Almost seventy years ago, Austrian economist Joseph Schumpeter popularized the term creative destruction to describe the process of transformation that accompanies disruptive innovation. The Wikipedia creative destruction article further observes:
“In Schumpeter's vision of capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power . . . Companies that once revolutionized and dominated new industries . . . have seen their profits fall and their dominance vanish as rivals launched improved designs or cut manufacturing costs.”
While entrepreneurship does not preclude leveraging innovative ideas and new market opportunities to revitalize a large, mature organization, the concept is generally associated with startup companies. The entrepreneur identifies a market opportunity based on an innovative new idea, starts a company in order to bring the new innovation to market, and over time, gains competitive advantage and market share from the established leaders in that segment of the market.
The rivalry between startups and established companies was particularly pronounced during the dot-com bubble of the late 1990s. There was a buzz in the air that in the Internet-based new economy, born-on-the-Web startups had an inherent advantage over existing, brick-and-mortar businesses. Because of their grounding in the physical world, it was claimed that established companies could not possibly compete in this fast-moving digital space and were therefore headed for extinction.
The startup-versus-mature hype was taken to silly extremes during the dot-com bubble. But, there is little doubt that the nature of innovation is quite different in each kind of company. Startups are looking to leverage innovation to get a foot-hold in the marketplace, whereas more mature companies are looking to leverage innovation to reinvent themselves and remain leaders in their industry.
But for those who make it, especially those who make it big, the situation begins to change after a while. The company now has products, services, business partners, an installed base, a reputable brand, and loyal customer relationships to protect and grow. If it is a public company, it has investors, a stock price and financial expectations to meet - quarter after quarter after quarter. It has employees, assets, an established organization and a corporate culture. It has now become a more mature company, perhaps a leader in its industry.
Successful companies - especially market leaders being chased by small and large competitors - must achieve a delicate balance between carefully managing their existing operations, and embracing the disruptive innovations that will propel them into the future. Operational excellence entails improving the existing products and services of the company with a string of incremental innovations that will add new features, lower cost and improve quality. It means nurturing employees, business partners and customers, so they will all be happy to be associated with the company. And it requires a strong focus on meeting the quarterly revenue, profit and cash expectations of their investors and the financial community.
But operational excellence is not enough. In his seminal book, The Innovator’s Dilemma, Clay Christensen succinctly wrote about the challenges that successful companies face: “They pour resources into their core business. They listen to their best customers. And in doing so, industry leaders get blindsided by disruptive innovation - new products, services, or business models that initially target small, seemingly unprofitable customer segments, but eventually evolve to take over the marketplace. This is the innovator’s dilemma - and no company or industry is immune.”
This delicate balance between operational excellence and disruptive innovation calls for innovation in the very organizational style of the company. Operational excellence requires detailed analysis of technologies, quality, processes, competitors, customer satisfaction and market segments, and as such, is well suited to a more hierarchic style of management.
But managing an emergent business, especially one based on new, disruptive innovations, requires a very different style. It cannot be based on rigorous information analysis, because in its early stages, there is little information to analyze. There are lots of unknowns because, early on, it is not clear how the market for a new product or service will develop.
Consequently, managing disruptive innovations requires a more distributed leadership style of management, based on establishing an early market presence and well-planned experimentation; close external collaborations with research communities, business partners, startup companies and early adopters; and continuous refinement until it becomes clear what the company's strategy should be.
Organizational innovation is also needed to help a company decide how to best collaborate with its partners. As enterprises increasingly rely on business partners for many of the functions once done in-house, one of their major organizational challenges is how to best manage the evolving virtual enterprise given such a distributed model. It is important for a company to not only be good at managing its distributed operations with its business partners, but also at having effective relationships with the people in these companies, so they can better collaborate, innovate and solve problems together.
That implies that organizational leadership is important not just within your own company, but increasingly, within your overall business ecosystem. If a company has embraced distributed leadership, that is, if they have implemented a scalable leadership model through all levels of the organization, then it is much easier to extend the distributed leadership model to now apply to key external relationships as well. Given the increasing importance of the business ecosystem to a company’s overall success, a major reason for embracing distributed leadership is that it will also facilitate extending that leadership to the relations with external partners.
Organizational leadership will also help the established company figure out how to best take advantage of major innovations taking place in the world of startups.
A startup is able to focus all its energies on developing and bringing to market the new ideas around which the company was originally founded. But in general, a large, established company cannot quite have the same degree of focus on disruptive new ideas, because it must also deal with continuing to improve its existing products and services, as well as continuing to support its existing clients.
These improvements will likely be incremental in nature and will be developed within the company. But some of the required changes to products and services will be more disruptive in nature. While some disruptive innovations may also be developed within the company, most are likely to come from outside - a research university or lab, a business partner, or a new startup that is taking off in the marketplace.
Given the time-to-market pressures in our increasingly competitive environment, companies are often deciding to embrace a new disruptive innovation by acquiring a startup that already has a product in the marketplace, rather than waiting for the time it takes to start a new group and develop the product in-house. Finding the right balance between in-house development versus partnerships and acquisitions is a major organizational leadership attribute of well managed companies.
The assets that have made a company successful over the years - from their products and services to a reputable brand and loyal customer base - are invaluable. A well managed companies must pay attention not just on protecting these assets, but in making sure that the company itself is able to evolve into the future. That takes attention to innovation at all levels - from the technologies that go into developing new products and delivering new services, to culture, leadership and organization. The companies that are able to find the right balance between operations and innovations, that is, between the present and the future, are the companies that will be around for many years to come.
I'm glad to see Boeing posted a response and that they will work on doing better, wish though they had thought of it themselves that when a child takes the time to draw a picture and send it to them that Boeing should send out an appropriate response and perhaps a coloring book/stickers to the child.
Now link my name to see something.
Posted by: Jordan Spizike | October 05, 2010 at 11:59 PM