The 4 Traps of Internal Innovation
Companies today more than ever are feeling the need for internal innovation. Even as demand and business uncertainty increases, the average lifespan among Fortune 500 companies has fallen, from around 75 years to a mere 18 years.
Related: The Innovations Our Innovators Want
In response, companies that have reached the top of their industries because of their ability to execute are searching the dusty attics of their past accomplishments to reintroduce the discovery skills that sparked their businesses in the first place.
After years of focusing on execution, companies trying to recapture their original spark will find that goal difficult, but not impossible. In our research, we have explored how the world’s most innovative companies retain and regain that spark (see The Innovator’s Method). Our focus has been largely on the people, processes and priorities that have allowed entrepreneurs both inside and outside corporations to discover new opportunities and create new growth businesses.
Innovators inside an established business, however, face a unique set of challenges that we summarize as the "four traps" which can arise. With care, innovators will overcome these challenges.
Trap 1: Be prepared to fight two battles.
Independent entrepreneurs face the challenge of discovering a problem worth solving, iteratively matching a solution to that problem and then finding the business model that supports the innovation. Corporate entrepreneurs face the same challenges but also have to fight a second battle: keeping their innovation alive inside a corporate environment that already has a business model tuned for execution.
Business models are the crack cocaine of an established company. If you propose a new value proposition to sell to the same customer, using the same pricing, the same distribution and the same marketing messages, you will likely draw enthusiastic support for what ultimately will become a largely incremental innovation.
But if you aspire to create new or disruptive businesses, watch out: Be prepared to fight for your resources just like any other entrepreneur. Once you do get the resources you need, focus on creating some independence from the primary business (by operating in a separate unit, perhaps) and be relentless in seeking profitability over growth.
Trap 2: Innovators innovate; customers validate.
Every company we have ever studied asks customers what they want. But asking customers to innovate for you usually produces only the most incremental and easily imitated innovations. If you want to create significant new innovation, you have to watch your customers first, understand the tasks they are trying to accomplish and then propose innovative solutions. The point is to get customers to validate that those solutions meet their needs. For example, when customers told Kimberly-Clark they didn’t want their toilet-trained children to wear diapers but also didn’t want them to wet the bed, those same customers couldn’t imagine the solution. The innovation team had to first understand the need, then propose a solution which customers could then validate.
That solution was Pull-Ups, disposable underwear with the absorbent features of a diaper. The product became a multimillion-dollar success.
Trap 3: Incremental, urgent problems squeeze out non-customers.
We all face a personal challenge in allocating our time between urgent versus important activities. Companies face the same challenge. There are always customers asking them to solve defects, lower their prices or improve their services; and these requests are always urgent.
It’s not that the urgent problems of existing customers aren’t important, but solving these concerns usually gives you less bang for your buck than bringing a new solution to new customers (or even a new solution to existing customers). New growth-innovation projects must be a part of the innovation project portfolio -- and that means trying to solve the problems of non-customers. Unfortunately, it’s hard for prospective customers to tell you that their problem is urgent, too.
Trap 4: Your capabilities can become your core rigidity.
Large companies develop core competencies that are key to their success. And executives are often encouraged to apply those competencies that got the company to where it is now. Watch out, though: While there are a handful of companies that have strayed from their core competencies and failed, there are mountains of cases where companies sticking to their core competencies in times of uncertainty missed a huge opportunity or were killed by an outside innovator.
Going beyond these competencies, then, is important for another reason: People typically develop new solutions by combining technologies and ideas from different fields.This means that a broad search typically outperforms a narrow one in generating solutions. While it feels more efficient to search narrowly within the company, that search tends to result in incremental solutions that fail to delight customers.
Searching a broad range of technologies and firms (possibly through alliances) is critical for large companies if they hope to solve new problems and enter new markets. Amazon is one of the few large companies we know that has developed a broad range of technologies internally -- and in partnership with other firms -- that it draws on to generate solutions for entering new businesses.
Overall, our research shows that corporate innovation, both incremental and radical, can be successful and maintain or reignite the growth of established companies. Applying the right process, perspective and people helps that process immensely.