Here today, gone tomorrow? Linking Innovation and Survival in Large Companies
In the past 100 years, the average time a company spends on the S&P 500 index has shrunk from sixty-seven years to fifteen, and it’s getting shorter all the time. The key driver of this turnover is the way technology is shortening feedback loops. It’s possible, faster than ever before, to measure the impact of your actions, and the lean startup has been the most important manifestation of this phenomenon.
To stay on the S&P 500 for a long time and, more generally, to keep growing fast, a company has to optimize for more than just growth. Despite near-term pressures for quarterly results, truly successful companies must pay attention to and invest in something with no immediate links to the bottom line – learning and innovation. Thanks to shortening feedback loops, more than ever before it’s possible to manage innovation and growth as part of a single organizational strategy.
At the core of any large company is a series of mature businesses that deliver predictable results. This core is managed for execution – the market and the product are relatively mature and the company works to find increasingly effective ways of connecting the two. In great companies, lots of innovation still happens in the realm of execution.
This execution innovation focuses in one of three broad areas: increasing profit, decreasing costs, and managing risk. At infoedge we work with a number of companies to drive value in one of these three buckets. Our iTE practice (information technology excellence) for example, regularly examines value chains to drive out waste and increase technology utilization factors. We help our clients iteratively raise their performance and accelerate their learning about what they already do.
The risk to big companies comes from thinking that the bottom-line is the only metric that counts for the medium- to long-term. Sustained growth requires a pipeline of innovative businesses that, although small and risky in the beginning, deliver results and resiliency for the long-run. And the metric that counts for that pipeline is learning.
Most big companies simply don’t know yet how to measure and reward learning. In a world where it’s possible to learn and to innovate faster than ever, companies that don’t know how to optimize learning will go out of business faster than ever before as smaller, nimbler competitors invade and transform their markets.
The need for an innovation pipeline has been well understood for over two decades. The Horizons model, for example, helps executives manage the businesses in three buckets. Horizon 1 businesses are the core engine of revenue and profit – the things the company is well-known for and deliver the most immediate value. Horizon 2 businesses represent proven ideas that are ready to scale for the future of the company. Horizon 3 is about things you really can’t even call businesses. Rather they are, to paraphrase Steve Blank, “ ideas in search of a profit model.”
Just as there’s innovation in the execution of mature businesses, great companies innovate in the development of innovation itself. We’re all about learning at infoedge, and our work with clients focuses not just on building the innovation pipeline, but on accelerating the entry and exit of ideas into that pipeline. We work to scale great ideas and then to help our clients get better and better at scaling the ones with the most potential and discarding the ones that show little promise.
In the financial services sector for example, we’ve worked to develop a parallel model of customer interaction where financial institutions don’t just help with cashflow but also actively add value and make connections so that consumers’ overall financial health increases. In a world where people are too often offered “free” stuff, this work helps them spend less and more wisely. For our financial sector customers, this is a sustaining innovation – something that opens new horizons in their business and deepens their connections to their customers for the long run.
We do have a “special sauce” though. We help companies innovatively execute their mature businesses, and we help them accelerate the way they generate future value. The secret to doing both is to put learning at the heart of the journey from Horizon 3 (blue-sky ideas) to Horizon 1 (mature, core businesses), and to help build a culture that, despite the different metrics in each Horizon, accelerates learning in each.
By focusing on the people and practices that define the company’s culture, we’re able to help them clearly define their pipeline, and, most critically, have a culture that embraces the bottom-line and the metrics of learning, even for risky new ideas. Learning is the critical link between innovation and survival. It’s the ultimate accelerator for sustained, explosive growth.