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Why enterprises can't innovate

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Written by

William ChannerWilliam Channer

,

CEO

3drops

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Why enterprises can't innovate

Executives no longer need to be lectured on the importance of innovation. We've all witnessed the demise of great companies like Kodak, Nokia, or Blockbuster. With accelerating innovation cycles, digital convergence and lower barriers to entry, market leaders are more vulnerable than ever. Yet despite these competitive market dynamics, enterprises today exhibit a lack of urgency to future proof their organisation. Innovation has become a platitude, where companies talk the talk but don’t walk the walk.

In a survey of 677 Corporate Strategy Executives, "60% of companies said it takes a year or longer to create new products, with almost one-fourth saying it takes over two years from ideation to launch." — CB Insights State of Innovation.

Why enterprises struggle

The root of the problem lies in the structural makeup of the organisation. Most enterprises can’t innovate because they’re not designed to innovate. Instead, they’ve been optimised to execute. Once a business knows how to create customer value, a process is established to direct the company towards efficiency. This structure is inherently rigid and creates an atmosphere that runs opposite to the pursuit of innovation.

Executives pressured to meet quarterly objectives direct their employees from exploring new opportunities to focus on delivering the status quo. Employees are instructed to pursue short term results, utilise legacy technology, exploit old distribution channels, and listen to their highest paying customer. The activity is centred around maximising profit and reducing cost. The balance sheet becomes the north star and new market opportunities are seen as a distraction.

Whilst this makes perfect business sense, this is how companies eventually wither and die, hence the innovator’s dilemma. In order to respond to the threat of disruption, companies must rethink their operating model for innovation. For executives who want to expand market share through innovation, the answer lies in acknowledging the constraints of their company and electing a team to accomplish a set of different goals, independently.

Why?

The startling fact is that organisational structure today is over 100 years old. It was not built to be responsive and adaptive, it was built to accommodate the daily demands of running an enterprise.

The new way

John Kotter, a professor at Harvard Business School advocates a new system that he calls the "dual operating system", in which execution and innovation operate in parallel. Instead of restructuring the organisation entirely, which would be an unrealistic endeavour. The effective approach would be to establish a studio specifically designed to build and scale-up disruptive new businesses. In doing so, new products can flourish and be liberated from the unnecessary burdens of company bureaucracy.

The startup studio

At 3drops, we believe creating a startup studio increases an enterprise ability to innovate because it frees them from old process and obligations that comes from operating within a parent company. Instead, the studio operates as an independent entity and has the autonomy to pursue new product ideas rapidly. For innovation to work, an autonomous business unit has to be established which can be insulated from the day to day grind of business operations.

Working together

But a startup studio shouldn't run in silos, they still need to collaborate with the organisation, but do so with autonomy and freedom. An startup studio has to operate with certain fundamentals and we believe these to be the essential ingredient:

  • Freedom from short term goals: If the enterprise is merely focused on an immediate ROI this will have an impact on decision making a limit product ideas that have long term potential.
  • Freedom from bureaucracy: What a startup studio brings to the table is speed. Red tape gets in the way of product development and activities that move the needle.
  • Freedom to hire: A startup studio should be responsible for hiring and handpicking the right people that can operate under a fast-paced environment. This enables them to pick the right motivated specialist such as designers, developers and product managers.
  • Freedom to invest in technology: Nothing is more liberating than starting a new project from scratch and using new technologies. In doing so, features can be built in a way that allow quicker development cycles.

The executive

Whilst it's important to emphasise the importance of establishing a separate business unit, it's also important to mention that success is dependent on executives from the parent company to support the initiative. These executive become a representative, almost a spokesperson, keeping everyone informed and helping everyone stay aligned.

These executives serve as advocates for the studio within the enterprise and help address any challenges the studio may stumble across. Collaboration between the startup studio and company is key because this allows the studio to unlock the parent’s company advantage. These includes:

  • Customer base: The startup studio can tap into the customer base to test new product concepts and iterate quickly.
  • Distribution. The startup studio is able to find product/market fit much quicker by leveraging the company's distribution system.
  • Data: The company can share data and insights which can inform the product development.
  • Branding: New customers will adopt the product quicker because of the trusted brand already established.
  • Negotiating power. The startup studio can use the company to negotiate better deals with suppliers and partners.

What now

If you’re going to pursue innovation, invest in putting the necessary structures in place to make it thrive. The business graveyard is filled with great companies that failed to look ahead. It's important to acknowledge that the process of launching a new product or starting a new business for the future is fundamentally different from running an existing one today. If you want to future proof your organisation, establish a startup studio.

Written by

William ChannerWilliam Channer

,

CEO

3drops
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