Your boss cares about innovation. Every business wants to be innovative. Every business leader wants to be an “intrapreneur.” In large companies, even those that have been around for generations selling more or less the same thing to more or less the same people, the people at the top know they must innovate or die.
Failing To Innovate
And yet innovation has become synonymous with failure. 94 per cent of global executives are dissatisfied with their firm’s innovation performance. An innovation expert in the Harvard Business Review writes, “when a CEO announces a major initiative to foster innovation, mark your calendar. Three years later, many of these ambitious ventures will have quietly expired without an obituary.”
Innovation is in an odd place. Everybody at the top thinks it essential. They consistently report that they are failing at it. Their businesses are still here and even flourishing. Almost every corporation in the FTSE 100 has a digital transformation agenda and by most estimates between 80-90 per cent of these have failed, are failing, or will fail soon.
It is possible to make some sense of all this. It helps to try to narrow down what we really mean by innovation. When we say that businesses need to innovate, we are not asking them to invent something transformative like the electric light bulb, rail travel, or the internet. What we are actually talking about is much more short-term.
The current drive for innovation in the enterprise is a response to the last decade, perhaps the last two at the most. The first iPhone was released in 2007 and that is probably the watershed. In this context, enterprises need to innovate because the most transformative innovations since the millennium have had their biggest effects in consumer electronics and software. As Peter Thiel said, “we wanted flying cars; instead, we got 140 characters.”
Where innovation is really a business need is not in the transformation of the enterprise but in providing products and services to consumers who increasingly expect everything to be conveniently available from an internet-connected device. This has created a new opportunity for value in almost every industry, summed up crudely by the question “how easily can I do this on my phone?”
Innovation In FinTech
Nowhere is this clearer than in financial tech. London is booming with FinTech startups and many of them share a common thread. Monzo for example has a billion pound valuation that reflects investors’ perceptions that it is built on an innovation in banking. It is this innovation that underlies the successful marketing of the product and has let it grow so quickly to well over a million users.
Where specifically is this innovation that leads to such a huge competitive advantage over established banks? It is still just a bank account. You can receive payments into it and make payments out of it, and you can do so in a number of familiar ways. Despite generous backing, Monzo isn’t necessarily even offering the best deal financially. Monzo’s advantage is not the typical type of advantage sought by competing consumer banks, i.e. marginally more interest.
The core strength of Monzo is that it has built a really good app. The (genuinely) disruptive innovation that Monzo has made is in providing a customer experience that is at least ten times better than the incumbents’. This has huge value in the market because, as mentioned above, the standards and expectations for digital customer experience have seen such transformation.
The majority of innovation is really happening in the digital customer experience. While there may be any number of areas that require long-term transformation, the FinTech example shows that there is one short-term imperative. And as Peter Drucker wrote, a necessary condition for innovation is that you “don’t try to do too many things at once.”
Drucker also knew something about innovation that is still not widely accepted. Innovation is seen as the preserve of entrepreneurs. The defining characteristic of entrepreneurs is supposed to be that they are risk-takers. “The popular picture of innovators – half Hollywood, half pop-psychology – makes them look like a cross between Superman and the Knights of the Round Table.” Yet Drucker argued that in fact the defining characteristic of innovators, the one thing they all have in common, is that “they are not risk-takers.”
Re-Framing How We Innovate
This is why innovation fails in the enterprise. It is associated with risk. Larger organisations are more risk-averse. The larger an organisation, the more risky new projects seem to become. More stakeholders are dragged in, timelines get stretched beyond all recognition, costs spiral and ultimately attempts at innovation lose momentum and die.
In our experience at Amigo we have found that low-risk, agile projects that centre on the digital customer experience are the key to innovation in the enterprise. Where innovation really happens is not a question of start-ups or enterprises, but of choosing a precise and low-risk focus on the digital experience over a grandiose, risky attempt to innovate everywhere at once.