution (4IR) is in full swing, and, despite all the scare stories about how the robots are going to take all our jobs, it will be a very people-driven one. The 4IR is right from the Johnson innovation playbook: technologies that have been around for some time are now being combined in new ways to do entirely different things. Data – vast amounts of it – lie at the heart of the 4IR, and in a sense, the vast data lakes being created resemble nothing so much as the coffee-shop environment in which different worlds collide, sometimes to great effect.
A final point about talent for innovation... In the wake of the pandemic, we are in the throes of a workplace revolution of sorts. The Great Resignation is seeing talented, skilled people grasping the opportunity to reinvent how work is done, inevitably leading to less hierarchical, more distributed organisations which, paradoxically perhaps, may actually promote the “everybody around the same (virtual) table” ethos simply because they break down geographical barriers – a virtual liquid network. In any event, innovation-friendly companies need to understand what this new workforce wants and how to use the new work style to promote innovation.
Leaders, including the board, play an outsize role in any organisation, particularly when developing and deepening a culture of innovation. The board must lead the way by ensuring that the strategy has customer-centric innovation at its centre and that the company’s performance metrics drive the right behaviour and thinking. On a practical level, this means broadening the focus beyond “the numbers”; EBITDA and the bottom line are insufficient when it comes to sustainability, and innovation is key to sustainability.
The CEO and their exco have to have the courage and grit to avoid being caught in the success trap – it’s the executives who are associated with the company’s existing success, and it will take both courage and vision to push beyond that. As for the rest of the company’s employees, a lot of this will be driven by the corporate culture and, specifically, how success is measured and rewarded.
To conclude: only companies that learn how to innovate and continuously drive a mindset for constant reinvention will succeed over the long term. To make innovation central to how they operate is thus imperative, but few get it right.
Getting to grips with innovation
Innovation is defined as “a new method, idea, product etc.” – it is the “etc.” that is important. It could be anything. Innovations can be radical (the internal combustion engine redefining what transport was all about) or incremental in nature (for example, applying process excellence to your existing value chain). Incremental innovations are normally easier to adopt into the existing business than radical ones, as the latter requires a total rethink of the business model.
Kodak’s woes, let us never forget, came not from the lack of innovation – it invented the digital technology that later revolutionised the camera offering. It failed to understand how to adapt to the innovation it had created, electing rather to sideline the innovation to protect its existing analogue photography business, which made up the majority of its revenue at the time.
Innovation theory argues that all innovation proceeds in an S-curve: as an innovation matures, its profits rise, but that’s just when the company needs to ensure it has new offerings in place to capture new profit opportunities as the maturing innovation’s profits decline. Kodak’s inability to jump the S-curve to the next big thing shows exactly how to fluff it.
Let’s take a deeper look at creating innovation. Steve Johnson’s ‘Where good ideas come from: The natural history of innovation’ offers useful insights. He argues against the cliché of a lone genius experiencing a thunder flash of inspiration; in his view, innovation is a much more complex and messy process that often takes place over extended periods and is accompanied by the right enabling environment.
Famously, Johnson puts forward the 18th-century coffee house as the archetype for the kind of environment that sparked innovation. These coffee houses, he says, were places where people who would not ordinarily meet would come together to drink coffee and talk – about as unlike a Starbucks as you could imagine. But, memorably, he says, they were where ideas could have sex.
A second point he makes is that innovations often incubate over time. He cites the example of Darwin, who already “had” the idea of natural selection several years before he wrote ‘On the origin of species’ – he just wasn’t ready to articulate it. Johnson calls this the “slow hunch”. Innovation can be slow to gestate, not suited to the quarteritis that plagues the corporate world.
A third important point about innovation is that it often emerges when two or more ideas connect. This, he says, is an argument against patents or, at least, patenting too soon. The open platform mindset is more conducive to innovation: “Chance favours the connected mind”.
A final point: innovations can be ordered up in response to a particular problem, provided one takes an innovative approach. For example, Africa’s high infant mortality could potentially be halved if premature babies could be kept warm in incubators. But high-tech Western incubators are ruinously expensive and require sophisticated support that is not available in most African hospitals. The solution: an incubator that used components from an average vehicle – a battery, a headlight and so on – could be maintained using skills and parts that were readily available across the continent. This points to an important principle in innovation for commercial gain: it must start and end with a profound understanding of the potential clients and what their needs and capabilities are.
The common idea that innovation and advanced technology are joined at the hip thus turns out to be, if not actually erroneous, then incomplete.
Tony Christodoulou is vice president of Global IT, strategic projects, American Tower Corporation and adjunct senior lecturer, GIBS