Strategy and Innovation

The Importance of Disruptive Innovation

  • Olivia Potts
  • May 28, 2021
The importance of innovation in business

We get it: change is hard. For people, and for corporations. When it comes to innovation, it’s especially easy to fall into the comparison trap and feel like you simply cannot keep up: everything is moving too fast, too furious.

Elon Musk is planning to implement technology that sounds out of a sci-fi movie in the very near future, UPS is embracing the possibility of drone deliveries to hospitals… It’s hard not to feel like you’ll be able to catch up. 

It’s getting faster, too. Take cars, for example. The first commercially available car navigation system became available in 1981, but just about 20 years later, Tesla came out with the first autopilot. Today, laws have been passed in 29 states allowing autonomous vehicles in the US.

It’s no wonder corporates feel overwhelmed. But real, up-to-date innovation is not some unattainable goal that only Elon Musk can hope to achieve. There are three main shifts that companies can and need to apply in order to bring their business into the future and keep up with the ever-changing tech scene. 

From Industrial to Digital: Disruptive and Strategic Innovation

It’s by now more than clear that “industrial” is a thing of the past and we are well into the digital age. To survive, companies need to make the transition. Anyone who refused to adapt has become a cautionary tale for all—we’re talking glory names of the bygone era like Blockbuster, Compaq, Arcadia Group, Debenhams, HMV. If you’re still unconvinced, just remember that 50% of the Fortune 500 will almost certainly disappear in a decade

But even those who are happy to try and keep up with the times need to be careful. One common mistake? Believing “upgrades” equal “innovation.” As it happens, innovation done in increments is also a thing of the past: disruptive innovation is where corporates need to look to survive. Agility is key. 

Digital innovation comes via M&A: partnerships where a company lets the startup community create the innovation, and then the company steps in and acquires it— “digital conglomerates,” is what they call themselves. This is agility. This is the flexibility of thought and futuristic vision. Disruptive innovation is what allowed a giant like Amazon to follow an exponential innovative path that went something like this: books – ebooks – e-commerce – cloud – film – home electronics – drones logistics – home automation. Inspiring, isn’t it? This is the kind of agile progress companies must aim for. 

From Capitalism to Talentism: What Sustains Innovation

Before, it was all about capitalism. But today, in the digital era, talent is replacing capital when it comes to creativity, allowing for true innovation. Think of Facebook buying social media aggregator FriendFeed for $50m in 2009. There was only one person at that firm that Facebook was interested in (Bret Taylor, creator of Google Maps, who went on to become Facebook’s CTO), but Facebook went on to pay $4m per person for twelve people. 

The truth is, you cannot be disruptive without creative talent—which is why nowadays, talent is the real currency. It’s talent that sustains innovation. Corporates need to shift their focus to culture and purpose in order to innovate in the most effective, most constructive way that will allow them to not only stay afloat in a world that turns at a mad pace but to thrive. 

From Scarcity to Abundance 

Where once were barriers, now there are entries—technology is a huge force making sure of that. Products and services that used to be prohibitively expensive are becoming easier to acquire. Music, once exclusively available in the format of (let’s face it) sometimes way-too-expensive records, is now at everyone’s fingertips. 

Cab fare has now migrated to the more accessible realm of Uber and other share models. International calls went from being a drain to your bank account to being included in your monthly phone plan. Digital storage went from being extremely pricey to a fraction of its original cost. 

The future is also looking more and more accessible: AI will more likely reduce the cost of legal work, renewable energy will reduce the cost of utilities, drones, and autonomous tech will reduce the cost of transport, blockchain is reducing the cost of accounting—the list goes on. 

The Importance of Innovation in Business

But what does all of this mean for corporates who are looking to innovate and survive in an ever-changing scenario? “Disruption” is a scary word for companies. Corporates have disruption anxiety and focus on iterative innovation rather than disruptive innovation—enhancements and improvements rather than groundbreaking moves. 

It’s a period of time where you either disrupt or you get disrupted. – John Chambers

However, there is no time for indecision. Disruption is essential. Disruptive innovation is where a company generates new revenues with new business models, new products, new services. Innovative thinking at its finest. It’s easy to stick to what you know and what you do best, but progress doesn’t stop once you find your niche. Tech doesn’t allow you to languish in your comfort zone. 

The real challenge is having the instinct and creativity required to recognize changes and opportunities that may come along. Typically, inspiration will come from customers and employees, so companies should make sure they always keep the conversation flowing with the people who are at the front end: working with mixed teams is a great way to do that. Identifying market transitions is also a key part of the game. 

But what are some of the crucial characteristics within a truly innovative company? What should you look for? 

  1. Have a plan for innovation that is actually measured. 
  2. The CEO should be involved, taking ownership of the innovation process. 
  3. A company should be a first mover, not a fast follower. It should take risks, ignore the temptation of the aforementioned comfort zone. 
  4. Commit a budget to innovation, following the golden 70/30 rule (70% on incremental innovation, 30% on disruptive innovation). 

There are four key questions a company should ask themselves to track and measure their innovation: 

  • Is the CEO involved? 
  • What % of revenue is made up of products/services you didn’t offer 5 years ago? 
  • What % of EBITDA do you spend on innovation/M&A?  
  • What innovations are most requested by your customers? 

With these shifts, a company can truly become part of the future—a modern force to be reckoned with. You don’t have to do it alone, either. There is a vast network of new business model and innovation experts to help you conquer the future.

 

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