Why don’t big companies take more risks in order to innovate?

Why don’t big companies take more risks in order to innovate?

OLIVIER LABORDE

“For a big company to innovate, it has to be capable of investing in unfamiliar, emerging businesses.”

Olivier Laborde, Innovation and Digital Transformation Strategist.  He began his career as a consultant, and then joined Natixis Assurances where he is currently Head of Marketing, Innovation and Digital. He created the Cash Management Lab in 2009 and led the company’s digital transformation project, which in 2015 received an award for the best internal strategy for corporate digital transformation.

 

WHY DON’T BIG COMPANIES TAKE MORE RISKS IN ORDER TO INNOVATE?                            

Disruptive innovation is the Grail that major corporations have been seeking ever since the buzzwords “Uberisation” and “disruption” first appeared.  Especially with all those scary articles predicting that 40% of today’s big companies will no longer exist in a few years’ time.  But are these big companies truly going after disruptive innovation, or are they happy with incremental innovation, with which their organisations are more comfortable and which does not affect their current revenues so much?

At the same time, many talk about digital transformation, and may confuse the two approaches – which creates confusion within organisations.  Substantial investments are allocated to the necessary pursuit of digital transformation, sometimes at the expense of innovation budgets.

Innovation and digital transformation are two different approaches[i]. They are distinct and complementary, and each nurtures the other.  Digital transformation makes it possible to address new needs more efficiently and to speed up the pace of development – but not to innovate.  In some companies, the Director of Innovation has been replaced by a Chief Digital Officer. This is a mistake.  While digital transformation will make a company CIAS (Connected, Intelligent, Agile and Social), innovation will enable it to find new territories for growth. In the majority of cases, digital transformation amounts to digitalising what already exists — whereas the aim of innovation is to develop a new product, process or service, to address a new market, to design a new business model, etc.

Big companies often find it difficult to innovate because they are falling into three traps[ii]:

the familiarity trap:  they favour familiar businesses over unfamiliar businesses

the maturity trap:  they favour mature businesses over emerging businesses

the consanguinity trap: they favour businesses that rely on proven technologies over those that use innovative technologies

So for a big company to innovate, it has to be capable of investing in unfamiliar, emerging businesses that use innovative technologies rather than mature technologies.  In such circumstances, it is difficult to predict the market potential of these new businesses, and big companies don’t dare take the plunge.  This is not how they are programmed.

When it comes to risk-taking and innovation – or at least daring to try – there is no miracle solution or method.  The best thing a big company can do is build an environment, an approach and a set of rules that encourage the emergence of disruptive innovation. I recommend the LISH* method (explained in my book Innover ou disparaître ; le Lab pour remettre l’innovation au coeur de l’entreprise) to help large corporations succeed in their efforts to innovate.  The approach is based on four pillars:

L for Lab

An independent structure like a Lab makes it possible to deal with uncertainty, facilitate successive experimentation and accept failure as the corollary of experimentation.  A Lab is a framework that allows one to experiment, to dare to take risks while keeping the costs down.  It provides a place where raw, embryonic ideas can mature.

I for Ideation

To create an open and innovative ecosystem within and around a company, the company needs its employees, its tech partners, startups, schools, universities and incubators – without forgetting to co-create with its customers.  Open innovation is key in the VUCA world (Volatile, Uncertain, Complex and Ambiguous) in which organisations operate today.  It is a globalised, hyper-connected world that has become totally unpredictable, with periods of great turbulence.

 

S for Startup

Injecting the practices and methods of startups into big companies is one way to help them get back on the innovation track and “deliver” at startup speed.  Drawing inspiration from the internet giants will open the way to greater flexibility, agility and innovation.  Experimentation also brings horizontality into implementation, thus encouraging engagement.

H for Human   

Reinventing oneself and surviving the era of digital revolution is first a matter of cultural transformation.  The innovation approach must therefore promote values and behaviours that fit with the company’s new challenges.  The company must mobilise all of its employees.  Empowerment is a key ingredient for managing change.

In the very great majority of cases, disruptive innovation is achieved after a succession of iterations in Test and Learn mode. Neither Google nor Facebook was the result of a single attempt – not their product and especially not their business model. Disruptive innovation is not linear, and no one knows at the outset if they will be successful or how long it will take!

This is an uncomfortable approach for a big company which, due to its DNA, would rather take on disruptive innovation as it would a traditional project — where everything is understood and controlled from the start, with a positive ROI within two or three years.

Will big companies allow themselves to let go, to take risks, to make mistakes, so they can dare to experiment and innovate radically?  This would be against their nature, so as organisations they would have to come up with ways to be more ambidextrous – allowing them to take a more relaxed view of the future and fully take their place within it.

Practising open innovation, being agile, daring to experiment, introducing the right to make mistakes, capitalising on (developing) its talents, rethinking its managerial model and encouraging intrapreneurship — all these things can help create an environment that encourages the emergence of innovation in general.  The Lab provides a structured way to gain an understanding of disruptive innovation. The LISH method is reassuring for large companies, who feel more comfortable with a process and KPIs.

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[i] https://www.hbr- france.fr/chroniques-ex- perts/2017/09/16683-transforma- tion-digitale-veut-vraiment-dire/

[ii] https://www.hbrfrance.fr/ chroniques-experts/2015/07/7593- les-3-pieges-qui-empechent-les-en- treprises-dinnover/