“Innovation is the only way to win” Steve Jobs
The way businesses approach innovation is more important than ever. Technological advances and ubiquitous connectivity mean that change happens faster than ever before. The world is happening much more in the now with the result that old business models are far more vulnerable to innovation and disruption. Innovation should, therefore, be seen as more important to the long-term success of a business than current profitability and operations.
For many businesses, a new approach is required. I’ve been fortunate enough to work in old world big successful incumbent corporates and, more recently, new world technology start-ups. This dual perspective is extremely useful when thinking about innovation and how best to approach it – and I believe a collaborative combination of old and new is the best way.
The Complacency of Success
From working for many years in the TV industry, I would say the characteristics of most of the incumbent players to include the following:
- Highly profitable
- Historically strong business models
- Top quality, stable, management teams
- Approaches to innovation not as high a priority as hitting annual profit targets
These characteristics mean that major changes to market conditions, and the increased pace of change, weren’t always responded to appropriately. New world innovators jumped into the vacuum that was left.
I call this the complacency of success. For examples of this in action you need look no further than YouTube and Netflix.
The TV industry totally missed the YouTube phenomena whose roots had nothing to do with the TV industry. It was making so much money, and actively incentivised to do so, from the old paradigm of ad-funded broadcast models, that it couldn’t see how the anarchic world of people-driven content creation and self- broadcasting was going to make sense in a world driven by ratings, advertising and production margins. Old world TV joined the UGC (User Generated Content) party over the last couple of years wearing old clothes, smeared make-up and paying huge premiums for the entry ticket. For example, Disney acquired Maker Studios, RTL Group acquired Broadband TV and StyleHaul, and Warners bought into Machinima. A more prioritised focus on innovation may well have saved a ton of money which could have been spent on a more collaborative route of entry into a new space.
Netflix & OTT (Over The Top Internet delivered TV)
Netflix is another example of innovation that is both game-changing and nothing to do with the old world incumbents whose rules are being rewritten. The core innovation behind Netflix, and by extension the OTT phenomena, was simple – switch from delivering subscription DVD content via the post to streaming over the Internet. Easy targets, like Blockbuster, were picked off paying the price for complacency and the failure to innovate. Bigger players in the broadcast space need to be mindful of where OTT is headed and what it means for their futures. Disrupt or be disrupted.
So the content creation side of the TV industry totally missed the rise of the YouTuber and the power of the individual, as manifest through UGC. While the broadcast side of the industry totally missed the rise of OTT. Poor incumbent innovation strategies being the key reasons for missing these game-changing developments.
Reactive and Pro-active innovation
The TV industry is now playing catch up due to the failure to prioritise innovation at a time when success led to a blind-spot regarding the future. Old world TV businesses are now pursuing innovation more seriously, but the approach is reactive to circumstances. In short, they innovate because they have to.
I have worked more recently in the technology start-up space where the situation is totally opposite to old world incumbents: highly innovative, but not yet financially successful. This world is typified by pro-active or entrepreneurial innovation. These businesses innovate because they want to.
Both approaches are flawed. Reactive innovation has a defensive purpose rather than an entrepreneurial belief and drive. Pro-active innovation is at the mercy of the constraints of funding, the time required to yield financial success, and poor access to actual market behaviour.
The importance of people and behaviour
Crucially, the mindsets and behaviours of the people involved in both approaches also tend to be different. How easy is it for a CEO in a big, profitable, highly structured business to truly embrace and drive innovation when there’s the annual targets to be met? And how frustrating is it for the driven entrepreneur to have to divert so much time and energy on paying the bills when they have the world to change?
Having seen both sides of this coin, and the different personalities that succeed in both corporate management and in start-up innovation, I am convinced that a collaborative approach between the two will be more successful than pursuing independent, often parallel, paths.
So how might it work? How can an incumbent corporate, with minimal financial constraints but a reactive need to innovate, collaborate with an upstart start-up with a game-changing idea and the energy to match?
Here are the key features and benefits of collaborative innovation:
There must be a business rationale for collaboration which makes sense for the industry in question. A game-changing idea from a start-up that will benefit the collaborating incumbent player is a great shared goal. The clearer this can be defined and agreed, the more likely the collaboration is to succeed.
An incumbent corporate with deep pockets will view the funding requirements of many start-ups as trivial. Yet a startup with a lean approach may struggle to access necessary funding. There’s an easy bridge to be built between these two perspectives if the shared goals are compelling enough.
Product testing and case studies
This is where the real power of collaboration comes in. New game changing ideas need to be tested in the real world. From personal experience just the very existence of a corporate partner willing to collaborate on a new idea or product with a startup is often enough to close a funding round and buy the necessary time to move to the next stage. For the startup the benefit of corporate collaboration can be life or death, for a corporate the learning and future benefit from trying something new (with a piece of the upside action thrown in) could make the difference between being the disrupter or the disrupted in today’s fast paced world.
In order to really make collaborative innovation work, the key participants need to understand each other’s personalities and behaviour types. It is most likely that the collaborators from the corporate team will have different personality types and behaviour characteristics compared to those in the start-up. When the collaborators fully understand each other in terms of personality and behaviour then the benefits of collaboration can rise to the surface.
Unfortunately, there are many barriers to prevent collaboration between incumbent corporates and start-up innovators, the result being a less than efficient route to market for great new innovations, products and services with often disastrous impacts on incumbent players. But get the process right and collaborative innovation can benefit everyone involved – incumbents, entrepreneurs, investors and end-users.
® Dan Allen