The rate of disruption is accelerating and established industry leaders are failing and disappearing faster than ever. The average lifespan of a Fortune 500 company is in rapid decline, from 61 years in 1958, to 25 in 1980, to 18 in 2011. Some predictions call for it to drop to six years by 2020.
The key to survival for leading organizations may lie more in continuous innovation vs drastic innovation.
Disruptive Innovation and Failure
Leading organizations are failing because they’re not innovating and other companies are. These large organizations are not reacting quickly enough to the new offerings, business models, and disruptive technologies that new entrants are bringing. In 2014, $48 billion was bet on the fact that established players were ripe for disruption. That’s how much venture capital went to startups – the highest level in over a decade, according to the MoneyTree™ Report by PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data from Thomson Reuters.
To get a clearer picture of this dynamic, let’s look at a more specific article on Entrepreneur.com – 'Investors Are Posed to Disrupt the Tech-Averse Insurance Industry', which speaks to how investors are betting against the established players in insurance. From the article:
'A serious shift in insurance is possible as investors examine the potential value of insurance tech, currently a weaker component of the industry. Since 2010, investors have funneled an estimated $2.12 billion toward this prospect. Of those funds, more than half rolled in during the last two years, with $556.5 million coming in 2014 and $831.5 million in 2015 — and we’re not even talking a full year here; that’s just from January to May.'
The article also points specifically to the following areas as suitable for disruption:
- Tools for risk assessment
- Improvements in efficiency
- Improvements in customer experience
Why don’t big organizations innovate? One answer = The Innovator’s Dilemma
You may be familiar with the theory of disruptive innovation and the book 'The Innovator’s Dilemma'. There was a good post from Donald Sull in Harvard Business Review entitled 'Where Disruptive Innovation Came From'. It’s a review of the theory and a response to recent criticism of the theory. Essentially, it boils down to the fact that no single theory can explain everything.
So if that doesn’t explain everything, what are the other reasons?
Why don’t big organizations innovate? Another answer = Conway’s Law
Conway’s Law explains that over time, a company’s offering will necessarily mirror the company’s organizational structure. This is because governance structures, problem-solving routines, and communications patterns influence the ways in which an organization looks for new solutions. There’s a Harvard study, 'Exploring the Duality between Product and Organizational Architectures: A Test of the 'Mirroring' Hypothesis' that looks at this in a lot more detail.
In this context, it’s less about the fact that big companies don’t innovate – but more so that they innovate in ways which are specific to their current offering. When innovation needs to take their offering in new directions, it’s a challenge.
The answer? Leapfrog disruptive innovations through continuous innovation
Going back to the Entrepreur.com post above, one thing that’s interesting is that none of the areas highlighted as suitable for disruption are crazy-out-of-left-field concepts. What if insurance companies just continuously focused on improving their ability to assess risk, improve efficiencies and customer experience? It would decrease the likelihood that they could be disrupted in any one of those areas. So why don’t they do it?
The problem may be rooted more in beliefs about innovation. Specifically, that great ideas come from creative geniuses, leaders, special teams and think tanks. That the creative process from which innovation happens is an inherent, unique skill that only some people have. The truth is that more often, innovation comes from solving everyday problems and finding ways to go after the opportunities right in front of your nose.
Stop believing that innovation is only about game-changing disruptions and instead embrace the concept that innovations which drive real business value, more often comes from problem-solving through iteration.
Creativity for this type of innovation includes two core components: identifying problems (or opportunities) and solving those problems. As an example of how this works, James Dyson discovered that dust clogging air filters in his vacuum decreased suction within second of being turned on (problem identification). It was a trip to a sawmill gave him the idea on how to solve this problem. Without identifying the problem, Dyson vacuums would not exist.
An employee at one retail client of SoapBox identified that one major cause of big line-ups at cashiers during Christmastime was customers looking to purchase gift cards. The solution was installing specific gift card kiosks. It improved the customer experience and drove fewer abandoned purchases.
It’s in the identification where front-line employees can be invaluable. You cast a broader net and you gather insights from the people who deal with the implications of challenges and opportunities every day. Your sales and support team talks to customers every day – they hold tremendous insight on how to improve customer experience. Almost everyone in an organization can identify inefficiencies and ways to get rid of them. Focus on tools and processes to bring these problems and opportunities to the attention of the right people who can act and you’re taking a proactive stance on being disrupted by a 'new' innovation.