Wednesday, March 15, 2017

The innovation knowing/doing gap

The more we learn, the more we discover that innovation is vital to renew businesses of all sizes.  Those that undertake significant innovation activities seem to grow and prosper.  Those that neglect innovation seem to wither away.  Executives understand this.  More importantly, markets understand this.  And when markets understand and signal something, executives get on board.  Innovation, therefore, is an important component of future success of many companies, and executives understand this.  That's the good news.

The bad news is that while the expectations and demands for innovation grow ever larger, the capabilities to conduct successful innovation haven't grown nearly as fast.  In fact the knowing/doing gap for innovation in major corporations is probably the largest its ever been.  People in the trenches simply don't have the time or the training to conduct anything more than incremental innovation.  Corporate reward systems, culture, inertia and a host of other factors simply resist taking big chances.

Which means that a yawning void is opening up - between the demands and expectations of consumers, executives and markets on one side, and the skills, capabilities and bandwidth of staff, employees and managers of those firms on the other.  This void is growing and something will fill it.  We know that nature abhors a vacuum, so something that cannot stand will not stand.

The real question now is:  what will fill that gap?  I think there are three possibilities:
  1. Rapidly emerging startups and entrepreneurs, especially in data or information intensive industries
  2. Existing companies from adjacent spaces
  3. Consulting firms filling the void for larger corporations
Let's look at what happens when each attempt to fill this growing void.

A startup does what you should have done

In many cases, companies recognize the need for innovation, and can even imagine what a new product or solution should look like, but for many reasons simply cannot find the time, permission or funding to create a new solution to fill the customer need or emerging opportunity.

Since nature abhors a vacuum, and there's economic opportunity in filling the gap, others step in.  In this case an entrepreneurial firm or a startup does what a larger firm should have done.  This isn't always a negative outcome for a larger firm willing to allow some experimentation by smaller firms if the larger firm is watchful and able to acquire the smaller firms that succeed.  While this is often the stated strategy, it rarely plays out that way because the smaller firm may gain traction quickly (and become too expensive to acquire) or the larger firm may acquire the smaller company and impose the bureaucracy and overhead that kept it from competing in the first place.

Adjacent Entrants

Most truly disruptive innovation happens when capable companies provide services to customers, need or opportunities that were just adjacent to their existing businesses - sometimes even in the same business with different business models.  NetFlix was adjacent to Blockbuster: both offered movie rentals but with different models.  Apple entered the music distribution business and disrupted Tower Records.  True disruption will most likely occur when a larger, more capable firm (more capable and more scalable than a startup) enters a market that slow incumbents ignore or overlook.  Once this happens the opportunity is often lost for good.  The incumbents cannot acquire an equal sized competitor and therefore lose the market opportunity.

Consulting firms bridge the void

Which leaves us with the option most large companies choose:  identifying a consulting company to understand the need, design and build a solution while the larger incumbent sustains the status quo.  This strategy may fill the opportunity in the short run, if filling the opportunity is defined as delivering a discrete product or service.  However, since the incumbent often isn't involved in the research or development of the solution, and doesn't work to integrate the solution into its suite of services, and further doesn't understand the total customer experience, this solution works to plug a gap in the short run but undermines the incumbent in the long run, because the incumbent cannot incorporate the solution or even fully grasp the opportunity, because inevitably the need or opportunity is larger than one product or service.

So, what's left?

We've explored three potential alternatives to the growing knowing/doing gap.  Hopefully I've convinced you that none of these alternatives is really a long term solution.  At best they are short term gap fillers, at worst they sacrifice an opportunity to an aggressive adjacent competitor.  What is actually needed is a cultural shift.  For too long large companies have focused on efficiency and at best incremental innovation.  Their cultures, structures, hierarchy, reward and recognition programs and other attributes are all aligned to efficiency, business as usual and incremental innovation. While the demands for more interesting, more diverse and more disruptive innovation continue to grow, the amount of focus, skill and experience in doing and delivering actual innovation hasn't changed much at all.  This is a growing gap, becoming a void, that will become a vacuum.  And we know what happens when nature identifies a vacuum - it gets filled.

I wrote a piece recently that suggested you could tell if your CEO was earnest in his or her desire to create more innovation.  To do that you could simply examine if the CEO was focused on cultural change to encourage more risk, more uncertainty and more innovation.  If the CEO expects innovation to be important to deliver new products, new services, new revenue and new profits, then he or she will engage in activities that first seek to change the culture.  Otherwise the knowing/doing gap will only increase, and others will have the chance to fill the void.
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posted by Jeffrey Phillips at 8:17 AM


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