What happens when innovation is not considered a strategic topic? There is a dilemma facing executive boards of many companies; do we execute on an innovative strategy rather than continue to focus on execution of the core of the business, reduce risks and maximize on shareholders return?
An example of explaining this dilemma
Microsoft decided to do the latter: they executed the existing business model for many years extremely well, operational excellence was achieved at all levels of the company and they generated huge profits for their shareholders. Despite these remarkable results, Microsoft failed to understand various technology trends that happened along the way:
- Search – completely lost to Google
- Smartphones – operating systems lost to Apple and Google
- Media – losing to Netflix and Apple
- Cloud services – lost to Amazon
So while operational excellence leads to predictability and stability of Microsoft, creative minds left the company and more executors were put into senior roles, hiring more process-oriented people, which in turn forced more creative minds to leave Microsoft.
What went wrong?
A true visionary CEO understands products and has a clear vision of where the industry and customers are today and want to be tomorrow. They spend time with customers and build a team around them with operating experts running the day-to-day business. This type of CEO drives the vision and leaves the production, supply chain and finance to his team members who excel at these tasks.
The kind of CEO’s required, are not only capable of executing a tested and successful business model, they also understand how innovation should be facilitated. They know how and when to make a change to a certain business model before the market shifts, sometimes they are even capable of shaping a new market or create one before anyone else captures the opportunity.
Innovation and leadership
Innovation and risk are in the DNA of any start up; it is the reason why they exist; there are no revenues yet and profitability can be far away. In contrast, an existing business is often risk averse since they already generate revenues and profit and have to keep their shareholders happy. Quite often, the share price becomes their main reason for existence.
In today’s world (we are living in the Age of the Customer), where change is no longer a threat but a huge window of opportunity, markets are forcing you constantly to make decisions about product direction, pricing, supply chains and operations necessary to execute a new business model.
That’s why nowadays, a hands-on customer- and business model-centric CEO with an entrepreneurial vision of the future may be the difference between market dominance and bankruptcy. So the decision of having such a CEO is of strategic importance:
“Do we want to be an innovative and risk-taking organization, or should we focus on our core business and reduce risks and maximize shareholders value”?
CEO’s embracing innovation, knowing how to communicate a new vision and capable of building an organization that can execute on this vision, are the best choice.
In his book ‘The innovators Dilemma’, prof. Clayton Christensen uses examples from various industries and explains how disruption hits industries where rapid technology or market shifts take place.
Afraid of losing what they spent years gaining in terms of market share, customers, revenues and profits, corporate giants like GE, Ford and Polaroid were mainly busy focussing on making internal decisions, driven by CEO’s going for operational excellence and generate revenues and profits to make shareholders happy.
Disruption and leadership
Disruption is something that happens to you without planning it: Airbnb was not set up to disrupt the hotel market; just some students trying to make an extra dollar by offering their student loft including an inflatable bed to some visitors of a local trade show; the rest is history.
If I would be a taxi driver today, I would not worry too much about Uber: the main threat is coming from Google, delivering technology that allows cars to drive without a human being behind the steering wheel; speaking of disrupting a market…
The best example of a visionary CEO is Steve Jobs; he transformed Apple from a computer company into the most profitable product and services company in the world by disrupting the music industry with the iPod and iTunes and the distribution of software through the App store.
More than only product transitions these were driven by new business models, new channels, new customers and markets, while changing the organization from hardware production to design.
And what's next for Apple?
Change is a constant, also for a giant like Apple: Google and Amazon are aiming big time for the next wave of computing that will be based on Artificial Intelligence services; examples like Amazon Alexa, Google Home and Assistant directed by voice recognition, powered by smart tooling.
OK, Apple Siri was even earlier and Apple also has autonomous car projects and virtual reality in their labs but with their new CEO Tim Cook, looking at innovation in a different way than his famous predecessor, Apple continuously needs to adapt to the right organizational model while also having that strong vision required to stay ahead in The Age of the Customer.
And for you?
Innovation is an attitude, a continuous process to survive in today’s Age of the Customer, driven by leadership embracing innovation, communicate a vision and build an organizational model to execute.
Your organizational model should be built around your customer and be enabled by empowering the people in your organization. One great example of an organization that has embraced customer focus and employee empowerment is Zappos.com (pay a visit to YouTube and check them out).
Start your customer centricity set up with an invitation to all your customers and ask them questions like: How are we doing, where can we improve and where should we aim for in the coming 2-3 years. Make them a part of your journey into innovation, test your (digital) ideas with them and keep them in the loop.