We build companies and products faster these days and we have the potential to fail faster – much faster. In fact, the average tenure of a firm in the S&P 500 has shrunk from 61 years in 1958 to only 18 years in 2016. Even amongst the largest and most successful companies, standing still is no longer an option. The most powerful opportunity – and, indeed, the only opportunity – for brands is to continually innovate and disrupt.
The Forbes Most Innovative Companies list reveals the powerful impact of an innovation premium on brands like Amazon and Uber. Amazon, for example, has moved into one sector after another and gentrified it, even if that meant tearing down its own existing structures. It has meant they have been able to run one of the most successful companies for over 20 years.
Rather than resting on the laurels of UberX, Uber continues to invest into new innovation in self-driving cars. There is every possibility that those innovations will disrupt Uber’s own business, as it will introduce a new direct competitor to its drivers. But Uber, now the world’s most valuable venture-backed company, clearly views that as a less important risk than standing still.
These companies are continuously looking to the future, even when today looks good, to stay relevant. This is something all companies embarking on an innovation effort must do.
Iconic author and innovation expert Peter Drucker famously said companies fall into trouble because the temptation in the existing business is always to “feed yesterday and to starve tomorrow.” This is, of course, a deadly temptation, Drucker explains: “The enterprise that does not innovate inevitably ages and declines. And in a period of rapid change, such as the present, an entrepreneur period, the decline will be fast.”
Pay Attention to the Sigmoid Curve
To avoid inevitable decline, it’s important to consider the natural lifecycle of a business – learning, growth and decline – which is best illustrated using the Sigmoid Curve. When applied to business, the Sigmoid Curve demonstrates the key to sustaining a healthy business is to transition to a new curve before the existing one is too far in decline. Truly innovative companies rethink their strategy during the growth period. Innovating during this period often leads to a small dip – due to increased R&D investment – however, the success ultimately launches a new curve. This new upswing motion forms an inflexion point and creates the Sigmoid curve.
Changing direction while things are going well can feel counterintuitive. In Australia, we are in our 26th year of consecutive annual economic growth. However, innovative leaders know that good times don’t last forever and that strategising for the future is the key to ongoing success.
Innovating on the rise, versus innovating on the decline is much more favourable. Companies that innovate on the rise have access to great talent, more spare cash to invest, a good customer reputation, and the confidence of the board, senior leadership team and shareholders. Not to mention, media may highlight the company’s vision and recent successes, thus bolstering the above.
That’s not to say there aren’t challenges. When things are going well there is often less air-time for innovative, new ideas – such ideas will often get pushed off the boardroom agenda in favour of immediate opportunity. Further to this, new business ROI can be small and can appear to not be worth the effort, and talented staff are expected to uphold the quality of existing business so allocating them to new business can be risky.
The mood towards innovation amongst companies that are in crisis mode is often what’s needed during the good times. Risk appetite significantly increases, margins are no longer a concern, there is more time at boardroom-level to discuss innovation, and there are dedicated teams running full steam at strategic opportunities. Yet innovating on the decline is stressful. The best talent has probably left, cash is short, the brand’s reputation is weaker, stakeholder confidence has dropped, and confidence in leadership is reduced. More often than not, the media will focus on what the company has done wrong rather than what it’s done right.
Building a continuous culture of innovation
It’s important for companies to build a continuous culture of innovation and there are a few ways to do this:
- Get comfortable with calculated risk: Without appropriate levels of risk-taking companies will become less and less relevant. Uber was founded on the same principles and continues to fearlessly experiment in markets all around the world. Fear of failure, or of doing “the wrong thing” needs to be replaced with a hunger for trying new things and accepting that many of them may fail but some will succeed spectacularly.
- Stop looking at your competitors: If the past five years have taught us anything it is that competition can come from the most unlikely places. Identify what capabilities you have that you can loan into new business models, and create an innovation plan which involves the entire organisation, not just a person or a department.
- Stay open to partnership: Corporate’s rarely invest into core invention R&D, nor should they. Most corporate innovation comes from a partnership between existing capabilities and someone else’s. Keep in mind, that competitor you have been nervously eyeing off, may in fact be a great partner, investment or potential acquisition for your business.
- Innovate from the top-down and the bottom-up: Innovation needs to be genuinely understood and implemented from the top and it needs to be understood and owned by the entire business. If you want to hire the best innovation workers in the world, you need to provide them the workplace and opportunities for them to be great.
- Invest in innovation: As part of a robust innovation plan, consider whether you have allowed appropriate levels of resource for some of the less obvious areas. For example, how great is your commitment to creating an innovative culture? This will involve training and development programs for everyone in the company. Have you invested in the right technology? It should go without saying (but often doesn’t) that embarking on an innovation drive with decades old technology infrastructure is not ideal.
In short, the successful companies don’t get complacent. Rather, they are constantly looking for new growth opportunities, even if they are frightening to the industry, or product set, that the company operates within. There is truth to the adage “innovate or die.” As legendary businessman Jack Welch put it; “if the rate of change outside your organisation is greater than the rate of change inside your organisation, the end is in sight.”
Don’t stop innovating when today looks good. It’s understandable companies are busy with today but if you’re not also looking after tomorrow, then who else is?
About the author
Peter Bradd is the co-founder and CEO of The Beanstalk Factory, which works with corporates to inspire innovative thinking. He was the founding director and initial CEO of StartupAUS, Fishburners and ScribblePics. He has previously shared his thoughts on failure in business with Dynamic Business. See: “Failure isn’t fatal, nor is it defining – it can equip you for success”: Beanstalk Factory CEO, “Don’t let a fear of failure stifle innovation – mine mistakes to strengthen your business”, People, processes and culture: don’t let these three innovation enablers become roadblocks and “Define innovation too tightly and it loses its essence”: Former IBM, Telstra CEO David Thodey.