How do you know when to look for structure and efficiency, or when to embrace the chaos?
There has been a lot of talk during the recent years about the start-ups potential to disrupt the markets, and the conventional wisdom is that the big companies are destined to be out-innovated by the start-ups [6].
However, innovation is today, the survival strategy for all companies, large and small. According to a New York Times article published already in 2011, innovation is:
“the crucial ingredient in all economic progress—higher growth for nations, more competitive products for companies, and more prosperous careers for individuals.” [3]
The trend has even more intensified since 201, but innovation is largely approached and implemented differently in the small companies compared to the big corporations. While the start-ups and small companies can function, and usually do – without too many formal processes, in the large corporations we are thought that chaos is the enemy of business growth.
The large companies have established market positions and business models, the consumer tastes are well-established, they operate in an environment of perceived stability which they aim to maintain. Hence, the orientation in the innovation process is toward strict control, both in the organizational set-up and in the processes.
There are two main doubts regarding the structured, controlled approach of innovation in the large corporations.
- Is the market environment really stable for the large corporations? Are the brand awareness and the consumer preferences un-attackable ? Are there disruptions that could possibly erupt at any time and significantly re-shape the market in matter of months or short years?
- Can strict controlled innovation generate sustainable business growth in the current market environment characterized by sudden disruptions ? Is there need for a certain amount of chaos in order for the creativity to flourish? What are the chances that a strict controlled organization would introduce innovation that disrupts the market?
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Assumption 1: Customer base is loyal, brand awareness is high.
In the large corporations innovation is aiming first and foremost to the existing customer base, aiming to maintain the high-level of satisfaction and brand-loyalty. Both the consumer taste as well the qualities or characteristics of the products that created the brand-loyalty in the first place, are (mostly) considered un-movable and un-touchable.
The question is – what happens if the consumers suddenly change their preferences, when a different kind of solution is offered? Think where Nokia was in 2007 when Apple came on the market with the first iPhone and how this impacted Nokia’s large loyal customer base, with (assumed) well-known preferences.
The second question – Is there innovation happening in some adjacent market, hence creating a new, non-mainstream consumer base that has the potential to out-size the current consumer mainstream?
In mid to long- term are the incremental improvements aimed to the current mainstream generating anymore enough business growth, or is the growth going to happen in another market, with different consumers? [7]
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Assumption 2: The best way to produce business growth is trough controlled innovation.
In large corporations we are thought that the only way to create business growth is trough structure and processes that enable business efficiency. When building better products through incremental innovation, to a stable customer base with known purchase criteria – the structured and process-oriented approach works well. Efficiency is critical and the aim is to shorten product lifecycles, accelerate the speed of technology developments and reduce development cost.
But market disruptions can and do happen quite frequently these days. Efficiency is not the answer anymore when faced with a market environment in which consumers are changing their preferences almost over-night.
“The modern business world wants you to despise disorder despite the reality that progress never occurs without it. The truth is that most companies need creativity more than they need stability” says Erik Whal [1]
Brafman and Judah Pollack argue in their book “The Chaos Imperative: How Chance and Disruption Increase Innovation Effectiveness and Success” that we should proactively seek to avoid the tyranny of structure in order to inspire creativity and fuel business growth.
The counters to this approach, authors Scott Anthony, Mark Jonhson, Joseph Sinfield and Elizabeth Altman explain in their new book “The Innovator’s Guide to Growth, that innovation without boundaries can be dangerous and raises several problems. There is a fine line between “complete chaos”, totally random innovation without pattern, and a “controlled chaos” characterized by flexibility, highly connected networks with fluid interactions between the individuals. [2]
In conclusion, both of the assumptions can be false in certain circumstances, that can become dangerous for the large corporations, when ignored. Control and structure works well for incremental innovation and its inherent part of the new product development. Large organizations do need the incremental innovation, generated off existing competencies. It’s meant to enable the short to midterm business growth and it’s maximizing the current knowledge and assets.
Controlled chaos, on the other hand, has the potential to generate disruptive innovation, enable ”new” business growth and can prove to become a mandatory survival tool in the current economic and technological environment. Many large companies are addressing this ”dualism” by creating incubators, dedicated innovation teams, research centers, with dedicated budget, autonomy, loose control and so on.
The main issue seem to be how much attention these dedicated innovation teams have from the company top-level management, how much effort (and budget) is put not into funding the research and innovation but into creating the conditions to bring the given idea to the market.
The challenge in the large corporations is not about innovation and technology development. Large companies do this (usually) at a much bigger scale than the small companies can do. But while for a small company the full focus is on brining the ”one” idea to the market, in the large companies the one idea (and million others) runs the risk of being overseen, buried under tons of other urgent business matters.
When it’s about bringing the innovation to market, control and structure needs to take its place back. The ”disruption” needs to get its place in the portfolio, get resources allocated from the actual product development teams, sourcing, marketing and sales, focus needs to be put in the potential need to create and implement new business models, new channels.
REFERENCES
1. Unthink: Rediscover your creative genius, Erik Whal, Crown Business, 2013
2. http://www.ddiworld.com/ddiworld/media/trend-research/creatingtheconditionsforsustainableinnovation_tr_ddi.pdf
3. Lohr, S. (2011 Aug 28) Reaping the Rewards of Risk Taking. New York Times, Aug 27, 2011: BU3.
4. http://www.spigit.com/blog/innovation-thrives-between-the-lines-of-chaos-and-control/
5. https://www.innovationmanagement.se/imtool-articles/the-chaos-theory-of-innovation/ @scottDAnthony
6. http://www.forbes.com/sites/chunkamui/2014/01/07/forsake-start-up-envy-three-reasons-why-large-companies-should-out-innovate-start-ups/2/ @ChunkaMui
7. The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business, Clayton M. Christensen, HarperBusiness, re-print 2011
8. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1504499
9. http://www.forbes.com/sites/ekaterinawalter/2013/11/05/the-chaos-imperative-how-provocation-breeds-innovation/ @Ekaterina @forbes
10. The Chaos Imperative: How Chance and Disruption Increase Innovation Effectiveness and Success, Ori Brafman and Judah Pollack, Crown Business, 2013
11. The Innovator’s Guide to Growth, Scott Anthony, Mark Jonhson, Joseph Sinfield and Elizabeth Altman, Harvard Business Review Press, 2008
