Creative Destruction and the Innovation Imperative

The truth is that the Great Recession has unleashed a tidal wave of creative destruction. Many marketplaces just .... the MBA program. He is also a member of ...
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BRIEFING 02-2013

Creative Destruction and the Innovation Imperative Many established brands are failing – unable to cope with the wave of creative destruction that follows a deep recession. Here are 10 actions that leaders need to take. Market places can change rapidly after deep recessions and there is much truth in the statement that only the innovative will survive. We can see the evidence of this on the High Street right now. Just count up the number of long-established brands that have fallen since 2009. Innovation is the key to survival. But innovation can be a real problem, especially for large, established organizations. You can’t ‘order’ your organization to be innovative – so what should leaders do?

DRD Advisory Ltd 2/21/2013

The Evidence I don’t know about you, but my local High Street is full of empty outlets. The latest casualty has been the video rental store Blockbuster. But, here in the UK and elsewhere, Blockbuster is only one in a line-up of once famous names. HMV, Jessops, Comet and Woolworths – these are all names now consigned to the history books. The truth is that the Great Recession has unleashed a tidal wave of creative destruction. Many marketplaces just won’t be the same again. But we mustn’t make the mistake of thinking that this is just a challenge for the more mature, established brands. Creative destruction is a challenge for every organization. Facebook and Twitter are, for example, facing new, innovative competitors right now. The Response and the Challenge The response is easy to say – it’s time to innovate or die. But this is something that is far easier said than done. The fact is that you cannot order an organization to be innovative. The leader’s role is more about creating the right conditions for innovation to take place and then watching and nurturing the first signs of activity. But if you cannot order innovation to take place, there are things that a leadership team must do. From my research, there are 10 essential points that every leadership team should focus upon to spur on innovation. #1: Aligning the Team From my own research, this is the most important step. You must have a team that gives one broad, consistent message to the organization. Throughout the team there must be total buy-in to the need to innovate. If there are any dissenting voices then, in time, mixed messages will appear and the effort will grind to a confused halt. Some of the successful leaders that I studied created, from the outset, a ‘dual-core’ leadership team. What do I mean by a ‘dual core’ team? I mean a team where some have primary responsibility for safeguarding the current business portfolio and others have responsibility for exploring what’s new in the outside world and driving through experimentation and innovation. This type of approach is especially effective when the outside world is turbulent and unpredictable. #2: The Story The fact is that most organizations have a common Achilles’ heel. The weak spot is that they are, quite frankly, not good enough at exploring the future. Research tells us that around 80% of organizations feel that their vision of the outside world needs widening. What is required is a simple, clear view of how the competitive landscape may well change – and why ‘the old ways’ won’t work. This view of the future sets out the mandate for innovation. Which takes me to the third key point. #3: The Innovation Palette The story has to make reference to the types of innovation that you think are necessary for your organization to excel at in the future. Too much of the time when we talk about innovation we are not too clear about either a definition of ‘innovation’ or the types of innovation that we are looking for. Innovation needs to be defined. If innovation isn’t clearly defined, then most people will think only about ground-breaking ‘new to the

world’ innovation – which may not be what you have in mind! Rather, you should be clear that you’re looking for innovation in one, two or three dimensions – (i) innovation in totally new to the organization terms (things that the organization hasn’t done before but aren’t new to the world innovations), (ii) major improvements in what your organization already does and/or (iii) new to the world innovation. But then we have also to be clear on the types of innovation that we need. Again, there is a temptation to major on: (a) Offering innovation – innovation in terms of the products and services the organization offers to its customers and (b) Process innovation – innovation in terms of the processes that the organization uses to produce its products and services - over the last couple of decades this has usually meant one thing – finding ways of doing things at a lower cost. These are very much 20th century innovation types and we need to think more broadly. I would recommend that you consider not two, but six types of innovation: (1) Offering innovation (2) Process innovation – and not just in terms of reducing costs. (3) Market innovation – breaking out to find new markets – especially under-served markets. If you want an example, Google for ‘Minute Clinics’ and see how they discovered an under-served market segment. (4) Distribution innovation. Finding new routes to deliver your organization’s offerings to its customers. Another great example is the Dannon D’animals initiative which created social value too. (5) Customer Experience innovation. Looking for competitive advantage in how your organization inter-acts with its customers is set to become ever more important in this impersonal digital age. This applies especially in respect of intangible offerings like insurance. Kaiser Permanente is an example to look at in transformation of the patient’s experience in a medical environment. (6) Management innovation. Last but not least, we have management innovation – simply, innovation in how leaders manage, lead and motivate. It’s important, because innovation here demonstrates the intent of leaders to innovate. #4: Learning to Love Failure This is a strange one. I come from an era when I was trained to avoid failure. Many organizations still don’t like using the word. But failure is part and parcel of successful innovation. The really successful innovators – including Google – have failure rates of around 80% and treat failure as a great learning opportunity. The role of top management is to set failure boundaries of course – to ensure that the downsides – particularly financial – are closely controlled. #5: The Architect This is all about looking for innovation barriers. Don’t just think about organizational structure. Use a more holistic tool such as the McKinsey 7S framework or the Cultural Web.

#6: Leadership Time This is really about leadership style. Back in the aftermath of the recession of the 1990s I studied how leaders of large mature organizations rapidly turned around (or didn’t turn around) their operations. Whilst conducting this study, it became clear to me that toplevel leaders were investing their time in totally different ways. The really successful – spent up to 50% of their time inter-acting with customers and customer-facing staff. The failures, well, they spent most of their time inter-acting with senior management layers. #7 Resources This isn’t just about getting a budget and sticking to it. It’s about ensuring that the most valuable resource of all is made available – and that’s time. In my experience, lack of or the erosion of available innovation time is the reason why many efforts fail. #8: Consistency Innovation isn’t another project – it’s a way of life and must be defended right across the business cycle – even during recessions – when the temptation is to cut back costs to the bone. #9 Keep it Small Especially at the outset, focus on small quick wins. This gives the opportunity to build confidence and new skills. #10 Celebrate Keeping it small has another bonus – it provides the opportunity to celebrate and critically to publicly acknowledge personal contributions. So these are the ten key tasks that every leadership team interested in innovation should consider right now. If you would like to know more – please do contact me.

ABOUT DR ROBERT DAVIES Robert helps business leaders unravel the implications of an unprecedented shift in the balance of global power and influence. The tools and approaches that he uses are based upon leading-edge research and years of practical, hands-on management experience. Robert is a Senior Visiting Fellow at Cass Business School, London, where he teaches on the MBA program. He is also a member of the International Politics Department at City University where he conducts research and teaches on the MA Global Political Economy program. Robert’s book, The Era of Global Transition: crises and opportunities in the new world (http://amzn.to/UFVW4F) provides business leaders with a complete hands-on guide to the future of globalization

Robert’s advice can be delivered in a number of ways from consultancy assignments and research projects through to training workshops, event speaking, coaching, mentoring, or even short, value-added conversations in these and other areas: •

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Copyright DRD Advisory Ltd 2013 This briefing document is designed solely as a vehicle to stimulate discussion, reflection and debate. It is not to be interpreted as making direct recommendations for action or decision-making by any individual, group of individuals or organization.