Leaning on Legacy Versus Leading with Change
Here’s a doom and gloom insight for you to lose some sleep over: A recent Innosight analysis found that the 33 year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016 and is forecast to shrink to just 12 years by 2027.
This data point tells us that it’s not enough to lean on legacy. To truly thrive, organizations need to lead with change.
It is because of this need (and a healthy dose of fear) that we’ve seen innovation as a business unit begin to emerge within more forward thinking companies, but I’ve seen wildly different takes on innovation structures, hierarchies and organizational approaches.
I’ve worked with companies that have just one part-time innovation lead and ones with full innovation teams. I’ve worked at and with companies that assign innovation talent to specific business units and ones that don’t.
Over the years, I started tracking these practices and came up with five different types of companies based on a number of factors, including their innovation process, the structure of their organization and the degree of risk they’re willing to take on innovation investments.
At Productable, we lead companies to think big, but act small. Any skeptic can become a transformer, but not by taking a massive jump forward. While my advice may sound trite, I highly recommend taking baby steps to move ahead.
SKEPTICS: Skeptics are at the biggest risk of being disrupted. These are the companies that have yet to embrace innovation at any level. We see this a lot with older corporations that have a strong legacy business, but we know it doesn’t take much for an entrepreneur with a great idea to step in and disrupt even the most established industries. We saw this with Uber when they shook the taxi industry to its core. What next? Is Tesla going to get into the commercial airline space? (Hope the OneWorld Alliance is on its innovation toes.)
How skeptics can become conservatives: The smallest step they can take toward being a conservative is to simply decide they want to innovate and appoint a small committee to begin building a case around the need for it. The goal of the committee should not only be to show the value of innovation but to also create the space for potential ROI to surface. Taking a good look at your competition and analyzing the ways they’re moving away from their legacy business usually lights a fire under the tooshy of any skeptic.
CONSERVATIVES: These are companies that have innovation on their radar but haven’t taken necessary steps to put it into action. Probably because they need better alignment around investment strategy and desired outcomes. But, thinking isn’t doing. The reality is that this group is no better off than the skeptics.
How conservatives can become pragmatists: Set a vision of understanding your industry and do a thorough analysis to determine your gaps and realize your opportunities. Hire an innovation lead and decide if you want to grow an internal or external ecosystem and what degree of risk you’re willing to take. Generally, low-risk, more incremental innovations lean toward internal ecosystems like intrapreneurship. High-risk, more disruptive innovations generally need to leverage an external ecosystem to hurdle bureaucracy and bring in new knowledge. Note the monetary investment in innovation should reflect the level of risk you want to take.
PRAGMATISTS: These are companies that have an innovation leader but no innovation team. They are miles ahead of the skeptics and conservatives, but let’s face it...one person can’t keep up with the pace of innovation. That said, these guys have a chance if they keep pushing forward.
How pragmatists can become visionaries: Start growing your innovation team, and set them up with the right process and the right tools they need to begin the shift from legacy business to scaling new solutions. As a first step, take some early-stage bets on a few promising ideas, build methodology that enables you to run experiments, show traction and demonstrate potential value. All of this must be in place before you can really start to revolutionize revenue streams.
VISIONARIES: These are companies that have a dedicated innovation leader and an innovation team to take on projects. They’ve been somewhat successful at launching solutions, but haven’t mastered the process and want to see innovation ROI catch up to that of the legacy business.
How visionaries can become transformers: Evaluate what organizational design needs to change in order to support innovation, so they can take potential value to real value, creating ROI that’s on par with the legacy business. To innovate at scale, your team needs to work directly with business units and have a sustainable innovation process in place.
TRANSFORMERS: These companies are the ones that have the best chance at solidifying their spot on the S&P 500. They have checked the aforementioned business unit box by assigning innovation leads to specific business units and have put an innovation process in place that results in scaling solutions on a regular basis and transforming their revenue model.
How transformers can get even better: Focus on investment strategy, and growing your innovation portfolio. Look to investing more and more into developing disruptive solutions, so you’re leaning less and less on your legacy business. While the risk is higher, so is the reward.
These five levels of innovation commitment are apparent in the automotive industry, for example. We've seen a lot of disruption in this industry over the past couple of decades, and see manufacturers on the transformation end of the spectrum winning big. Right now, the world is watching to see who will come out ahead in the race toward autonomous driving, and many, many years ago, we watched Toyota - an automotive industry transformer - successfully commercialize the hybrid vehicle with the introduction of the Prius, forcing other makers to shape up or ship out. Response to this innovation varied: Nissan upped its game in driving experience while Ford trails on the innovation spectrum, for example. Once being a pioneer in the automotive industry, Ford has taken a conservative approach to innovation and ended up dropping most of its car models, leaning more heavily on its truck legacy than ever before. I expect that we'll see more and more conservative corporations having to play defense if they don't up their innovation game.
Innovation is it’s own beast to be dealt with, and it’s relatively new to corporations who have thrived on a strong legacy business. It’s going to take some trial-and-error to get it right. Make it your goal to advance just one step, and start talking to innovation experts to educate yourself about how to best leverage an innovation organization - send me an invite on LinkedIn if you’d like to chat.
Rachel Kuhr Conn is an entrepreneur, intrapreneur, researcher, world-traveler and lifelong academic dedicated to making true transformation easier for all. She founded Productable after perfecting her own innovation process for Mark Cuban’s portfolio of startups and is on a mission to help the world’s largest organizations drive fearless experimentation.