Leading Disruption in Today’s Markets
Do you need your team to be more innovative and cause disruptions? What can you and your company do to be more innovative? Pascal Finette, Chair of Innovation at Singularity University and Co-founder of Radical Ventures, shows you what’s limiting organizations and how you can lead your team to more innovative endeavors.
GAIN ACTIONABLE INSIGHTS TO:
- Why Volkswagen’s specialty in making cars is restricting and hurting them more than they know
- How your business storytelling abilities will affect the innovation of your staff
- The need to starve your team while incentivizing them with a dangling carrot
DISRUPTION IN ORGANISATIONS
Many organizations 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 organizations 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 Becoming More Innovative.
Now, why are large organizations struggling to cause disruptions?
OLD SKILLS AND PROCESSES
Large organizations 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, organizations 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
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 organizations veer towards remaining at the status quo because that’s what’s working for them and it’s increasing their bottom line.
THE NOTION OF CULTURE
Large companies, because of their structure, somehow end up thinking that they need even more structure. They add more overheads and more organizational 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 organizations tends to work against their ability to innovate and cause disruptions.
Finally, another issue that large organizations tend to struggle with can be explained through a simplified model of what future organizations need to look out for. This model is called the seven layers of organization. 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 organizations 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, organizational 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”. *
BECOMING A MORE INNOVATIVE COMPANY
It’s no surprise that start-ups have an advantage in causing disruptions. While large organizations can't replicate some of the start-up features, there are many pointers that organizations can adopt to become more disruptive.
Everyone knows that start-ups have structural advantage, agility, speed and nimbleness but one advantage that is often overlooked is that start-ups also have the advantage of frugality. They have to be frugal because they’re constantly starving. Since they’re continually starving and aren’t being funneled with cash, it forces them to focus all their energy and efforts on what really moves the needle.
As a start-up, your first instinct is not to get a cool office or buy cool company swag or even get an expensive designer to design a cool logo. Start-ups need to be frugal, so they often don’t waste their energy on such things. On the other hand, large companies are doing this all the time! The first thing they say when they build a new product is, “Okay, cool. We need to get a good event space. We need to create a cool project logo..” and every other unnecessary addition that doesn’t impact the business. They spend time and money on things that don’t actually move the needle. Start-ups, on the other hand, are starving and don’t invest their time and money into that.
WILLINGNESS TO PIVOT
Start-ups are also very willing to pivot. They aren’t married to the initial product or idea, though some of them do fall into that trap. Ideally, companies should have the ability to look at problems and say, “Well, we thought we solved this problem for the customer by giving him an app. But really, what we should do is create a physical product. So, let's build a physical product.”. Start-ups pivot by focusing on solving the problem for customers, and they then put in the energy to make that happen.
Don’t be afraid to critique and grow from your initial ideas and plans. The ability to pivot allows companies to really create something relevant and disruptive.
When they pivot, the tools and methods they deploy are also done in a smart and frugal manner. Start-ups willingly pivot according to the needs of their customers, and they keep enhancing their offerings. If you continually focus on meeting the new needs of your customers, rather than solely develop your product repeatedly, you can be more disruptive and innovative.
CORE AND THE EDGE
There’s a crucial concept known as “the core and the edge” which means to run the core operations at the core business, and have an innovation team at the edge. The key to this concept is to isolate the edge as much as you can from the core, and essentially starve the edge. You need to isolate or separate the edge from the core so that they aren’t working with the limitations but are focused on fixing the problems.
You need to starve those in the edge and hire staff who are hungry and willing to do the work in your innovation team. You don’t want to be funneling a lot of resources their way so that they’ll think more creatively and benefit from the frugal thinking that start-ups benefit from. Of course, you do need to make sure that there are incentives because if you starve them without incentives, they’ll just wonder, “Why the heck am I suffering here?”. If you give them incentives through ownership structures, bonuses and what matters to them, you’ll end up with a hardworking and innovative team working for the golden carrot that is in front of them.
If you have people in the innovation team, who look at the core and say, “oh they have free food and extra benefits there” then you’ve probably gotten the wrong people. If you get the right people, they will look at the core and say, “Look at those idiots - they're running around eating their free food, but don't know that they're doomed”.
You want to have a pioneering spirit, not a status quo or protective spirit in your edge teams. People with the pioneer spirit, like entrepreneurs, will look at the core and be almost disgusted by the core. They'll think, “Oh, my God, of course, they've got the money. But I would be dead if I would be working there right now.”
Google is a good example of this. I used to be at Google search, and they are innovative. Gmail and all of their other products get better every day, which is great. But they’re not disruptive when they innovate in that way. However, they have some units that are further from Google’s core. For instance, they have their AI unit which made Deep Mind. While they still get their benefits of free food, they are far removed from the core that they functioned as an edge. Google doesn’t lavish funds on this team and lets them innovate and be separate from the core.
Now apart from shifting your organization, what can you do on a personal level to guide your innovation team?
The solution to problems isn’t to funnel more money or set up a 10 billion dollar innovation center. While it looks great and you can take a picture of the CEO in front of the center, this won’t help your company innovate. What will help is to train your staff to enhance their muscle memory of solving problems. You need a team filled with individuals who are practicing, learning and solving problems as I’ve highlighted in my first book.
Apart from having innovative individuals, it would help if you did a comprehensive assessment of the skill gaps in your team. You could be asking yourself questions like - What skills are in your team today? What skills do you need in the future? How do you get there? Can you build bridges in your team? Do you need to bring in new people? Based on the answer to these questions, you can then create a hiring or training plan of how you can further enhance the way that they function as innovators.
Next and more importantly, your ability to create a story and the artifacts to support that story is vital. When it comes to leading others, in innovation or otherwise, it’s not about a single lofty speech that inspires. It isn’t about a one-time briefing emphasizing the importance of something. It’s about a regular, daily, continuous, and careful communication. You need to be a storytelling business every day. That's how humans connect.
Instead of telling staff that they need to be innovative, you need to be telling stories about the individual customer they will impact. Talk about the person whose problems you would solve through the innovation. You need to be continuously communicating this in multiple channels and making this very clear.
I love to walk through the lobby of a company because a lobby tells me a lot about what the company is about. There’s always an intention. Even if you said, “I don't care what furniture we have, as long as people sit comfortably”, there’s still an intention behind that.
As a leader, you need to be holistic about the environment you’re creating. What are the stories you’re telling? The story you tell is the message people are receiving, and this will impact how disruptive and innovative your staff will be.
STEPS TO TAKE IN 24 HOURS
1. Start Story-Telling
Plan out one to two stories that you can share with your employees continuously. Make sure that this is the key message you want to be sharing. Start repeatedly communicating this story and variations of it to your team.
2. Create a Culture of Inviting Failure
Start a list of how you can create a culture where your innovation team is encouraged to try and suggest new ideas instead of sticking to the status quo. Make sure that this team isn’t afraid to fail and that they aren’t concerned with the matters of the core business so that they can instead focus on fixing the overarching problems.
3. Incentivize While Being Frugal
Assess how you incentivize your innovation team and make sure they are incentivized to innovate without lavishing them. If your innovation team is not incentivized, find ways of incentivizing them and build a plan you can execute.