How to drive innovation in large enterprises
Those looking to innovate within a larger organization will find a steeper hill to climb. Company culture, legacy systems, and long-standing internal processes can all impede change, even when it would benefit the business.
That doesn’t mean it’s impossible to drive innovation through a large business, but it requires a different approach. Stanford University professors Raymond Levitt and Pedram Mokrian recently discussed the best strategies for encouraging change in enterprise environments in their on-demand webinar Embracing Intrapreneurship: Create a Culture of Innovation Within Your Organization. This webinar is essential viewing for anyone who wants to instill an entrepreneurial spirit throughout their company.
What are the biggest barriers to innovation?
Professors Levitt and Mokrian highlighted several obstacles that often stand in the way of enterprise innovation.
First, innovative products, services, and business units may underperform compared with established offerings or departments. As such, organizations can be hesitant to invest in potentially disruptive technologies that offer no immediate financial benefits.
However, innovative solutions typically increase in performance and profit metrics at a much quicker rate than legacy offerings. Demand for these kinds of offerings bubble up from below, out of sight from decision-makers. By the time companies act, they may have already been left behind by early adopters.
This phenomenon is known as “submarine disruption” due to its bottom-up impact. One example would be solid-state drives, which historically have been much more expensive than disk-based hard drives, but have grown in popularity in recent years.
The second barrier is the threat that disruptive and innovative solutions pose to existing lines of business. Stakeholders from those business units may push back on any change that could divert resources from them or replace them entirely. It’s especially difficult to get buy-in for innovative initiatives if the affected business unit continues to generate a profit.
Combine those challenges with persistent shareholder pressure to increase revenue and lower operational costs, and it becomes clear that enterprise innovation is a tall task.
Overcoming innovation obstacles
Taking inspiration from Geoffrey Moore’s “four zones” theory on organizational structure, Levitt and Mokrian argue that the best way to practice enterprise innovation is to unify what have traditionally been competing forces. That is, the revenue-generating side of the business underwrites research and development that leads to innovation, which produces new avenues to make money.
The business units that essentially fund R&D may dictate how those investments are allocated and insist all work focuses on supporting core products and services rather than exploring alternatives. To address this concern, businesses should create a framework that facilitates disruptive innovation and transformation while continuing to support the business lines that are currently bringing in revenue.
The pair go into much more detail about what an ideal organizational structure looks like as well as how to insulate companies against submarine disruption. Register for the on-demand webinar to watch the full recording if you are interested.
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