Should organisations stick to their knitting?
How to manage tensions across the multiple horizons of innovation
Leaders often face a difficult decision – should their organisation focus on strengthening their core business, or should they optimise for exploration and growth? The answer is – both.
This wasn’t your average Zoom meeting. There were about 40 leaders from a national scale organisation dialled in for a half day strategic design session. It started with the CEO interviewing three customers. One customer had pulled his car off to the side of the road to take the call, which gave the whole situation a heightened sense of candour and anticipation.
What ensued was a very open, honest and unscripted discussion where the customers shared what was working for them, and in what areas they were unsatisfied or frustrated. I was on the edge of my chair as I observed the CEO navigating some curly comments and questions – not easy to do in such a forum when it is in real time and in front of 40 people! I admired the CEO’s courage, and willingness to get out of the “executive bubble”.
Apart from being a fantastic way to literally hear the voice of the customer, and to get a group of leaders aligned around their actual needs, a particular discussion thread sparked some thinking for me in the context of corporate innovation.
As background, the CEO’s company was already investing in incubating some technology local startups as part of its innovation strategy. One of the customers being interviewed took issue with this, because they perceived that there were still aspects of the company’s core value proposition that they felt could be better, and that the product that the startup was offering felt unpolished. The sentiment being directed toward the CEO was “you should stick to your knitting”, rather than messing around with startups and side ventures.
Hearing this sentiment from a customer made me reflect on the message that we typically deliver so strongly to our clients – urging them to think about their business model across multiple horizons, including “the day after tomorrow” as Peter Hinssen would say, lest they leave themselves vulnerable to disruption.
If you don’t embed the Day After Tomorrow in the DNA of your organisation, then it’s pretty likely that you won’t even make it to the Day After Tomorrow - Peter Hinssien
An effective way to address that risk is to continuously test a portfolio of ideas. Sometimes these new business ideas will be quite transformational and distinct from the existing business. But not always. As was the case for the CEO in our story, some ideas will be quite aligned with the existing business and will offer current customers additional value.
Either way, this anecdote demonstrates the potential for some customers and (even more likely) some internal staff members, to see innovation as a distraction from the core business – especially when there is the feeling of lack of time and resources, or that there is still room for improvement in the core business.
How would we advise the CEO from our story to navigate these differences of perspective and the tensions it can create?
Let’s start by identifying the things to avoid. These tensions and concerns should not dampen our resolve around the need to innovate and explore. No one ever said that innovation would be easy, and managing these tensions is an expected part of the journey. Innovating in secret, in the absence of customer feedback, should also be avoided. In some special circumstances where there is highly sensitive intellectual property involved it can be necessary to operate in “stealth mode” for a period of time. However, more often than not, the biggest risk you face is that your value proposition won’t resonate with customers. So it is better to be proactive about getting fast and frequent feedback, even when the product or offering might feel a bit unpolished. Back to our question on how to navigate these differences of perspective, here are three ideas for how to manage this tension.
1. Emphasise the importance of maintaining a solid core Unlike startups, the blessing and the curse of innovating in a corporate environment is that there is an existing core business that has customers and is bringing in revenue. Therefore the people working on delivering value to customers via the existing value propositions have a critical role to play. If existing customers are not happy with current performance, then we break their trust that we can follow through. We lose the licence to innovate, and will be told to stick to our knitting.
Make sure everyone understands the valuable role they play in maintaining the culture and performance of your organisation, and how essential that foundation is for building future resilience and the business of tomorrow.
2. Create clarity about the three different types of innovation “Innovation” is a big and fuzzy word that means different things to different people, depending on where they sit in an organisation and the time horizon that they are focussed on. By distinguishing between the different types of innovation, as defined through Harvard professor Clayton Christensen’s work, leaders can foster the right conversations and find a balance of investment in those different horizons:
Efficiency innovation is focused on continuous improvement and how to make the current business model better.
Sustaining innovation seeks to extend to the current business model, perhaps by entering a new market or servicing a different segment.
Transformative innovation involves the search for breakthrough business models.
Your current customers should be experiencing the benefits of your efficiency innovation efforts. By having the right processes in place the insights and creativity of your entire workforce can be harnessed to achieve this. This is the definition of sticking to your knitting, and doing so by being deliberate about getting better and better at it every day through efficiency innovation.
All business models eventually expire, and at an increasing rate due to the speed that the world around us is changing. This illuminates the need for transformative innovation – to search for new opportunities, sometimes in uncharted waters. Transformative innovation operates on a longer time horizon than efficiency innovation, as it could take years to find and incubate a whole new business model. It also requires a different mindset that is much more experimental in nature, and this may not be comfortable for all of your staff, customers and stakeholders.
The key point here is that innovation is not one size fits all. Different approaches, skills and mindsets are required depending on the type of innovation at hand.
3. Get creative about how you manage risk When innovating at the sustaining and transformative end of the spectrum, risk management can require being creative – literally. For example, to minimise the risk to the core brand, it may make sense to create a separate brand to conduct experiments through, so as to not confuse the market or feel overly constrained due to the risks associated with operating under the main company brand.
The “Wizard of Oz” technique is a powerful approach for testing business ideas while minimising cost and unintended consequences. It is essentially a smoke and mirrors approach where you create a product experience that a customer interacts with under the impression that it is real, whereas in the background humans are doing the work of delivering the product rather than an automated system.
As an example, a case we observed was at a major telco where a new service offering was being developed. Rather than wait until all of the backend systems were set up and integrated before getting feedback, customers instead filled out a web form which felt “real”, and then one of the project team manually entered their details into the backend system. This allowed customer demand to be tested, and to ensure a smooth onboarding experience – all at minimal cost. It sounds like common sense, however all too often large amounts of money and time are invested before the first customer gets to interact with the new product or service your organisation is testing.
Another approach is to test ideas with a narrow slice of the market, such as a particular geography. That way, if something goes wrong then your whole customer base isn’t impacted. For example McDonalds uses Australian stores for this purpose, to test new concepts such as McCafe or new menu items before rolling out on a larger scale.
Employing and combining these types of approaches can help your organisation rapidly generate learnings and de-risk new business ideas.
So, how did the CEO respond?
In the moment of the interview, he listened and sought to understand the perspectives that he was hearing from his customers.
In the months that have passed since the workshop the organisation has acted on the key insights from those customer conversations. They maintained a strong focus on customer satisfaction and improving the core business with efficiency innovation. However, the CEO recognised that it is not an “either or” situation – the organisation needs to both stick to its knitting and commit to its long-term vision at the same time.
To enable this the organisation has invested in the development of its innovation operating model as a way to build new growth and manage disruption risks given they are in a fast-changing industry.