Tuesday, June 05, 2018

Scale gives way to speed

With apologies for the use of a tired phrase, there is a new game in town and it will dramatically impact how, why and where you do innovation work.  The new game, as demonstrated by a number of emerging disrupters, is captured in the book Unscaled and discussed at length in this nice blog post - one I wish I could have written.

There are a couple of overlapping points here, but the main idea is that scale as a competitive weapon is increasingly passe.  As more and more of what we consume becomes virtual, scale doesn't matter.  As more and more of the supporting infrastructure (HR/IT/Finance/etc) can be acquired as a service, companies don't need to achieve scale to achieve profitability, or to crowd out other competitors.  Scale is giving way to agility, speed and customer experience.  We can see this playing out with firms like Uber and AirBnB, which are far smaller from a scale or headcount perspective from their competitors.  Size - at least the size of the corporation - doesn't matter as much anymore.  Speed, agility and insight matter more.

Overcoming the legacy of scale

In the article I linked to above, the author is detailing the importance of the ecosystem over the importance of technologies like BlockChain.  His point is that big businesses routinely trip over themselves to understand the technologies that are emerging without thinking through the impact on the existing business models or the new business models that may emerge.  To a great extent, large corporations are prisoners in a jail of their own making.  For years they've built large and somewhat inflexible companies and cultures, and now, they find themselves unable to innovate or rework those structures and cultures.  They are stuck with what the author calls a "heritage of scale" that is hard to escape.

What does this shift suggest about innovation?

As virtually any company can enter almost any market in little or no time, relying on outsourced IT, Human Resources and other services, new companies will be able to explore and experiment with widely different business models.  When we combine that flexibility with the vast amounts of money being invested in AI, Blockchain, IoT and big data we can imagine that a significant number of new companies will emerge that will disrupt existing business processes and business models of existing corporate giants.

For the larger companies, it's time to completely rethink your strategy and what innovation can do to help you.  Rather than worry about scale, your innovation efforts should focus on what makes your organization fast, nimble, agile and focused on customer experience.  Don't try to solve everything, but select key opportunities and markets to experiment with new models, new processes and test new scaling experiments.  You may need to cannibalize your own offerings to do this, but given the minimal investments to enter many market sectors it makes sense to try.

For midsized companies, stop thinking about scale and start thinking about flexibility.  Getting bigger is less and less attractive.  Getting closer to the customer and creating new experiences and business models, and leveraging an emerging ecosystem is far more important.  Don't try to create everything - create new products, services and business models that are complementary to other offerings in the ecosystem.

I'll leave it to others to explain what this all means for startups, because how you look at an industry and where you find value will vary enormously.  Just know that the future will be won by those that are fast, agile, innovative and more open to working with an ecosystem, rather than those that try to own everything.

Corporate innovation must change

For far too many corporate innovators, innovation is about extending an existing product or service or perhaps creating a new, disruptive product or service.  Increasingly it's clear that corporate strategy must embrace an increasingly unscaled world where size matters less and speed and agility matters more.  This means that corporate strategy must change and more closely inform innovation strategy, so that more innovation effort goes into overcoming the legacy of scale, more innovation efforts go into working with an ecosystem and into changing the existing business model.

Exploring these ideas

The new book Unscaled deals with some of these ideas - illustrating the fact that scale is no longer a guaranteed advantage.  I co-wrote OutManeuver with a good friend, which explains why speed, agility, insight and innovation are the key competitive advantages in the future.  Thinking about emerging ecosystems and realizing that the cost for entering almost any market has fallen, it's clear that speed and agility will matter more than scale, and working with an ecosystem will matter more than trying to lock in a specific set of customers.

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posted by Jeffrey Phillips at 5:35 AM


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