Organisations know they have to innovate but to do so there are barriers which they must address and overcome.
It’s an easy stereotype. Young companies – startups and scaleups – are agile and innovative. They move fast, break things, then move on. Meanwhile, large organisations – and particularly those that are incumbents in mature markets – are prone to caution. They are dedicated to improving their products and services over time but do so through evolution rather than revolution. Certainly, they want to innovate but find it a struggle. Above all, they are unlikely to do anything that strays too far from their current business model.
That’s the stereotype – in a nutshell, Elephants Don’t Innovate – but does this rather too neat picture of agile startup versus hidebound incumbent bear any resemblance to what we see in the real world?
Well, yes and no.
Cast a glance over Boston Consulting Group’s list of 2021’s Most Innovative companies and it becomes clear that being a large, global business is no barrier to innovation. Perhaps predictably, Apple is named as the innovator in chief, but Alphabet, Amazon, IBM, and Microsoft are also in the top ten. All digital economy businesses, you say. Well, a lot are, but you also find the likes of Pfizer, Tesla, Target, and Nike among the front runners.
So clearly, elephants can innovate. But they don’t always find it easy. Take the banking sector. Incumbents still dominate the retail market and in many respects, they have been prepared to innovate, particularly in terms of bringing new technologies on stream. In the last few years, physical branches have been disappearing fast, replaced by ever-more sophisticated internet and mobile banking offers.
But you could argue that banks have also been playing catch up. Over the past ten years or so we’ve seen digital-only – and particularly mobile-first – challenger banks entering the market and offering new services designed to appeal to Millennials and Generation Z customers. Unencumbered by legacy IT systems, these new banks were attractive for a number of reasons. Often they were mobile-first and combined good deals on account charges with a range of useful tools, such as money management advice.
The major banks have caught up and nowadays mobile banking is commonplace. But crucially, it took a while for the incumbents to match the digital offers of the challengers.
So as a rule of thumb, large, well-established organisations tend to move more slowly than their smaller counterparts, even if they get to much the same place in the end. But why should that be the case?
Why the Slow Pace?
Technology – or to be more precise, IT – plays a part. Typically, large organisations are working with – or around – legacy IT systems that run at least some core aspects of the business. These old systems tend to slow down innovation, at least in terms of digital transformation, because of all the problems associated with systems integration.
However, perhaps the biggest barrier to innovation is cultural. Established companies have a tendency to do what they have always done. Good companies will strive to offer better products and services but what they are often reluctant to do is completely reimagine the way they do business.
That’s probably not surprising. If a company’s business model has worked, then changing it represents a large gamble. So if it isn’t broken, why fix it?
Entrepreneurial companies, on the other hand, tend to look at markets and try to identify what is actually broken. What is annoying customers? What are customers asking for but not getting? Where do the inefficiencies lie? How do we build the systems to fix or disrupt the market?
Crucially, the startup founder doesn’t have to run his or her ideas past a board. A decision to press ahead is simply made and rapidly executed. In large companies, the decision-making process can be painfully slow.
And once decisions are made, changes can be hard to implement. New systems and ways of working have to be built alongside the old models. Members of staff have to be retrained. Some may leave because they don’t like the new direction.
And yet businesses know they have to innovate. For example, take the aforementioned car industry. According to some analysts, car ownership is expected to drop, particularly in cities, as increasing numbers of people hire vehicles when they need them. How does an established industry adapt to such a huge change in customer behaviour at a time when the market is also adjusting to the arrival of electric vehicles. New business models are required.
More broadly, multiple studies have found that four in five senior executives feel their business models will soon be disrupted. Large companies will have to find a way to become more agile and perhaps less risk-averse.
The cloud is playing an important part in underpinning innovation. New IT functions can be brought on stream quickly, reducing the legacy IT drag. Crucially cloud solutions provide organisations with a low-risk and cost-effective way of developing new ways of working.
In terms of culture, Chief Innovation Officers are an increasingly common hire – their job being to work within the business to explore and implement innovation strategies. Meanwhile, many large companies are collaborating more with startups. Some run their own accelerators or establish links with startup hubs and shared workplaces. Usually, the goal is to identify solutions that can drive the business forward in a changing marketplace.
But ultimately, organisations need to not only identify innovation strategies but also implement them and that remains a challenge; studies have shown that only a small minority of organisations (12% according to some studies) have the resources to innovate effectively. In the post-pandemic era it is vital that businesses of all sizes continue to innovate, not least to remain aligned to customer expectations. To do so, it is essential to identify and address the technical, cultural and operational barriers.
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