Lessons for corporates on innovation
Source: Comment from Magnus Penker. Pics: Pixabay
Ola, a company that started as a copy of Uber, launched its electric scooters on Independence day. Now what is interesting is the size of the ambition and the feature set of the vehicle. Plenty of people will say that it is early days and Ola has to prove the quality and reliability of the product and pull off the volume projection.
It’s worth reminding that people were similarly sceptical of Reliance when it ventured into oil refining and when it launched Jio (both about the volume ambitions and quality).
All the existing scooter players had a window of opportunity to enter the e scooter space but they never did in the scale Ola is planning to. So what can we learn from this?
Lesson 1: Existing players prioritize their existing markets over disruptive ideas
This is an oft-repeated message, but never the less true one. Existing players underplay the threat of disruptive ideas. I have heard and continue to hear from industry representatives that the prediction of EVs dominating auto space by 2030 will never happen in India. They come up with plenty of arguments why the existing IC engine business will remain robust.
That’s one of the reasons most of the existing 2 wheeler businesses have smaller bets on EV but continue to focus on their existing business. They don’t have a burning platform to push EV bets. A new player that puts EV at the centre of his business strategy will surely be the winner as compared to someone making it a plan B strategy.
If Ola fails all the existing players will be saved and they will say I told you so. What if Ola succeeds in its dream? They will have no place to hide and could never hope to catch up. It’s foolish to hedge all your bets on your competitor failing and that’s a mistake all the existing players are doing.
Magnus Penker has a favourite slide in his presentation. He claims that there are only two stories, the story of a stranger visiting the town or the story of you going on a journey. In the first instance, you are the victim of disruption and in the second you are the disruptor.
Very few of the large companies are planning to be disruptors
Lesson 2: Disrupters succeed by being building great ideas using proven technologies
That disruptors don’t need to be the inventor has been proven repeatedly by the likes of Apple, Uber, AirBnB, Tesla etc. However, disruptors are necessarily pioneers though; they can see new ways of utilizing existing technologies.
Uber and AirBnB pioneered the use of technology that was quite perfect and “industrialized”. The commoditization of cloud technology has enabled numerous players to come up with pioneering solutions that are disruptive.
EV space will also similar trend; you will see pioneers that will come up with great new ideas to utilize existing technologies to disrupt. The existing players are less likely to do this. Their behaviour will be to protect investments that are already sunk in existing technologies.
It is also likely that many of the pioneers may not necessarily become the dominant player in the industry. There are many people out there who will take a pioneering idea and build a massive and viable business model around it as Apple does often.
Lesson 3: You will have to build the disruptive capability internally
A very popular approach to disruptive innovation amongst established firms is to look out for investment into innovative start-ups. No one seems to have succeeded with this approach at least in India!
The biggest disrupters in the Indian market have been Reliance. They built capabilities and disrupted the telecom business themselves. The big disrupters have all been start-ups themselves, Ola, PayTM, Flipkart etc.
Despite the big companies creating their investment funds and hunting for innovative start-ups, they haven’t succeeded. At the core of the business is a focus on existing business and principles that are derived from them.
I was helping evaluate start-up/innovators for a large firm, in which they could invest. I was surprised that the company managers on the panel always quizzed the innovators on what will be the ROI, detailed roadmap etc. They were behaving like a procurement organization rather than an investment organization.
To create a disruptive business, you must learn what it takes to become disruptive. You need capabilities and processes and must build them
Lesson 4: You need to answer the why question before investing in innovation
We find many companies have invested in innovation centres and labs without really developing a big picture of what they want to achieve. These organizations have invested in state of the art R&D centres, hired scientists and then started wondering what they should be working on.
The work of these centres then meanders along; no buy-in from the business, no strategic relevance and no runways to land the developments.
Before investing in innovation, you need to answer some important questions
Do you want to be a technology-led company or do you want to be a market backed company?
Do you want to be the first to market or do you want to be a fast follower?
Do you want to make bets based on indirect customer insights or do you want to play safe by depending on direct customer insights?
Do you want to be radical or incremental?
BCG identified 6 growth behaviours and you need to see fitment to your organization, lest your innovation efforts turn into innovation theatre.
Creator – We know the best: Led by visionary, they disrupt markets make big bets
Solution builder – We are listening: Solution builders win by understanding customers
Leverager – We do it best: Innovate core business model to drive ongoing advantage
Expander – Seeking to steal a share of the market: Use core capability to enter and dominate adjacent markets
Defender – Protecting turf: Focus on points of advantage in mature or slow-changing sectors
Fast Follower – Ready to react: Optimize capability to react rapidly
Each growth behaviour is tied to capabilities and a mismatch will fail strategy. You have to make sure your ambition, capabilities and culture are all aligned
Lesson 5: Some industries will be more profitable than the others
The recent Zomato IPO in India led to a meme fest. Very senior leaders of corporate India were left commenting on the irony of a company making losses commanding a premium on its listing price. There were comments and wonderment that how could a loss-making food delivery platform be valued higher than many established companies.
While the scepticism regarding the valuation of Zomato may be well-founded, the fact is that companies in some sectors will receive higher valuations than others. A McKinsey study in 2014 explored this subject at length and identified that some industries were inherently more profitable than others and your success is dependent on the choice of industry. They found that some of the commodity industries like power will not create economic profit (profit – the cost of capital) and are loss-making.
If you are betting on growth in such sectors, go on at your own risk, unless you are the incumbent. It’s another story that plenty of Indian companies diversified into such sectors (without the scale to be successful).
If you are expanding and looking for growth opportunities, you would be best served by ignoring industries that are already commoditized (unless of course you take a leaf out of Reliance and build the largest refinery or the largest fibre optic network that provides an unimaginable scale)
In summary, in most established organizations, the existing systems, structure, beliefs and culture work against innovation and disruption. There are no choices but to embark on change and transformation (at least at the leadership level) to drive innovation and disruption. Hoping for innovation outside the boundaries of existing business is unlikely to succeed for several reasons
1. CEO’s and CxO’s can’t suddenly become startup entrepreneurs
2. The management philosophies inherited from the existing operations (and invariably internalized) doesn’t help in managing a start-up environment
3. The lack of agility is a culture issue and not merely a process issue and hence requires top led transformation
On the other hand, creating a culture of entrepreneurship is not that difficult a task.
Do you have a plan to innovate and be disruptive?
If you would like to discuss the topic of innovation, do get in touch with me. You can book a free 60 min one on one discussion here: https://bit.ly/3eLCLGz
Krishnan is a leading innovation consultant and focuses on helping people and organizations innovate and build capabilities for innovation. He brings over 25 years of experience in the industry and consulting. You can reach him by phone / WhatsApp: +919791033967 or email: firstname.lastname@example.org