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Innovation & sustainability

Innovation – developing core business versus risk mitigation

Posted by Andrew Wright on 25. February 2020

Most innovation is focused on improving core business, both in small increments and large jumps, to keep ahead of competitors. Disruption can make such innovation worthless e.g. in 2004, wet film photographic technology was overwhelmed by digital photography.

In this article we look at how innovation is becoming a vital part of corporate risk management, developing alternative survival strategies as disruptive changes hit organisations.

Disruption is an ever-increasing risk for organisations. Some disruptions can be tackled successfully with reasonable business agility. The internet massively reduced the amount of letters posted but generated many new packages. Postal services have flexed, but not fundamentally changed, their business; innovation in improving the efficiency of moving post around has still paid back.

Some disruptions are just too much for the organisation’s DNA. Kodak’s was all about wet film chemistry – only the brand had any value after the disruption. Another leading supplier of photographic film and paper had invested heavily in innovative multi-layer coating technology that dramatically reduced time and cost compared with single layer techniques, focused on their core business. When digital photography took off, not only did the demand for photographic paper plummet, the market for photo printer paper didn’t rise to compensate – most images today are on the cloud and only viewed electronically. Though much smaller now, it survived by diversifying extensively, exploiting its skills and resources.

Figure 1: Innovation lead time and business performance sets premises for when innovation must start.

Figure 1. Increased innovation lead time and rates of business change
means innovation must increasingly start before a clear business case has been identified.  

Corporate risk management normally looks at direct competitors but must also consider disruptive influences. As science and technology improves, and financial constraints tighten, the law of diminishing returns requires greater lead time for innovation. As Figure 1 shows, increased innovation lead time and rates of business change means innovation must increasingly start before a clear business case has been identified.

When asked about this, a leading academic in innovation highlighted the need for organisations to carry out innovative studies in-house and also to keep a watching brief on small innovative start-ups that could offer a solution to disruptive market changes. The large pharmaceuticals company Astra-Zeneca was experiencing serious underperformance in developing new small-molecule drug treatments in-house; it bought a number of small specialist bio-tech companies with new, innovative large-molecule products to restore its product portfolio’s health and co-located all to Cambridge .

Conclusion

Survival and prosperity require innovation both to improve core offerings to stay ahead of competitors, and to respond to market disruptors. Such innovation can be in-house or bought-in, but either way must be available quickly. This means adopting a risk-based diverse portfolio of market intelligence and in-house R&D activities.

Take-Away

Following on from our first part discussion of McKinsey's guidelines for successful innovation, covering:

  1. Aspire: Do you accept innovation-led growth as absolutely critical, and do you have cascaded targets that reflect this?
  2. Choose: Do you invest in a coherent, time-risk balanced portfolio of initiatives that are resourced to win?
  3. Discover: Do you have actionable and differentiated business, market, and technology insights that translate into winning value propositions?

Download the guidance part II for discussions on (4) Evolve, (5) Accelerate and (6) Scale; 

Download free guide: The Eight Essentials for Innovation Performance Part 2 of 3

We’ll complete a summary of the McKinsey guidance in my next post, and discuss in more detail on sustainability as a key driver for change.

Andrew Wright

Andrew Wright

Andrew is a management consultant and author with 30 years of experience in managing projects and business change. He works at board level down to understand and remove the blockers to innovation and successful change. His education was as a scientist and software engineer, leading to 12 years in applying artificial intelligence to real problems (including combat systems) before moving into more general change management. After 8 years working in a consultancy role, he became a freelance and has since worked for a wide variety of clients, from engineering to financial services. Working with such a diverse set of clients has given him an extensive insight of both the financial and behavioural challenges to innovation, and some thoughts on when and how they can be overcome.

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