Many organisations want to cause disruptions in the market. Disruption and Innovation are crucial survival factors in our ever-changing, fast-paced world and naturally, these factors have become a great focus for companies. Yet the largest organisations with the most resources are struggling to disrupt. It seems large companies are better at classic models of innovation and enhancing products, but when it comes to disruption, they’re lagging behind.
For instance, Procter and Gamble is good at making a new version of Tide washing powder every year, and they can improve this powder way better than any start-up could, but when it comes to developing a new disruptive product, they aren’t as successful. Disruptions happen when you create something which makes something else obsolete while innovation is about doing the same thing but better. To read more about innovation and disruptions and how they differ, you can view my Power Read – Become More Innovative.
Now, why are large organisations struggling to cause disruptions?
Large organisations have accumulated old skills and processes that are no longer relevant. A company hires for the types of skills that they need at the moment. However, when it’s time for the company to pivot, especially in this fast-paced environment today, employees don’t quite have the skills to move into something entirely new.
For instance, a large car manufacturer like Volkswagen hires people who are car manufacturers. They have the skills in building and designing cars, and they’re great at doing that. However, creating more cars or better cars is not disruptive. Addressing the problem of mobility, which is the overarching problem of how the consumers get from point A to point B, will help to develop a new and disruptive solution. Essentially Volkswagen has staff who are skilled in car manufacturing, and they have processes in place for manufacturing. As a result, it’s harder for them to shift to a completely new solution for mobility that doesn’t involve manufacturing cars.
The notion of this is like an old saying - nobody buys a power drill, everyone is buying a hole in the wall. And technically, you’re not even buying the hole in the wall. In fact, you’re buying a way to hang your frames on the wall. Focus on the problem of hanging things on the wall, instead of just making more drills, and you’ll have a shot at causing a disruption.
Ultimately, large organisations have a large baggage of skills and processes which advanced them at a certain time but are no longer relevant in helping them to get ahead in the future. If companies are not moving forward, they will get left behind in the near future.
The immune system response happens when a company matures and has its product-market fit, which is often hard to nail. After getting their product-market fit, companies naturally shift from innovation and testing out new methods to maintaining the status quo, because that's what makes them money. The company is busy selling the crap out of what they have, which makes perfect sense for the business; it just doesn’t help in their ability to cause disruptions and innovate.
In addition to that, established companies naturally hire people who are exceptionally good at protecting the status quo. The challenge is that these people often defend the status quo to the bone. When you say, “Oh, we need to be disruptive. We need to innovate. We need to do something new”. They’ll reply, “No, no, over my dead body. This is working now". There's nothing wrong with their response because the company has hired these people to do this job well. However, this doesn’t work for innovation.
Ultimately, it’s a natural response when large organisations veer towards remaining at status quo because that’s what’s working for them and it’s increasing their bottom line.
Large companies, because of their structure, somehow end up thinking that they need even more structure. They add more overheads and more organisational structures on top of what they have. With these additional structures and overheads, employees can’t afford to fail because that would mean that they would lose their jobs. So again, it’s very natural for people to stick to the status quo and make money to keep their shareholders and investors happy.
This culture of avoiding failure and sticking to the status quo opposes the skills that are needed to be innovative such as nimbleness, agility, being open to experimentation and an openness to failure. As a result, the natural culture of large organisations tends to work against their ability to innovate and cause disruptions.
Finally, another issue that large organisations tend to struggle with can be explained through a simplified model of what future organisations need to look out for. This model is called the seven layers of organisation. It is a vertical layer model which is an oversimplification so just take it with a grain of salt. This model illustrates that companies are often focusing on the top layers and completely ignoring the bottom layers.
At the very top of the model is the change in the market. For example, when AI comes along, or there’s a shift in consumption patterns from buying cars to buying mobility, these changes in the market naturally trickle down and changes a company’s business model. The change in business model changes the operational model. So for instance, a company could go from making cars to running a server hall and building mobile phone apps.
The layer at the bottom is the people and the culture, which goes back to the mission and purpose. Why does your company even exist? What’s the fuel for your guiding North Star? What do you do about your people? What are the skills and capabilities that your people need?
What large organisations are doing wrong is that when they embark on their digital transformation journey, they tend to only focus on the top layer because that’s where you can easily tag KPIs. The mechanical part of the layers, like your business model, operational model, organisational model, and other such models and processes can easily have KPIs. You can put checkboxes to the right of them and tick them off. But the bottom layer, the people and culture layer, which is the heart of the business is often not addressed. Companies get the best consultants from McKinsey, Deloitte and Accenture to do amazing strategic work with a great business plan but they fail to address the people and culture portion, often because it’s hard to measure, it takes time, and it's messy. You can innovate your business models and processes all you want, but at the end of the day, it’s all about people.
There is a beautiful and apt quote from Herb Kelleher, who founded Southwest Airlines, “the business of business is people – yesterday, today and tomorrow”.
To view the full content, sign up for a free account and unlock 3 free podcasts, power reads or videos every month.
Chair, Singularity University & Co-Founder