Failure of innovation: the challenge for established companies

July 12, 2020

Success is an innovation killer. For successful organizations, the failure of innovation is primarily due to fear. If failure is not an option, the ability to learn is also not part of the DNA.

Early adopters seek innovation, but the further you move down the product lifecycle, the more trust people require. In this case, a trust relationship with the customer replaces innovation.

Failure of innovation in large organizations

Success makes people stick to a recipe. If it worked for you over the last decade or two, why change? The larger an organization grow, the more difficult it becomes to imagine a time when the success might stop. Consequently, this failure of innovation will have devastating results.

Where does the end begin? When a company finds a successful business model, management needs to exploit it to its fullest. You need to align the company’s structure, operations, processes, tools and culture to manage the successful business model.

This strategy is not all bad. After all, you need to feed the top line and grow the bottom line. Yet, every business model does have a limited lifecycle. And, you don’t want your current business model to determine your company’s lifecycle.

The innovation model landscape

Disruptive Innovation

Clayton Christensen popularized the term disruptive innovation in 1995 but is maybe one of the most misunderstood innovation concepts. Christensen explained it as “a process whereby a smaller company with fewer resources can successfully challenge established incumbent businesses.” Most importantly, he added that “disruptive innovations originate in low-end or new-market footholds.”

In short, disruptive innovation requires a new business model but not necessarily new technological.

In this case, Christensen regarded Zipcar as a disruptive innovation, and Uber not. Uber did not originate in a low-end or new-market foothold. The start-up first needs to prove its new business model outside the established company’s network. After gaining significant traction and trust in the market, the innovation will flow over to the existing markets.

Architectural Innovation

Rebecca Henderson and Kim B. Clark highlighted that it does not matter if innovation is breakthrough or incremental. However, what does matter is if a company’s current structure can take a change in business model to scale. Architectural Innovation requires new technological competences as well as business model changes.

Executives and managers like to be associated with breakthrough innovations. And, if it fits in the current business model, it will succeed. On the other side, if a new business model does not suit your company, it will likely fail.

Breakthrough innovations are far and in-between. Also, if you do develop a breakthrough innovation, it will probably not be aligned with your current business model. This unwillingness to adopt a different business model is a massive failure of innovation for many established companies.

Radical Innovation

Radical innovation stands perpendicular to disruptive innovation as it relies on breakthrough technologies. Technology needs to comes first and drive innovation. It replaces the current technology and focuses on the long run.

When the first iPhone was released, industry regarded it as radical innovation. Apple developed it with a range of technology breakthroughs in mind. However, today it follows an incremental innovation model.

Fiber-optics is another example of radical innovation. It changed the backbone of our communication infrastructure completely. But not necessarily the business models.

Routine Innovation

Routine innovation is maybe the less sexy of all the innovation models. It happens when companies play to their strengths by using existing technologies and proven business models.

Great examples of routine innovation are companies that annually launches an incremental improvement of an existing product. By doing this, they can capitalize on existing processes, channels and maintain margins. But even more importantly, these companies can tap into an existing following.

Failure of innovation examples

A Kodak moment

George Eastman changed the way we take photos forever. Kodak followed the razor and blades business model, selling the camera at a discount while making money on the complementary goods.

Kodak invented the digital camera but selected to focus on digital printers as a complementing device. They tried hard to get more people to print digital photos. This textbook failure of innovation led to their bankruptcy in 2012.

Kodak’s downfall wasn’t about technology but the inability to embrace new business models. We can even say that the company was so content with their past success that they became arrogant. The failure of innovation was all due to a lack of strategic creativity. The boardroom avoided risky decisions and maintained the status quo.

Nokia, disconnected people

In the late nineties and the early two-thousands, Nokia was the best selling mobile phone brand in the world. Even still by the end of 2007, Nokia sold more than half of the world’s smartphones.

But their technology and business model lifecycle were not able to keep up with competitors.

Nokia’s biggest downfall was its people. They suffered from organizational fear. There was a culture of temperamental leaders, and middle managers scared of telling the truth. Managers were afraid of not making their targets, of losing investors, suppliers and customers.

This failure of innovation is a classic example that when fear resides within an organization, creativity and motivation leaves through the back door. In this case, the emotional state of the employees had a direct impact on the company’s competitiveness. Add to this the short-sightedness of top management, and you find an absolute innovation killer.

How to prevent a failure of innovation?

It may be a good idea to have a look at the difference between a start-up and an established organization. What is driving the success of innovation and failure of innovation? According to Steve Blank, it is all about fear, but there is an irony:

“In a large company “fear of failure” inhibits speed and risk-taking, while in a start-up “fear of failure” drives speed and urgency. – Steve Blank

Start-ups have a limited pool of money and resources. The length of their runway limits the success. They need to find product/market fit at the speed of light to keep current or future investors happy. This fear puts them in a constant mode of iterating and pivoting as they fail, learn and discover a new business model for an idea.

On the other hand, an established organization’s focus is to execute and scale the current business model. They’ve found the product/market fit; set up the distribution channels; know how to price the products; figured out how to produce the product at scale, and the metrics to measure performance is in place. Their biggest fear is to fail the status quo.

The fact is, a start-up is not a smaller version of a large company.

Reduce failure of innovation with the lean methodology

Traditionally a new product started with an elaborated business plan, a presentation to management, assembly of a top-notch team, design and development of the product, a spectacular launch, and hard selling. You can see it as a typical linear way of doing things. Some may call it the waterfall methodology. More than 75% of the time this methodology fails.

Over the last decade or so, an agile commercialization process has developed to minimize the risks of the traditional methodologies. Many will know it as the “lean start-up” methodology popularised by Eris Reis.

Start-ups developed this methodology on experimentation, early customer feedback, and iterative design phases. Above all, it popularised concepts such as “minimum viable product” and “pivoting”.

Although we frequently use the word start-up, established companies may benefit the most from this methodology.

Execution and Innovation

Large companies fail to innovate when they use the processes and incentives within the company’s current structure to implement a lean methodology.

For large companies to survive, they need to keep executing their current business model. In parallel, they do need an innovation process but separate. Lean innovation methodologies are critical to the success to prevent the failure of innovation.

The needs of innovation groups

The critical ingredient is rapid experimentation with the acceptance that failure is always around the corner. But, even more important, the celebration of learning opportunities.

However, the long term success of the company will depend on how well the “business as usual” and innovation sides of the company cooperate.

Innovation groups need to:

let go of the fear of failure;
get a sense of urgency;
run on its own in a lean environment, and;.stay accountable for their success and failures;

Bottom line. Innovation groups need structure, culture and tools, with tailored metrics to measure performance. Crucial to this is a hefty dose of courage. The person driving the innovation process knows that it may fail. If acceptance of failure is not part of the culture, success will be limited, and no learning. But remember, don’t misjudge success for innovation.

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