5 ways you are limiting your capacity for innovation
Every company wants to disrupt their market or category. But most game changers tend to be new entrants from other categories, entrepreneurs or small, regional, niche players. It is rare for established brands and companies to to truly upset the apple cart and upend their competition.
Why do big companies find it so difficult to develop a new product/service or a business model that is a radical departure from the status quo?
1. Current Revenues
Most businesses are intently focused on increasing revenue. Yet a big game changing innovation often means changing the rules so that it offers a cost saving to the consumer. A good example of this is Robinsons Squash’d. The consumer can add a few drops of this portable concentrate to water instead of splashing out on a more expensive bottled drink.
Most companies would be incapable of cutting one of their most profitable lines or brands or cannibalising profit streams. Instead they are driven by delivering on their financial commitments to shareholders and this will end up limiting their innovations.
2. Short Term Thinking
Established, successful players are usually more focused on measuring themselves against current market dynamics, such as increasing market share or capturing one additional percentage of growth.
Very few look to the future and allocate enough resources to working out how they reconfigure their business, so it stays relevant in a fast, changing world. Only when a business is in trouble or is not winning short term does it tend to get braver and more challenging of the status quo.
3. Tight Parameter Thinking
Companies like P&G and Unilever have a long track record in innovation. However, their innovations stay within narrow, safe parameters, such as new ingredients, packaging or product formats. They also innovate via breakthrough advertising campaign such as Dove and Cadbury’s Gorilla. They tinker and tweak but rarely change the rules of the game.
This is because, as businesses grow, they tend to get fragmented and siloed. Employees are rewarded and promoted for understanding a very small part of the business in great detail. The consequence is that no one is in a position to examine the whole business process. The focus remains about the customer experience and touchpoints.
To truly challenge the status quo, the whole proposition – all along the value chain – needs to be rethought. Even seeing the potential possibilities can be a real struggle for incumbents.
4. Product Marketing Over Experience
Most established brands take a product marketing approach rather than focusing on the customer experience. This will always limit their ability to be truly innovative. Marketplace disruption usually involves creating a new story about how a product or service is being delivered. This story explains to customers why the new innovation represents a benefit to them.
Aldi is a good example. They have created a new supermarket business model by reducing customer choice and explained why that is a good thing for consumers.
The Dollar Shave Club took a provocative and educational stance. They asked why anyone would want to pay for overpriced razor blades when they could have a quality supply delivered to their door every month for less.
5. Relationships With Retailers
Major brands and companies have the power and scale to build strong relationships with retailers. These relationships mean a stronger presence in store and thus increased sales of their products. So of course, relationships with core retailers are cherished.
However, this reliance can become a barrier for change. When trying to disrupt a category, traditional business models and routes to market need to be challenged. It takes a brave company to proactively take away business from their key retailers.
How to Overcome These Barriers
The barriers described here are not to do with the skillsets of the employees. Neither are they caused by a lack of entrepreneurial attitude.
It is actually the business environment and operational practices that restrict the company’s ability to disrupt.
Change has to come at board level and focus on fundamentals like organisational structure, long term visioning, and shareholder engagement.
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Shelly Greenway is a front-end innovation strategist and partner at The Strategy Distillery – a brand innovation consultancy that specialises in opportunity hunting and proposition development. Their success rates are driven by their proprietary consumer co-creation IP. Follow @ChiefDistiller
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