The innovation game is changing as exponential technologies advance, prices drop and adoption increases.
With disruption coming from every direction, can legacy enterprises keep up, and even get ahead of the game? Six resource advantages access to funding, production and infrastructure, expertise, distribution, data and the power of their brands can help them to accelerate innovation.
How innovation is changing
In From Incremental to Exponential, a book that I have co-authored with leading academic Vivek Wadhwa, I look at how established companies are recognising their strengths and using them to foster innovation and growth in the face of new-order disruption.
First-order disruption was common before the digital era. A new technology would be adopted, bringing production and cost efficiencies or incremental improvements. This, in turn, brought change to market sectors, often displacing incumbents that were slow to react.
Second-order disruption has an amplified outcome.
Exponentially advancing technologies, in combination, make magic happen. This is not the kind of innovation or disruption that just improves existing products or services, it’s far-reaching. It changes things exponentially, affecting not just value networks but society (the way we live); business, industry and service structures; and policy and regulation. It’s a shift of the magnitude that happened when we moved from landlines to smartphones.
Second-order disruption embraces technologies like artificial intelligence (AI), blockchain, virtual reality, the Internet of Things, cloud computing—in combination. Instead of tethered voice and fax, the smartphone offers omni-channel visual, voice, text communication, entertainment, learning and computing – anywhere, any time.
This kind of disruption brings opportunity for innovation at every juncture as technology creates a bridge between previously discrete industries, services and offerings.
Now, as technology advances increasingly quickly, infrastructure reach expands, costs drop, adoption ramps up and integration at every part of the increasingly ubiquitous digital matrix begins to become possible, third-order innovation begins to occur. We can see it in the way that systems are starting to fit together, as in the way in which our means of interacting with our technology is expanding.
How can large, established organisations remain relevant, develop the capacity to compete, and continue to lead and grow in this environment?
Here are some of the most important changes to understand:
- The competition no longer comes just from your industry
- Companies that adopt technology sooner and more successfully gain an exponentially increasing advantage
- Intellectual capital and brand no longer lock customers in; you either build loyalty via value and innovation or perish
- Innovation has become key to business survival.
What’s critical for large enterprises to understand is that they can use their existing strengths to drive and accelerate innovation. These strengths – scale, distribution, data, expertise –are expensive to acquire and difficult for start-ups to replicate. They offer a huge advantage when it comes to building new platforms or marketplaces.
Kale chips sautéed in pumpkin oil
With 27million customers, Sainsbury’s is one of the premiere placement options for any food or drink brand in Europe, let alone the UK. But getting placement is a lengthy and expensive journey for a new brand. Sainsbury’s Future Brands team uses the retail giant’s existing strengths to drive and accelerate innovation—helping itself by helping its customers.
Future Brands uses analytics and sales data to identify trends (such as the growing demand for functional foods). It then applies its marketing expertise, data and distribution strength to help newcomer products to launch, stoke market demand and gain momentum. One example is its collaboration with PepsiCo subsidiary Rare Fare Foods, bringing the Off the Eaten Path brand of vegetarian snack foods to British shelves.
The world’s largest beer, wine and spirits company, Anheuser Busch/InBev (AB/InBev) took a similar path when, several decades ago, it realised that regional microbeers were growing faster and selling at a higher premium in the US than established national beer brands such as Budweiser.
By buying stakes in these microbeer brands, plugging them into a national distribution channel and sharing its production expertise with them, AB became so fluent in the microbeer market that it successfully launched a number of its own brands. These brands are hard to distinguish from the hip microbeers.
Which of your incumbent strengths can you use to accelerate innovation?
You’ll find a wealth of insight into what it takes for large companies to see the future and rethink innovation in From Incremental to Exponential, or take a look at these posts: How the innovation game has changed; What exponential disruption can teach us about transformation.