The pace of business today has increased exponentially. In 1965, companies spent 33 years on average on the Fortune 500. By 2026, Fortune 500 tenure is expected to decline to 14 years. Almost 50 percent of Fortune 500 companies in 1999 were no longer on the list 10 years later according to the World Economic Forum. The reason why? Too much time is spent on day-to-day activities and not enough time spent on strategy and innovation.
To achieve longevity, you must constantly reinvent yourself – and that takes making innovation part of your daily business.
Innovation can be thought of in two ways — incremental innovation and disruptive innovation. Incremental innovation involves making incremental improvements to products and services. It takes place when the end of a business model is not in sight.
Disruptive innovation turns industries on their head. It is a complete change in how business is done and it comes about when the end of a business model is near.
The key to understanding the difference between the two is understanding the longevity of your business model. A business model focuses on what is being produced and how it is sold. It identifies:
- Who is the customer?
- What does the customer value?
- How do we make money?
- How do we deliver value?
Knowing where you are within your business model lifecycle informs the type of innovation that should be the focus of your efforts.
Implications for Incremental Innovation
The smart phone is a good example of incremental innovation. Each year (or more frequently) new features are introduced through apps, software or hardware such as advanced camera features, wireless charging, etc. They are incremental enhancements.
With the fast paced market today, your entire product portfolio will need to be replaced every five to 10 years. In other words, in 10 years, you won’t be making what you make today. To innovate incrementally, you need to:
- Spot trends in customer preferences.
- Hire curious/innovative people.
- Have a sales force paving the way for new products.
- Have an adequate research and development budget.
- Prioritize capital spending for new equipment and upgrades to support innovation.
- Utilize mergers and acquisitions to acquire companies that have developed innovative products.
- Build a learning culture that tries, fails and learns to fuel growth.
You can’t just spend time on what you have in the past. To innovate (either internally or through M&A), you need to have people and capital focused on it. It should be part of your operating plan for the year and built into your day-to-day activities.
Implications for Disruptive Innovation
The automobile industry is a good example of disruptive innovation. For thousands of years, the horse was the primary means of transportation for people. Then, in the late 1800s, along came the automobile and within a few decades it became the main mode of transportation. Amazon, Uber and AirBnB are more recent examples of disruptive innovation.
Disruptive innovation comes into play when high friction exists. The current product or service isn’t satisfying customer needs – it is hard to use or inefficient.
Disruptive business models typically come from outside the industry and utilize ideas found in other industries. The challenge for existing businesses is not recognizing when disruption is happening, resulting in lost market share. To remain competitive in a disruptive environment, you need people in or around your business that:
- Understand the level of friction being experienced by your customers.
- Can see how to apply another industry business model to your industry business model.
- Understand the impact of technology and how it will change your business.
- Can spot the early signs of disruption.
- Know how to adjust quickly when disruption begins.
Many times the early disruptors run into challenges – whether regulatory, gaining traction fast enough or lack of funding. Because disruption typically comes from outside the industry, if you are agile enough in your business to have a fast follower approach, you can learn from the disruptor and outpace them.
Embedding Innovation into the Day-to-Day
The key to success in achieving longevity is embedding innovation in your daily business. It takes creating a culture of learning and innovation, hiring curious people and dedicating time and focus to developing new products. It also requires embracing failure to learn. And if you don’t understand the level of friction for your customer, you will miss the disruption or signs you are not innovating enough. How are you embedding innovation into your daily business?
Heidi Pozzo, founder of Pozzo Consulting, helps business leaders dramatically increase their organization’s value. To contact her, visit www.heidipozzo.com or call (360) 355-7862.