(Expansion) – ‘Innovation’ is one of the most hackneyed words in business slang and, according to various studies, the holy grail of business growth. But when we talk about innovation in companies, we should at least differentiate between incremental innovation and disruptive innovation.
Incremental refers to changes in existing products, and in this type of innovation, companies tend to be successful. However, when it comes to disruptive innovation – that is, innovative technologies, products or business models that change the rules of the game (for example, Spotify, Uber and digital platforms) – companies often fail. This type of long-term innovation usually brings great benefits and ensures the survival of companies, but requires investment and research over years.
87% of large companies have a laboratory or spaces dedicated to disruptive innovation, but only 17% have caused something disruptive. Another study, from McKinsey, found that 92% of companies that had tried to design disruptive digital technologies had failed.
In the light of this data, and understanding that companies must manage a portfolio of incremental and disruptive innovations, the question is: why are companies failing to innovate in a disruptive way?
In my work in executive education programs, I ask this question of hundreds of managers and executives. The answers usually adduce ignorance, lack of time, a business strategy in this regard or resources. Although they are valid answers, I fear that many managers cannot clearly articulate the problem because they have not experienced a process of disruptive innovation.
To clarify the issue, I looked at various published studies on the reasons for the failure of disruptive innovation. Some causes coincide with aspects that I myself have observed in companies in Mexico:
– Past successes: Companies tend to focus on the products that have given them the most success and create systems around them to get the most out of them, avoiding seeing new opportunities and limiting the ability to take risks and experiment. The more companies grow, the more incapable they are of tackling small markets because they are considered unprofitable. Kodak lived off its past glories for years until small gamers with game-changing ideas (digital photography) achieved better results.
– Organizational inertia: A company is a mechanism that is not designed to explore knowledge or ideas, that is, to innovate. Rather, it is a system for repeating processes that efficiently take advantage of already created products. Organizational inertia creates habits and innovation, being a process that breaks habits, is seen as a threat. The processes, departments or incentives to be efficient limit the ability of a company to experiment or create capacities to generate disruptive innovations.
– Inability to unlearn: To innovate in a disruptive way, it is necessary to get rid of established thought patterns or old beliefs, and replace them with new ones. Unlearning allows you to challenge the established and create things that were previously unthinkable. For this reason, many of the disruptive innovations come from companies that are not from the industry (for example, Apple in the music industry), but are capable of giving another meaning and look to what was believed impossible.
– Lack of distinctive competencies: Certain core competencies, necessary and appropriate in the past, limit disruptive innovation or prevent the development of new competencies such as external alliances, intrapreneurship, experimentation, foresight, corporate financing of new ideas, portfolio management, strategy , etc.
– Bad financial expectations: The pressure to generate return on investment hurts disruptive innovations. When setting aggressive financial metrics, companies often overlook emerging markets or novel technologies that have yet to demonstrate their economic potential. However, that’s where the disruptive comes in. If Ford never created Uber or Marriot an Airbnb, it is because they never saw potential in those markets and they were based on financial metrics such as ROI.
• Erroneous market studies: Market studies are used to develop incremental innovations, but not to disrupt. For example, market analyzes for microwaves or cell phones were negative at the time; This is because it is difficult to analyze non-existent or very emerging markets.
Many companies focus these studies on understanding users. Instead, disruptive companies choose to imagine the future or go forward, and start creating it from the present. Initially, these innovations tend to be less than optimal or efficient, but over the years they become more robust. This happened with laptops or the internet, for example.
Disruptive innovation is not easy, but beginning by recognizing the factors that limit it is an important step for companies that want to grow in the long term.
Editor’s Note: Cristian Granados is a professor at EGADE Business School. Follow him on. The opinions published in this column belong exclusively to the author.
