Companies today need to have a clear vision about how they are going to be conspicuously different from their competitors. In an extremely competitive environment, ‘me too’ strategies are unlikely to be forgiven. Unless businesses offer something different to different groups of customers, they are likely to be swallowed up by the competition.
In his new hard-hitting book, The Innovator’s Manifesto, Michael Raynor, co-author with Clayton Christensen of the bestseller, The Innovator’s Solution, argues that disruption theory, which explains how fringe ideas come to redefine entire markets, is not only a useful idea — it stands alone in actually predicting future success.
How disruptive thinking started
In Christensen’s two books, The Innovator’s Dilemma and The Innovator’s Solution, he posited two different kinds of business innovations:
- Sustaining innovations are those that bring better products to an existing market. Most sustaining innovations are simple, incremental, year-to-year improvements. A useful analogy for a sustaining innovation is the quarter-turn-of-the-screw. With sustaining innovations, the odds overwhelmingly favour the incumbents.
- A disruptive innovation “brings to market a product not as good as the products in the current market, and so it cannot be sold to the mainstream customers. But it is simple and it is more affordable.” Disruptive innovations take root in a small niche of the market but eventually reach the mainstream. “I call that a disruptive innovation,” Christensen said, “not because it’s a breakthrough from a technological sense, but instead of sustaining the trajectory of improvement that has been established in a market, it disrupts it and redefines it by bringing to the market something that is simpler.”
A manifesto for growth
Whether you’re an investor, an entrepreneur, or a manager, you live with the unavoidable paradox that although you believe passionately in whatever specific undertaking you are committed to today, you understand that of the many initiatives you may undertake or be involved in, most will fail to be breakthrough winners.
Raynor’s The Innovator’s Manifesto contains new research showing how disruption theory is unique in its ability to help managers predict the success or failure of a company or product. He explains why disruption theory is so powerful — and provides the roadmap managers need — to use disruption theory to shape new products and ventures in their own industries in ways that make ultimate success possible.
So what do you do if you are not able to reliably pick or create successful innovations? Raynor suggests the following three-stage approach as state of the art in innovation management:
Start with lots of ideas
Ideas are brought to life by activities such as innovation competitions and teams that focus on developing great new ideas. It’s an approach taken by companies like Google which gives people some unstructured time to pursue projects that they are passionate about. Google believes that when you give smart people space to innovate, you unleash the power of imagination, ideas and connectivity to change the world. Despite its size, Google still maintains a start-up culture. Its work is project-based and its commitment to innovation depends on everyone being comfortable sharing ideas and opinions. Googlers have the opportunity to develop 20% Projects, where they take 20% of their work time to work on projects that they’re personally passionate about. One such project led to the development of Gmail.
The implicit belief is that since we cannot know in advance what the characteristics of a successful idea are, we have to get as many ideas as we can from as many diverse sources as we can.
Try out as many of your ideas as you can in the marketplace to see what works
We need some way of sorting the wheat from the chaff, and since we can’t rely on our judgement we try out as many concepts as possible in the market. We create ‘lean start-ups’ in the hope of ‘failing fast’ so we can ‘iterate’ toward a winning formula. Those concepts that meet with early approval from the market are the ones we deem likeliest to succeed.
Innovation usually results from trial-and-error experimentation and sometimes occurs incidentally where researchers produce something other than what they intended.
Stick with the successes and abandon the failures
In the hope that those products early adopters embrace have long-run potential, we commit to those and abandon the rest. As we scale up, we must live with the uncertainty that as we cope with the demands of growth, we can adapt effectively.
What this proves
According to Raynor, the apparent waste of this extravagant approach to innovation need no longer be meekly accepted. New evidence shows that disruption theory can materially and significantly improve predictive accuracy when creating or picking successful new businesses. The core of Raynor’s case for the predictive power of disruption theory is a study of Intel’s New Business Initiatives (NBI) group, whose job it is to investigate opportunities far afield from the company’s current operations. In this study, disruption theory proves to be a better predictor of new venture success and failure than other theories.
This conclusion was confirmed in a follow-up study in which MBA students were given business plans drawn from venture capitalist pitch decks and asked to use different theories to predict what happened to the companies. Over 500 MBA students from Harvard, MIT, and Ivey Business School in London and Toronto analysed a portfolio of 48 business proposals funded by Intel Corporation. After just one hour of instruction in disruption theory, 50% were more likely to pick businesses that survived in a business plan competition. Once again, disruption theory proved to be the best predictor of future success.
These results imply that it is possible to identify successful new businesses at the earliest stages of development. And the consequences for how we manage effective innovation programmes can be profound, says Raynor. Instead of ‘variation-selection-retention’ – a framework designed to compensate for our ignorance – we can now build upon our improved understanding with an entirely new paradigm.
If we can identify the predictors of disruption, he maintains, we can find and create those circumstances,
and therefore increase our likeliness of success.
The framework he suggests is three-pronged: Focus, Shape, and Persist. Focus on the disruptive ideas, shape them, and then stick with them. That’s how to ensure a greater likelihood of success:
Go where the money isn’t
Innovations consistent with the prescriptions of disruption theory are systematically more successful than those that aren’t. Consequently, we can focus our efforts on those markets and technologies that target un-served or over-served segments with greater confidence than ever before.
Seek ‘creative creation’
Rather than trying to find out what works by seeking to minimise the cost of failure, we can now build business models that conform to meaningful patterns of success. Specifically, by serving profitable segments that incumbents deem inconsequential, new businesses can create a valuable foothold. Then, by building their businesses around ‘enabling technologies’ – elements of their business model that allow performance to improve over time – entrants can move from that foothold to positions of mainstream dominance.
Don’t fail fast, learn fast
Disruption improves predictive accuracy, but we’re still a long way from 100%. What this means is that although we can more confidently commit to specific markets, technologies, and strategies, there is still a lot to learn. Learning, however, demands persistence: the willingness to stick with something despite early setbacks. And that persistence need no longer be the product of blind faith, but can instead be based on solid empirical evidence.
Most theories of innovation base their prescriptions for action on explanations of the past. Disruption is perhaps the only theory of innovation to have been tested for predictive power using a portfolio of actual businesses. And the results suggest that a revolution in how innovation is managed is upon us.
Raynor offers many examples of disruptive innovation – innovations that took root in a small niche of the market but eventually reached the mainstream and dominated them:
- The Internet was a disruptive innovation to newspapers.
- Toyota was a disruptive innovator with its Toyota Production System of lean manufacturing and process improvement.
- Southwest Airlines was a disruptor with its low cost carrier strategy.
3 Strategies To Implement A Culture Of Innovation In Your Business (Without Blowing Billions)
Learn to think differently, encourage your team to do the same, and innovative disruption could become a part of your company’s DNA.
You’re seeing it everywhere. Disruptive innovation is becoming the new norm, and you’re concerned that your business is merely going through the motions, missing opportunities.
How can you join the Elon Musks of the world, without the corresponding bulging budget?
It turns out that many of the techniques of today’s top innovators don’t require vast outlay. They’re simply about different ways of thinking.
Here are three strategies for enhancing the culture of innovation in your organisation without blowing billions.
1Use ‘Ignorance as strategy’
You’ve encountered the aphorism, ‘To a man with a hammer, everything looks like a nail.’ Similarly, to a banker, the only imaginable approach to banking is ‘the way banking has always been done’. When bankers try to think of innovative new ways of banking, they invariably think of greater complexity.
Along came PayPal
In the April 2016 edition of Harvard Business Review, Reid Hoffman, one of the founders of PayPal, said, ‘All the banking people knew the rules. That prevented them from trying anything that looked remotely like PayPal.’
PayPal was not invented by a bank, just as Uber was not invented by a taxi driver.
To make use of ‘ignorance as strategy,’ try this. Gather a group of strategic thinkers and set the rule: ‘The old way of doing it has been outlawed. How else might we serve the same need?’
Or: ‘We are now our competitors. We have half the budget, but our hearts and souls are invested in one purpose: To topple the original company. We can’t do it the way they do it. So how could we go about it?’
Or: ‘The company has burnt to the ground. We’ve lost everything. We need to keep serving our customers but we need a new, cheap, fast way to do it right now that doesn’t rely on any equipment or systems we used before. What have you got?’
2Use commander’s intent
Imagine: You’re a military commander. You need to move a convoy of trucks through a dangerous canyon. Your intelligence tells you that there is a sniper on one of the escarpments.
There are two ways you could issue an instruction to a soldier:
The first way: ‘Go take out that sniper.’
That’s very clear, and very good. But there’s something surprisingly important missing from it. The ‘why’ is not overtly stated, and for that reason, the mission could actually fail.
Let’s try it again the second way: ‘Go take out that sniper because we need to ensure safe passage through the canyon for our convoy.’
That may sound like a ridiculously obvious addition. Here is why it’s not: In a real, dynamic scenario, things change constantly.
Let’s say your soldier breaks off from the convoy and heads up into the mountains. Very quickly, three things go wrong:
- He can’t find the sniper
- Enemy forces start firing at him, making it difficult to look for the sniper
- His own weapon fails to fire so that he can’t shoot back.
If our soldier thinks only about the literal instruction — ‘shoot the sniper’ — he is now unable to carry it out. But if he bases his actions on the commander’s intention — ‘secure our convoy’ — other options open up to him.
He might draw their fire. He might set a bushfire. Or he might cause a commotion in a different canyon, disguising the movements of his convoy. He might, he might, he might… But only if he is absolutely clear on Commander’s Intent, and not working according to an explicit tasked item only.
Managers love to create detailed rules and procedures. But these can actually stifle innovation. Commander’s Intent is the life hack by which we get the upper hand again, freeing up leeway for creative potential.
3Instead of rules: Imaginative debate
Organisations accumulate rules over time. Problematically, rules can become a form of culture. And there is a better way.
When NASA faced two separate, well-known challenges, their culture at each stage was very different.
In 1970, Apollo 13 was two days into its mission when an explosion knocked out one of their oxygen tanks. The ensuing creative scramble to get the astronauts safely home is the stuff of legend. The creative trial and experimentation that went into rescuing them was formidable. New procedures were made up back on earth, then tested in the simulator, then relayed to the astronauts 200 000 miles away, almost in real-time.
Through this process of creative trial and experimentation, of collaborative inter-disciplinary debate, one by one the issues were resolved and the crew was brought home safely.
At this point in time, NASA’s culture was ruled by imaginative debate. It was an exploratory culture, an experimenting culture, a culture based on learning and evolution.
By contrast, at the time of the Columbia disaster of 2003, the culture of experimentation had given way to one of formalised rules, regimented procedures and rigid hierarchy. NASA had stopped being a learning organisation. It had become a bureaucracy instead.
As Columbia re-entered the earth’s atmosphere, a large piece of foam fell from the shuttle’s external tank and broke the wing of the spacecraft. The shuttle broke into pieces. NASA recovered 84 000 pieces from a debris field of over 2 000 square miles.
The investigation revealed some damning insights about the culture that led to the problem.
During a post-launch review, a group of engineers actually saw this foam dislodge from the rocket. They tried to pass on this information. NASA’s management, which by this stage liked to manage everything ‘by the rules’, had seen dislodged foam before, and, according to their institutionalised perceptions, deemed it to be unimportant.
The engineers tried to argue that it seemed like a lot more foam than usual. It was a qualitative argument, based on human insight and intelligence. But NASA was unable to listen. Dislodging foam was a known quantity, and the voices of dissenters went unheeded.
NASA by this stage was so bound in rules and procedures that, in important ways, it had ceased to be a learning, experimenting culture. And that made it incapable of hearing an idea, to its great detriment.
Imaginative debate allows situational awareness to pass up and down the chain of command. It promotes the opportunity to see innovation possibilities. It shows up problems that fall outside of the capacity of norms and guidelines.
The Israeli Defence Force uses an examination of these two cultures within NASA as a way of perpetuating a learning culture within its own organisation. In Start-Up Nation, Israeli air-force pilot Tal Keinan is quoted as saying that if NASA had stuck to their experimental culture, the way his own air force and military do, they would have identified and seriously debated the foam strikes at the daily debrief.
Debating everything isn’t tedious. It’s illuminating.
Putting rules in place of debate isn’t clarifying. It’s dulling.
Rigid rules enforced by unlearning authority are a recipe for real danger. The use of strenuous debate helps to overcome these blind spots.
Cultures of learning are far more idea-friendly than bureaucracies. And it costs nothing to become one. Merely a little willingness.
To Have An Innovative Company, Let Your Employees Take The Reins
‘In order to clean, they need to get messy,’ serial entrepreneur Justin Klosky tells Entrepreneur’s editor-in-chief Jason Feifer.
An innovative company starts with an innovative team. And what’s the best way to innovate? Give your employees the freedom to run with their own ideas, then manage the chaos later. At least that’s what Reid Hoffman believes.
“If you want your company to innovate, your job is to manage the chaos,” says the co-founder of LinkedIn, partner at VC firm Greylock and host of Masters of Scale, a podcast series examining counterintuitive theories to growing a company.
Hoffman’s theory doesn’t seem too far-fetched either. In fact, he’s not the only person who thinks giving employees the freedom to think and create on their own triggers innovation.
“When [people] have that ability to explore and innovate without the pressure of failing, you’re setting yourself up for a ‘win’ situation, because you’re going to get the best out of somebody,” Justin Klosky, founder of professional organizing company O.C.D. Experience, tells Entrepreneur’s editor-in-chief, Jason Feifer, in a video.
Although, when you’re empowering employees with this much freedom, you’ve got to be hiring people you trust. This can be easier said than done. Rather than dissecting a person’s resume, Klosky recommends digging deeper and asking prospective employees questions that will really open them up – anything from who they are, where they’re going and what brought them here.
After you’ve hired a group of honest, intelligent employees, now what? Don’t tell them how to innovate. Instead, let them figure that out on their own. Allow employees to do what they do best, return to you with their results and from there manage the chaos.
“In order to clean, they need to get messy,” says Klosky.
For more insights and advice about managing an innovative culture, check out the video.
This article was originally posted here on Entrepreneur.com.
Do You Know How To Stay Relevant?
In this tough economic climate, you need to start focusing on business areas you can control. The ability to stay agile and relevant is in your hands.
We have seen huge changes in South Africa recently. Just five years ago, we had a thriving platinum mining sector, good exports of commodities, no e-tolls, a rand dollar rate of better than 8:1 and peaceful universities.
All that has changed, with a significant effect on our SME sector. Imports cost more, finance is expensive and socio-political and labour issues disrupt business frequently.
Customers have changed too; many buyers now complete over 60% of the sale by Internet research. They make comparisons, shortlist potential suppliers and only ask for quotations when they are close to deciding on their supplier.
You could’ve fallen off the shortlist and didn’t even know it
Your company could have been a potential supplier and then fallen off the shortlist without you ever knowing about the lost opportunity. Customers no longer rely on sales staff to provide information about products and applications, and even the least tech-savvy customer checks prices and specifications online.
24/7 availability is now expected, and long delivery times become unacceptable. Customers assume you will be able to slot in unplanned orders efficiently. Loyalty is no longer a given; buyers will move to suppliers who provide better value, even if that supplier is overseas.
Lead through quality
Entrepreneurs should recognise that the way we have done business in the past might need modification; there is a risk of being overtaken by more agile competitors. Uber, Airbnb and Netflix are great examples of competitors changing the rules.
What is happening in your markets? What are your competitors doing? Do not just accept feedback from your staff — they are also in their comfort zones. Research competitors and new technologies; ask customers what they would like to see you change.
If you make a decision to update your business, there are several areas you could focus on to build a more agile business that gives better value for money. Technology, quality, customer service, IT, Internet presence, continuous learning and strategy review are among those. A few of the vital ones include:
- Use available technology. Check prices and terms from alternate suppliers, investigate IT solutions to provide flexible manufacturing systems, optimise inventory and give better response times for customer enquiries.
A good CRM system can track complaints, give basic data to spot new market trends and identify customers starting to move away from you. Develop apps to improve customer convenience or optimise sales calls.
- Increase quality in all respects, from your products to the accuracy of your invoices. Spend money on quality systems and business processes. You will get it all back in direct and indirect savings by having less comebacks of all types. Better quality in all respects increases your value proposition, and helps to justify your price.
Overhaul your customer service. Set improvement targets for order fulfilment, right first time repairs, shorter lead times, more convenient customer interfaces and all the other elements of great customer service. Then put plans in place and implement them. Financial returns will follow.
You need an effective and integrated Internet presence, with rich content, which means useful short pieces, not lots of content. Your social media presence must be integrated and support your brand and value proposition. Do not follow trends blindly because everyone thinks they are cool.
Revisit your strategy
Your company must be agile enough to change strategies and tactics to take advantage of market and competitor changes, rather than seeing them as threats. An outside facilitator helps.
All of this sounds like a lot of work and expense, but right now you may be using large chunks of time and money fixing errors, working around old systems, losing customers you should not lose and not getting new customers you should get. Stop all that and you will have time and money to create the new agile and informed company you could be, and stay relevant in your markets.
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