Competing in the innovation game
5 mins read
The famed science fiction writer William Gibson once said, "The future is here - it's just not evenly distributed yet."
We are witnessing today the most accelerated and disruptive distribution of the future in modern history. And it is shaking every legacy business to its core.
The pandemic has pushed disruptive trends like online shopping for groceries, virtual doctor appointments, and remote work into overdrive. In the UK, online shopping grocery sales grew by 91% in June 2020, and Whole Foods stores across the US converted to ‘dark stores’, fulfilling online orders.
A fraction of workers are going to the office as compared to in 2019. Public transportation and airline systems are deserted and bleeding cash. Then Apple releases a watch that can track a growing array of health indicators, pushing us towards an onrushing era of self-directed medicine.
The winners and losers from this shift have already come into stark relief. Amazon stands poised to control a huge swathe of the global economy with WalMart trailing close behind. Every clothing retailer dependent on foot-traffic is at risk of bankruptcy. In the US, hospitals stand on the brink of bankruptcy as the old business model of high profit for elective care has gone up in smoke. The transportation and hospitality industry stands at the precipice as people stay at home more, fly less, and opt to drive rather than use public transport. People go to the doctor only when they must, and insurance companies have accelerated the adoption of telemedicine.
Yes, the pendulum may swing back, but the Rubicon has been crossed. You can't put these trends back in the bottle.
The difference is these shifts happened in a mere six months - a blink of the eye for large corporations that often have product cycles measured in multiple years. What we have long known is that you can't return to a slower pace of development - once the required metabolism is increased, that becomes table stakes for corporate survival.
Legacy companies tend to be slow to respond to disruptive innovations. There are various reasons for this, including the pressing need to keep generating large revenues from existing products. But they urgently need to up their innovation game. The average duration of membership of the Standard & Poor’s 500 index of the US’s 500 largest publicly-traded companies has fallen dramatically, with predictions that over 30 firms are at risk of being replaced. This year has also seen heavyweights Exxon-Mobil, Pfizer and Raytheon Technologies dropped from the Dow Jones Industrial Average, with Salesforce continuing to move up the ranks.
I don’t think there can be a more compelling indication of the importance of innovation for their survival than that.
Legacy organisations are vulnerable to disruption in a number of ways, particularly through their established processes and products. Instances in which disruption has defeated them, and even whole industries, abound – and the list is getting longer. Apple, for example, has disrupted several industries, including mobile phones and music. PayPal and TransferWise have disrupted money wiring giant Western Union. And now that the Federal Aviation Authority has approved delivery by drones, we can expect to see exponential disruption of the package delivery sector very soon.
The good news, however, is that any company can become an innovator. The key is making the right changes, embracing new tactics and, most importantly, unleashing the power of their people to think more broadly, act more ambitiously and dream more wildly. Legacy companies have many advantages, and those that make them a cornerstone of their innovation efforts will have a leg-up.
To survive as a legacy enterprise, organisations need to capitalise on existing strengths to blaze new paths and offer greater value.
1. Exploit distribution networks and production expertise.
Use the size of your distribution networks and channels, alongside your production expertise, to bring in valuable external partners. For example, when Anheuser-Busch InBev (ABInBev) realised that microbrews were overtaking establishedbeer brands, it bought stakes in a number of microbrew brands. In exchange, it plugged them into its national distribution channels and offered them its production expertise. ABInBev became so fluent in the microbrew market that it has successfully launched several of its own brands.
2. Pivot to new opportunities without sacrificing old interests.
Use the advantage of your deeper pockets to identify and exploit new opportunities while continuing with business as usual. Amazon has disrupted itself several times with innovations. Two of those innovations –the cloud-computing and advertising businesses – will probably be the most profitable part of Jeff Bezos’ empire. Amazon was able to do this without slowing down any of its retail operations by giving its internal start-ups the room to innovate, the funding to grow and the sponsorship to avoid being crippled by legacy business units. Other examples include NextEra energy improving its growth prospects by turning its focus to renewables without disrupting its legacy business. And take Patagonia and their bold initiative on Black Friday, running a punchy ad in the New York Times actively telling people not to buy their best-selling jacket. This unlocked a sustainable revenue stream focused on the re-use and re-sale of high-end clothing that is still growing a decade on.
3. Create and empower a diverse workforce to incubate ideas.
Exponential innovation is not the sole domain of nerds and geeks. In fact according to Steve Jobs, it is “technology married with the liberal arts” which provides the winning combination. Look across the workforce of all the major innovators – Apple, Logitech, Alibaba, YouTube to name but a few - and you’ll find this diversity of perspective all the way up to C Suite. At Logitech, this approach allowed them to pivot to a design focus, using expertise in both technology and ‘humanity’ to combine Logitech’s impeccable product engineering with elegant, human-centred design. Its share price has risen by 450% as a result.
4. Mine data from a vast customer base.
A start-up can’t get feedback from a large base of users or customers, while you can use your data-gathering strength to accelerate innovation. For example, Sainsbury’s is one of the UK’s largest supermarkets and, with 27 million customers, is a top placement option for grocery brands. Its internal innovation team, Future Brands, identifies and recruits new brands for its shelves. In return, it asks for a period of exclusivity in their supermarket distribution. Future Brands’ Taste of the Future programme gives Sainsbury’s customers the chance to try 30 products and analyses what they buy. The supermarket uses its sales data to nurture start-up brands as it brings better-selling items to its customers.
An organisation’s ability to forgo rigid structures, embrace change in how people work and think, and mobilise its advantages as a legacy brand will make it more agile and less fragile as disruption grows more fierce and widespread.
Chief Growth Officer, Capita
Ismail is leading business development, sales and marketing to support our transformation and organic growth plans. In 2018 he was named as one of the top 100 most influential Black, Asian minority ethnic (BAME) leaders in the UK tech sector by Inclusive Boards. He previously led IBM's Global Business Services division in North America.