Last week I published the first of two articles where I distill my observations on my research into disruptive innovation into a Checklist. This Checklist includes seven rules to follow to establish a system that supports and protects innovation. This week’s edition completes the series.
Rule #5: Resistance to disruptive innovation will happen and many will seek to kill it – the CEO and the Board need to be its fiercest champions.
Be prepared to fight frequently to defend the need for disruptive innovation. Active advocacy by the CEO and the Board is essential. Success also requires that the Board and CEO understand the forces that will seek to kill off the innovation and actively take steps to build a protective support system around it.
This will not be a single battle where the enemy is vanquished at the first debate. Expect the debates to be continuous. .Everyone involved needs to understand the criticality of the innovation, what it is seeking to achieve and be prepared to advocate in support of it.
If you are setting out to potentially break the rules of what has been a previously successful business model, you will not be successful without CEO sponsorship and Board support at every step of the way. If your disruptive idea passes early market validation milestones and you go all in, the level of resistance will increase and only air-cover from the most senior people will protect the innovation. There are many case studies of the financial impact of organisations transitioning from old to new business models, and the short to medium term negative revenue impacts can be significant. Examples include Netflix’s shift from mailing disks to streaming, Adobe’s shift from boxed software to SaaS (Software as a Service), and Norwegian media group Schibsted offering free classifieds and undercutting their largest income stream.
I was talking with a global innovation leader recently who spoke to me about a recent project they led that was seeking to design a new business model in a mature and large global organisation. It was an exciting program with a bold ambition. Yet its set up was flawed from the outset. While the CEO was supportive, he was not prepared to actively advocate against the resistors. He wanted the leaders involved to sort it out themselves and he significantly underestimated the degree of resistance that emerged. The innovation leader spent more time responding to relentless questions about why this project was even being done at all, than providing support to the team who were doing the difficult work of building a new business model. The project was unfortunately discontinued after less than a year.
The Innovator’s Dilemma predicts this reaction and identifies a high degree of resistance as a systemic issue in progressing disruptive innovation.
Clayton Christensen comments in The Innovator’s Dilemma: “…we have never seen a company succeed in addressing a change that disrupts its mainstream values absent the personal, attentive oversight of the CEO”.
Rule #6: Make sure the disruptive innovation unit operates independently from the core business. You will fail if you don’t.
The evidence is compelling that it is rare to succeed when a single organisation tries to simultaneously compete in mature markets while also building disruptive products for different markets. Christensen is not the first researcher to prove that “smallness and independence confer certain advantages in innovation.” Yet organisations repeatedly promise that this time is different. They are wrong.
Rule #7: Risk of failure is high. You need to fail fast, keep costs low and always be learning.
New business model exploration and development is not for the faint hearted, and the risk of failure is very high. Experiment and learn as fast and as cheaply as possible, reducing failure risk through fast, low cost experimentation cycles of rapid learning and market validation before committing significant investment.
So what does this all mean for the discerning director?
Few industries are immune from disruption, so directors need to be informed about emerging threats, and encourage disruptive experimentation efforts. These rules are intended as a helpful guide to discussing the different elements needed to increase the likelihood of successful experimentation.
Innovation should be an ongoing topic of conversation between the Board and management. When proposals come up to for consideration, Directors can use the following questions to reflect on the topic:
- Ask yourself if it is sustaining innovation or disruptive innovation,
- If it is not disruptive, then ask management what disruptive entrants they are seeing in the industry, and
- If it is disruptive, seek to understand the extent to which consideration has been given to each of the “rules to follow” in this series.
I hope you enjoyed this short series.