How Innovation Is Completely Different in Established Organizations Than in Startups

WE LIVE IN the age of the entrepreneur. New startups appear out of nowhere and challenge not only established companies, but entire industries. Where unicorns were once mythical creatures, the word unicorn now refers to the startups that have a value of at least $1 billion, and there are more than 370 of them worldwide. In 2018 alone, 53 unicorns were added to the list.

Established organizations of a certain size and age, sometimes called “legacy organizations,” are stressed by the entrepreneurial successes. Their greatest fear is no longer their closest competitor, but the startups which, although they live in metaphorical garages and have hardly taken off, have an innovation power that established organizations can only dream of possessing.

Still, no matter what great strides the innovative startups make or how much airtime they’re given by the media, innovation in startups is completely different than innovation in established organizations.

The bad news for established organizations is that innovation for them is much more difficult than it is for startups. The most important job for startups is to focus on their (probably one) product and to subsequently scale up. Established organizations have to entertain many more considerations with their complicated product portfolios and business structures.

The good news for established organizations, however, is that nobody is more likely to succeed than they are in their innovation efforts. Unlike startups, established organizations have tremendous resources. They have money, customers, data, employees, suppliers, partners, and infrastructure -- which put them in a perfect position to transform new ideas into concrete, value-creating, successful offerings.

The Three Tracks of Innovation

Many established organizations commit the mistake of engaging in innovation as if it were a homogeneous process. But innovation in established organizations must actually be divided into three different tracks: optimizing, augmenting, and mutating innovations. All three are important. There’s no one singular type of innovation that’s better than another. And, unlike the startups, established organizations must execute all three types of innovation at the same time.

1. Optimizing innovation: Improving the past. Optimizing innovation makes up the majority of what established organizations already do today. And they must continue doing so. Optimizing innovation is, simply put, the metaphorical extra blade on the razor. When the razor manufacturer launches a new razor that has not just three, but four blades, to ensure an even better, closer and more comfortable shave, only to announce one or two years later that it’s now launching a razor that has not only four, but five blades, that is optimizing innovation. This is where the established player reigns.

No startup with so much as a modicum of sense would even try to beat the established company in this type of innovation. Continuous optimization, both on the operational side and the customer side, is good and important -- in the short term. It pays the rent. But it’s far from enough if the established company wants to continue to be a leader three to five years from now because there are limits on how many blades a razor needs. Each additional blade generates a bit less value than the previous one.

Essentially, optimizing innovation improves upon the past. But startups are inventing the future. To match their entrepreneurial innovation power, established organizations must also prepare for the future and, ultimately, learn how to invent the future.

2. Augmenting innovation: Preparing for the future. To prepare for the future, the established players must engage in innovative augmentations. The digital transformation projects that more and more organizations are initiating can typically be characterized as augmenting innovation. It’s about upgrading the organization and its core offerings and processes from analog to digital. Or, if organizations were born digital, they may have had to become “mobile-first.” Perhaps they’ve even entered the next augmenting phase, which is to become “AI-first.” These augmentations are not small matters. They require great technological conversions. But technology may, in fact, be a minor part of the task. When it comes to augmenting innovation, the biggest challenge is most likely culture.

Where startups have the advantage in building cultures from scratch that fit the times in which they originate perfectly, established organizations, who have had decades or even millennia of history, typically have created cultures in which there’s a preference to maintain the status quo. But if they hope to match the startup innovation power, they will need to transform their cultures to ensure their employees all thrive in constant change.

3. Mutating innovation: Inventing the future. Finally, established organizations also need to invent the future through mutating innovation. The business that maintains or exceeds its level of success 10, 20, and 30 years from now will have mutated. Whatever is currently at the core of the company today, making up the majority of the top and bottom lines, won’t remain the same in the long run.

Mutating innovation requires a bold focus on experimentation into what isn’t yet understood. This is where the successful startups have excelled -- taking what exists and challenging it to either create something new with more value or open up to new target groups. For established organizations, this innovation track is difficult because it essentially challenges their identities. Therefore, mutating innovation cannot thrive inside a company’s core, but needs to be taken outside to the core organization’s edges.

Tools to promote mutating innovation can include establishing labs or X-divisions. Alphabet has excelled in this approach, but other legacy companies are also increasing their experimentations. DIY chain Lowe’s, for example, is building 3D printers that print in zero gravity, thus opening up entirely new markets for themselves. Japanese airline ANA commissioned a global competition via the XPRIZE Foundation to create the future of travel that has now resulted in targeting the next big market: Space.

As game-changing innovation is at the core of these efforts, both startups and established organizations can find common ground in working together. The established companies want access to the startups’ technology expertise, while the startups want access to the established companies’ customers and data, this can be a match made in heaven.

Becoming the Innovation Champions of the Future

Ultimately, if startups turn to scale-ups and succeed, they’ll fast become established organizations with very complex systems, requiring them to change their innovation strategies and entire organizations to remain successful. For Alphabet, even though the company is only 20 years old, this has already happened twice. It moved from a search engine to advertising to spawning off autonomous vehicle and health care companies that may turn into the new cores of the organization.

Similarly, Apple is in the process of transforming from hardware into an entertainment company, and Amazon, perhaps the master of mutation, continuously adds new layers to its complex structure.

For the legacy organizations of the world, they must learn from these examples, dare to challenge their status quo cultures, and ensure that they can engage in optimizing, augmenting and mutating innovation at the same time if they are to become innovation champions of the future.

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Kris Østergaard is a sought after speaker, facilitator, researcher, and expert on innovation in legacy organizations, corporate cultures and exponential organizations. He is co-founder and Chief Learning and Innovation Officer at SingularityU Nordic, a collaborative venture with Singularity University in Silicon Valley. His new book is Transforming Legacy Organizations: Turn Your Established Business into an Innovation Champion to Win the Future. Learn more at sunordic.org.

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Posted by Michael McKinney at 01:27 PM
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