Why Your Company Gets Innovation Wrong (& The Meaning Of The Lego Layoffs).
‘ In general it is not the owner of stage coaches who builds railways’
Considering the state of technological advancement around us, Joseph Schumpeter’s words above should give every mature company cause for worry. What that statement means is that you are about to be disrupted. And your company will not be able to innovate enough internally to prevent your demise. But why is this the case? There are two basic reasons why companies struggle to disrupt their own business model. These two reasons are that your company will have to i) admit that it is wrong and ii) companies do not have the internal expertise to answer the unknown questions that will define the future of the business/industry.
i) It Will Mean Accepting That You Are Wrong About What You Believe
To truly work on a business model/idea/product that will fundamentally change your company is to admit that you are about to be wrong regarding the core beliefs that make your business what it is. It’s a utility company admitting that distributed energy might challenge its centralized business model. And the feeling of wrongness is one we (as individuals and organizations) don’t willingly come to admit or accept. As Kathryn Schulz suggests in ‘Being Wrong’,
ii) The Expertise Your Company Needs Is Outside Your Walls
The authors of Machine, Platform, Crowd suggest that there are two reasons why, even though you have experts within your organization, you should look outside your firm for innovation
a) New knowledge is being created outside your walls at a rate that is unmatchable within your company. And it is slow to enter your company.
b) The second and more important reason is that ‘many problems, opportunities, and projects, if not most, benefit from being exposed to different perspectives — to people and teams, in other words, with multiple dissimilar backgrounds, educations, problem-solving approaches, intellectual and technical tool kits etc’. The expertise in your organization becomes stale while the knowledge in the market continues to be refreshed. So how do you solve this problem if you’re a closed system but require an open source ecosystem to spur innovation within your company? Let’s look at examples of a company doing it right and an industry doing it wrong.
Doing It Right: Lego
My 4 year old loves Legos! And he absolutely loves the Lego movies!!! On his most recent flight, all he wanted to watch was the Lego Batman Movie. So we watched together for as long as he stayed awake.
I also loved Lego when I was 4 years old. And for a while after that. But then Lego lost its way. With products that were not adjacent to its brand; wrist watches, round edges mimicking the original product, ~14,000 SKUs. All the innovation the company considered and attempted had the brick at its core and every new product was not as strategically adjacent as the company thought going in. This was the error. It seemed like all was lost with mounting losses and declining sales.
But we all know the story of the turnaround. What we missed in that story is how Lego decided to become an entertainment company and not just a brick company. Sales picked back up. They ignored their internal experts and worked with different markets that could take the brick and present it in a new way to a new set of customers. The folk who helped with this wouldn’t have gotten jobs in the old Lego. And they helped the company to the tune of $250M for the Lego Movie and $175M for the Lego Batman Movie.
They also brought some additional benefits to Lego.
The company get things done quicker, improving their response time and consequently their revenues.
It enables the company find the right people/technology
Working with outsiders enables the company do customer research in real time and focus on the products their customers actually want.
And it obviously improves the company’s innovation DNA.
Something else they’ve managed to do? They now have a new customer who does not only see Lego as a brick company but as an entertainment company. My 4-year-old son.
The Downsides
Going all in on an innovation strategy, like Lego did, does have its downsides if the bandage is not pulled off quickly. Once you get the ball rolling with an innovative business model your organizational structure should change to reflect this. Lego forgot that and is now having to lay off 1400 employees (8% of staff). While this is not a good thing for the employees, it is what the company has to do because it is no longer the Lego it was a few years ago.
Doing It Wrong: The Utility Industry
Most of my work in the utility industry is to help companies understand where tech and consumer needs are going and help them develop a strategy and plan to get ‘there’ and address this. The pace of the change is increasing and, like the top traditional industries, utilities are struggling. I do not know of one utility that kept blockchain cryptographers on staff on the off chance that they’d be required when the time came. Well the time is now and they are scrambling to hire people in, at a time when the people with this expertise can make a lot more money and have more impact working outside of the walls of the utility.
So What Should Your Company Do?
The simple answer to ‘how can we innovate? is to look outside your organization for the new ideas. Heck. Look outside your industry. A suggestion, that allows your company to ease into this innovation mindset, might be to work with a clearinghouse of ideas. As Lakhani and Lars Bo Jeppsen show from their study on Innocentive — a clearinghouse for ideas — the best solutions to your innovation questions come from the marginal eyeballs that you show the problems to. These are people who are technically able to solve the problems but are not within the organization and were probably not going to join your company anyway.
For the utility industry, I’m helping solve this problem, similar to Innocentive, through a matchmaking and marketplace platform (image above) for startups to submit their ideas and utilities to submit their issues (anonymized to avoid competitors snooping). We’ve curated ~1000 companies with innovators across the world solving the problems the utility industry itself would probably not get round to solving. It’s also a community of ideas and debate. Debate between experts and upstarts. Because only through engagement with the fringes can you truly innovate and ensure your part in the future of your industry...
https://www.linkedin.com/pulse/why-your-company-gets-innovation-wrong-meaning-legos-layoffs-fabode/