A recent McKinsey Global Institute report warns of the rise of emerging-market and technology-enabled companies disrupting business models and contributing to a declining global corporate profit pool over the next decade. McKinsey suggest four proactive responses.
1. Focus on growth markets and spot disruption.
2. Ensure a lean and agile organisation
3. Own the intangible assets of data, software, algorithms, brands – and build skills within or through M&A
4. Play the ‘long game’ with investors and incentives in response to new competition prioritising sales and scale of profit.
Our work at GSG has proven that market-led innovation is an essential competitive response to this new threat. ‘Market-led innovation’ is anchored in creating better ways to solve customer problems. It is a capability and culture that can be learned and embedded within organisations. However, too often efforts fail at the expense of misaligned priorities, time-horizons, resources, incentives and the necessary leadership, governance and cultural environment required.
The solution lies with the organisation’s leadership addressing the distinct and competing challenge: maintaining the critical cash flow from core business to fund future creation of new sources of revenue. Clearly, this is not an easy task. Each challenge requires different skill sets and leadership oversight. In our experience the leadership style, skills, culture and support required to run and strengthen core business are fundamentally different to proactively creating new ways to solve customer problems.
Core business requires a focus on consistency and reliability, while seeking ways to strengthen and improve profits. Focusing marketing efforts to win and retain customers, keeping those customers satisfied, delivering products and services more efficiently. Routine, Operations excellence, Reliability.
Creating new ways to profitably deliver services to customers at scale requires a focus on R & D, experimentation and learning. Constantly seeking to understand what problems customers need solved and shaping ideas into how organisations can deliver services. These are new market skills, lean commercial project management with a leadership that is willing to tolerate failure – albeit with ‘gates’ and investment staged to tolerable levels. Customer co-creation, Experimentation, Discovery, Failure.
With our colleagues at Innosight, GSG has helped Australian clients build such new innovation capabilities. It does require some ‘ring-fencing’ of the innovation team to avoid the inevitable misalignment of priorities, time frames and success measures. Overall, it requires conviction from the top that unless we do both – support the core AND support the new skills needed to ‘disrupt’ ourselves, or as others keep reminding us, someone else will!
In 2007, our ‘Marketing in the Boardroom’ chapter on Innovation posed a number of questions still relevant to boards today. With the accelerated threat of business model disruption and our experience of working with clients, we’d add four important questions, each focused on ensuring innovation efforts stick:
Is there a common definition, goal and set of boundaries we have set for our Innovation efforts that we are seeking to solve?
Have we set up the right governance, investment and support to enable ‘market-led’ innovation to thrive?
Are our teams adequately resourced and equipped to rapidly test, pivot, develop, scale or ‘kill’ new business models?
What approach will we take to decide on when to release investment funds and scale, and informing the board and wider organisation of progress?
If you would like a copy of “Part Three – Innovation”, please fill in your contact details and the file will be sent to you for immediate download. We’d welcome your feedback and experiences.
– Graeme Chipp, Magnus Gittins, Bridget Kimber, Grant Cooper at Growth Solutions Group