Leaders of incumbent firms should focus on incubating competency enhancing innovations for the short- to medium-term and competency destroying innovations for the longerterm—insofar as they are aligned to what the firm already does (however, this does not mean that the firm should remain ‘locked’ within the same industry or customer base).
In the insurance industry, companies like Aviva in the U.K. or NTUC Income in Singapore have partnered with tech accelerators to improve profitability in low margin and low growth markets. Meanwhile telematics policies, such as real time monitoring of vehicles for example, could generate enormous premiums and reduce risk profiles, even in high-risk car insurance markets like Russia.
However, innovation need not come only from start-ups or large established firms. Institutions and governments should also pursue an innovation policy. India is a notable example of such innovation. The country is in the process of issuing each of its citizens an ‘Aadhar’ card, a unique 12-digit PIN identity based on their biometric and demographic data. As of January 2017, this card has been issued to 1.11 billion residents of India. The Aadhar card qualifi es as a valid identity for accessing several government services, such as receiving subsidised fuel from the public distribution system or opening a bank account. The innovation has had a cascading effect, coming as a boon to several other industries. A case in point is India’s peer-to-peer payments industry, which is booming and providing an opportunity for many upstarts to enter this FinTech space.
Industry boundaries are breaking down, and current competitors may not be future competitors. This requires incumbent firms to look beyond their own organisation and industry to see both opportunity and threat. Incumbent firms must establish frameworks to anticipate disruptive innovation—particularly if there are any elements to their products and services that can be digitised, disintermediated and dematerialised, à la Uber.
Leaders of established and incumbent firms should look to collaboration and partnerships, not only with other industry leaders, but small upstarts as well. This is useful in terms of ‘problem revealing’ as well as ‘solution revealing’. Take Web 2.0 for example, which was ushered in by organisations that facilitate mass collaboration through open platforms and sharing protocols. Open source software, social media, crowdfunding, multiplayer online games and social production have created extraordinary value. Although Web 2.0 organisations have wrought much disruption, firms that ‘stay connected’, share information and collaborate have a better chance of understanding and adapting to new realities such as these, as and when they emerge.
DISRUPT YOURSELF
Firms can stay ahead of disruption by ‘disrupting themselves’. Leaders should facilitate discussions that expose assumptions on misguided views they may have about the market and their customer base. Keep in mind that needs change over time. This is true of one’s customer base and the broader value network that a firm is a part of. Some of the most disastrous mistakes incumbent firms have made in the past is the adoption of certain technologies as just a fad. Just as some may have balked at the idea of talking in pictures at the end of the silent film era, others have underestimated and ignored the power of social media today.
Leaders, however, cannot expect their employees to ‘go out on a limb’ and question assumptions, or take up the mantle of any kind of culture change, without the right kind of incentives. Indeed, aspiration and adaptation are both incentive driven. It is well known that Google, for example, allows its employees to spend as much as 20 percent of their time pursuing their own projects or collaborating with other employees on projects. Developing successful collaborations designed to identify and solve problems in innovative ways require incentives as well. This can take the form of shared intellectual property rights, market entry, or other forms of co-profitability.
UNDERSTAND YOUR CUSTOMER
Social media is creating a convergence between customer service and marketing. Many firms are embracing social media to gauge consumer sentiment and deploy data analytics to better understand customer insight and make informed decisions. Lenovo, a PC, smartphone and tablet manufacturer, is working with Socialbakers, a Czech IT company offering social media analytics software-as-a-service platform, to create executive dashboards that make use of social media data to help drive company decision-making. In doing so, companies like Lenovo are better able to sense consumer trends before their competitors and also serve their customers in more meaningful ways.
Lenovo has concurrently partnered with the Economic Development Board of Singapore to launch its global analytics hub in the island city-state. In exchange for offering incentives for Lenovo to base its analytics hub in Singapore, Singapore gains by bringing in new economic growth drivers and broader network effects. Again, it is these kinds of collaborative efforts and partnerships, underlined by incentives that are becoming increasingly characteristic of organisations operating at the cutting-edge.
RE-EVALUATE THE IT FUNCTION
IT touches all areas of an organisation; this is in fact one of the main reasons why ICT is a prime driver of both sustaining and disruptive innovation. Incumbents must therefore constantly re-evaluate their IT functions in so far as it enables them to take advantage of technology-based initiatives, such as social media marketing, data analytics and cloud-based collaboration tools. At the same time, IT should support the core functions of the firm, not the other way around.
Leaders must ask if there is any aspect of the organisation that can be improved with the right set of IT-related skills and digital infrastructure. This has a direct bearing on not becoming inundated with legacy systems and minimising overheads if properly deployed. But beware of IT pitfalls. If incumbent leaders treat social media as a ‘thing we have to do’, or look at data capabilities as ‘an investment we have to make’, then these new opportunities are never truly embraced.
DON’T IGNORE WHAT YOU ARE GOOD AT
Incumbent firms should innovate on what is familiar by framing the problem within their core competencies. This goes back to the firm’s variation of cost and the pursuit of competency enhancing innovation, namely pursuing innovation that is aligned to organisational competency and the target customer base.
An internal culture of sharing needs to be complemented with an openness to ideas from both an inside-out and outside-in approach to encourage exploration and incorporate the ‘unfamiliar’—in other words, learning to share and being more open. Again, the right kinds of incentives would need to be put in place to foster this kind of culture. Moreover, these incentives cannot be based purely on providing monetary compensation for taking part in innovation. In fact, when money is involved, it often opens the door for infighting. The point is that these incentives should be aligned with ‘trust building’.
Besides encouraging a culture of sharing and collaboration, leaders are also responsible for facilitating what problems should be prioritised and targeted for researching and developing innovative solutions, that is, strategic attentiveness. This should lead to more accurate assessments of the potential threat to one’s existing business, or the chances of success for a new business proposition. However, internal collaboration and external selective sharing and revealing are not enough to drive the necessary insights required for problem identification and problem-solving selection.
TURN ALL YOUR EMPLOYEES INTO DATA SCIENTISTS
Data analytics should be deployed olistically across all levels of the organisation to reveal insights and to avoid being blindsided. This, of course, requires regular and timely investments into information-processing capabilities and proper staffing. UPS, for example, uses its Orion computer platform to turn each of its drivers into a responsive logistical node, where each driver collects extraordinary amounts of data that are used to optimise delivery. And as all the drivers are connected to a network, their routes can be optimised on the fly. With this level of sensory input and response at every level of its logistical network, UPS is able to recognise problems in real-time and prioritise accordingly.
Change is the new normal; staying idle is not an option. Realistically appraise how your company is doing. Leadership matters, but you can’t will innovation into happening. Instead ask yourself, how do you fare as a leader when it comes to:
• Encouraging exploration: How do you combine the familiar with the unfamiliar?
• Strategic attentiveness: How selective is your attention on problem-solving?
• Strategic openness: How do you strategise for sharing and revealing?
• Culture and incentives: Are you building a change culture?
• Business model: How often do you rethink how your business model will adapt to disruption?
Innovation has to be nurtured—encourage your employees to seek out ‘disrupting innovation’ to stay ahead of the game in the long run, but develop ‘sustaining innovation’ to tide you through the short- and the medium-term and help anticipate what direction the disruption will come from.
The important thing is to welcome innovation, in whatever form it takes. There may be organisational structures and processes in place, but they should be tools and not hindrances, and there should be a spirit of innovation that even the largest, most established companies should honour if they hope to survive the next round of disruption.
Gerard George
is Dean of the Lee Kong Chian School of Business and the Lee Kong Chian Chair Professor of Innovation and Entrepreneurship at Singapore Management University