Traditionally, big businesses compete with each other in an effort to secure greater market share. Their modus operandi? Making sustained improvements to their products and services. In the past, the ones who did this better, inevitably were more successful. This model for competition is however, becoming more irrelevant and inadequate to ward off a new type of rival to big businesses: the new generation startup. In competing with them, big businesses will need to find more innovative ways to ameliorate the existential threat they face from them.
The rise of the unicorns
With increased capital funding, lower associated costs to start a tech company, and the emergence of new digital technologies, large businesses face a real threat of disruption from disruptive startups. Big corporations have realized that they can no longer continue to do what they have done in the past, which has largely been to ignore them or even worse, to write them off.
Why do corporations care about disruptive innovation?
Startups especially this new breed tend to be highly specialized and focus on solving a small particular problem in the best possible way for their customers. When they succeed, startups get big fast, and start competing for market share with the larger corporations right away.
The biggest problem here is that large companies can end up competing therefore, not with one, but with a swarm of startups, each one attacking a small part of their business. Therefore, the threat of disruption to corporations from startups is potentially a fatal one, a death by a thousand cuts.
The case for disruption is very compelling indeed. There are now several well known case studies which highlight its detrimental effects. Noteworthy are Kodak missing out on the digital photography game, Nokia on the smartphone market, Intel missing out on the mobile trend that required less power hungry chips, and Ryanair capturing market share from British Airways.
Consequently, fear of death by disruption is now a vital reason for large corporations to pay attention to the unicorns, as therein lies the key to their continued growth.
The innovator’s dilemma: Why large corporations find it hard to catch on to disruptive innovation?
Large companies have to focus on keeping their stock price high, to maximize shareholder value which makes investment into long term innovation a secondary objective. In his book, Innovator’s Dilemma, Clayton Christensen postulates that successful and established companies are prisoners of their own success, and outlines exactly why he thinks it is hard for them to catch on to disruptive innovation. Summarily, Christensen suggests, established corporations either ignore or are not set up structurally to compete with new corporate innovators.
While his theory makes for interesting reading, what is perhaps more pertinent are his suggestions for a possible solution to overcoming the innovator’s dilemma; the dilemma to innovate.
What he suggests established companies should do to circumvent disruptive innovation is to create or acquire independent organizations that are adapted to the size of the target market in order to be able to act quickly in these smaller markets, while the core business continues to handle and grow business as usual.
This strategy has been adopted by Google who are arguably, on top of disruptive innovation. They have acquired over a 150 companies in the last decade, among them, Android and Youtube. Companies in other industries such as banking and insurance are also catching on to the potential of disruptive innovation, and taking up initiatives like opening up corporate accelerators and innovation labs to partner with startups in an attempt to create independent units capable of tapping on to disruptive opportunities.
What are other ways to address the unicorn problem?
In addition to acquisitions, new models of corporate organisation could provide alternative solutions to the dilemma. One such model is the corporate accelerator program. This program involves short engagements, which typically last for three months, where a group of industry specific startups are selected by large corporations for specific research outcomes.
Accelerator programs are mutually beneficial for startups and larger companies. They offer startups access to large networks and industry-specific know-how as well as an opportunity to evolve into potential clients, partners, or investors in the startup. For large companies, these accelerator programs provide an opportunity to gain intimate insights into upcoming industry trends, advances in new technologies, and an opportunity to seek out complementary new services that they can offer to their customer base.
Another alternative to this program are corporate innovation labs. Labs are typically set up in a separate physical location from the core business operations. Their goal is to explore disruptive ideas for their specific industry. A successful innovation lab generates new ideas, validates those ideas, and develops them into new solutions that can either help the organization internally, or create new products/services for their customers.
Currently, these solutions pose some challenges. Accelerator programs can reveal mis-alignments in objectives; those of the corporation on the one hand and those of the startup on the other. There are also issues of autonomy, which come to light in the case of corporate innovation labs. Any innovation lab that is setup as a partly independent entity, where it has to comply with the large organization’s processes, and get approvals from its management, is going to find it difficult to break away from the larger organization’s culture, and as an extension, the innovator’s dilemma. These are real issues and the future success of such initiatives as well as their continued existence in the field, will depend on how these challenges are met and finally, how they will be negotiated.
Yet while there remain these several challenges, these new initiatives highlight a trend that the dinosaurs are finally waking up, and that’s great news!
Spurred by the threat of disruption, large corporations are no longer rendered immobile by the innovator’s dilemma. Rather, we are beginning to witness them laying the foundation for innovation management. We observe them putting in place processes that can incorporate the creativity and exploration enjoyed by startups, while establishing frameworks and metrics that could turn incidental epiphanies into an idea factory, and trial and error into systematic experimentation.
This is exciting for us at Slicebread. It means we are perfectly positioned to work with the newly reawakened giants, helping them create proof of concepts for their new ideas, and sharing with them the lessons of rapid iterations and experimentation we’ve learnt from our startups. These are all in an effort to help bring ideas to life in a lean and agile manner.
The dinosaurs are going on to set up an ecosystem for innovation, and bring a wealth of resources; we just need to figure out a way on how we can work together to tackle the complex product and business issues involved in innovating and creating new value for the world!