Whether it’s iconic retailers losing out to Amazon, or sluggish and ineffectual responses from the music industry to the likes of Apple and Spotify, business textbooks and journals are littered with examples of industry giants falling from market-leading positions because they failed to innovate.
This phenomenon has many causes: companies may focus excessively on iterating legacy products and services; they may give too much weight to feedback from existing customers at the expense of listening to prospective ones; they may simply be complacent; whatever, they condemn themselves to simply reinforcing the status quo. Meanwhile, rivals – often new firms without legacy baggage – steal a march by embracing disruptive technologies or strategies.
It might be tempting to dismiss this as the myopic view of a Silicon Valley native surrounded by “innovators’ and ‘disruptors”, but the evidence is clear. Innovative new companies are reaching scale in traditional markets at incredible pace.
Witness the meteoric rise of Uber: founded just seven years ago, a recent funding round gave the disruptive taxi firm a valuation that, however excessive analysts might think it, is higher than those of both Ford and General Motors.
Companies must recognise the importance of innovation. But they must also – even more importantly – make innovation a conscious mindset that permeates all aspects of their operations. Lip service is not enough. As we study and teach innovation at Stanford Graduate School of Business, we are all too aware of the need to practice what we preach, openly embracing it in our programmes and methods.
The temptation to focus on consolidating existing areas of strength can be hard to resist; likewise, for a school that prides itself on doing everything well, taking risks on new ventures that might fail can be discomfiting. Yet we must take risks in order to lead.
Stanford Ignite, our international part-time programme, for example, is a new initiative that reflects our need to adapt to the changing landscape of business education.
The risk and disruption that innovation creates for management teams in legacy organisations lead to a fascinating psychological response among those in senior positions – think of it as the business equivalent of the Kubler Ross Grief Cycle.
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The speed at which they move through this cycle defines a company’s success or failure in embracing innovation: those that quickly accept inevitable disruption and find a positive way forward will thrive; those that languish in denial and anger will quickly find themselves fiddling as Rome burns.
Coaching and educating senior staff is key. A management team that understands the innovation process, and appreciates that innovation is neither a short-term “fix” nor a threat, will be well-placed to harness it effectively.
Companies must start the innovation process with their eyes open, taking time to understand the theory and why it may be jarring to existing operations and processes.
Only by teaching the benefits, pitfalls, and processes of innovation at the most senior level will the necessary understanding and conscious mindset successfully take root.
While outsourcing innovation to specialist teams can give organisations access to unique skills, innovation shouldn’t happen in isolation from the core business or without the clear backing of senior decision-makers. Incubators, labs, or innovation arms can add huge value, but only if they are given space and support.
Many management teams view them as simply an exercise in risk management and keep them at arm’s length. The thing most coveted by every startup is scale; why deny your innovation access to scale by over-cautiously distancing it from your core business?
Teaching and reinforcing a mindset of appreciation and inclusivity is the only way to provide the fertile ground needed for innovation to take root and spread into more tactical aspects of the business.
Given necessary licence, innovation will evolve outmoded legacy processes, services, and products, but this must start with education at the highest corporate level.
Garth Saloner is Philip H. Knight professor and dean of Stanford Graduate School of Business.
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