Anthony Stevens (pictured below) is the founder and CEO of Digital Asset Ventures and co-author of Chasing Digital: A Playbook for the New Economy. In this guest post, he argues too many brands mistakenly think their threats are external when, in fact, they’re wholly internal…
In our new economy, pre-digital incumbents can find themselves bogged down by an outdated organisational design. They face slowing growth and decreasing market share. And as new competitors challenge traditional models, the tricks businesses used to drive growth no longer seem to provide a reprieve.
It’s not just organisational design that becomes the issue, but also the nature of how you make investments to stimulate further growth. For the last few decades, pre-digital incumbents grew by entering a new market and innovating, taking an ever-more-sophisticated product or service to the same set of customers.
As your organisation became more knowledgeable about its customers, it could better meet their needs. Clayton Christensen calls this sustaining innovation – a process of incremental change whereby products or services become faster, cheaper or better.
Sustaining innovation isn’t enough
The catch is that sustaining innovation isn’t about constantly creating new markets. Organisations increase profits by serving customers more efficiently over time, and as businesses mature, unfortunately, their focus typically moves away from their customers’ needs towards immediate revenue – a perspective shift from external to internal.
Key performance indicators protect the status quo and, inevitably, resources move from innovation-based initiatives to those activities that deliver short-term results. In most businesses, decision hierarchies and steering committees are mechanisms commonly used to justify a proposed departure from normal investment.
Yet, if constrained by the same metrics and mindset, decision makers and committees are either conservative in nature or slowed down by the need to be overly consultative to ensure and maintain support. This problem is exacerbated when delivery timelines and returns for new initiatives are longer than an annual profit cycle.
This approach works when things are moving slowly enough so that any single external force – such as new technology, a slight change in the competition, or even an economic downturn – can be pre-empted or reacted to before any serious damage is inflicted.
But this is not the reality in our new digital economy because we now face a swath of entirely new ways of doing business built on a swath of new technologies. The billions of dollars tied up in the old growth models, infrastructure, workforce and intellectual property cannot address these new opportunities.
The Kodak story: protecting the status quo is a death sentence
Of course, the immediate impact is not as evident. A very well-known example of this is Kodak. Kodak was always the leader when it came to film cameras, and was considered a highly innovative company. In fact, it was so innovative that it invented the digital camera in 1985.
Yet it didn’t embrace the new technology because it was firmly entrenched in the film, chemical and paper business. Any inroads it did attempt to make were usually too tightly coupled with its film business, or were dismissed by leaders who saw digital as the enemy, rather than an opportunity.
In 1996, just before the digital camera revolution kicked in, Kodak reached peak revenue of US$16 billion. Yet in 2012, the company filed for bankruptcy. This was a massive fall from grace, due to Kodak’s fear of change and fruitless attempts to protect the status quo.
The only way to overcome such resistance in the face of change is a complete organisational overhaul, a complex and costly endeavour for any large enterprise.
The innovation machine for new markets must be lean, agile and responsive. But leaders of large companies are reticent to take action with no guarantees of success. Sadly, history shows there is only one real guarantee: the longer your organisation protects the status quo, the lower your chance of survival becomes.