What drives leaders to invest in transformative innovation?
Transformative innovation is about exploring new business opportunities outside of the traditional field of a company. Out of the 3 types of innovation, transformative innovation is the most challenging one in existing organisations. It is so different and foreign to the typical culture and practices used to run a business that it is bound to trigger the immune system of any organisation. Even leaders who want their organisation to become more innovative often struggle to adequately support transformative innovation. So, if you plan to introduce or increase the volume on transformative innovation in your organisation, expect pushback to say the least. Still, some leaders manage to overcome those obstacles.
In this article I want to highlight three powerful drivers behind the success of leaders who managed to create a capability for transformative innovation within their organisation.
So what really drives leaders to invest in transformative innovation?
Fear of disruption
Fear can be a powerful driver. Before the proverbial burning platform is actually there, fear of disruption can be powerful enough to challenge the status quo.
Listen to what Piyush Gupta, CEO of DBS Bank, has to say on the banking industry for instance.
“It’s clear that the impact of technology has been huge on several industries: entertainment, books, music, photography. The reality is that banking is the most digitizable of all industries because we only deal in bits and bytes. And therefore it is not a big stretch of imagination to figure out that this industry can be totally disrupted by the new technologies.” Piyush Gupta
When Piyush Gupta became CEO of DBS in 2009, he brought this fear of imminent disruption of the banking industry by fintech and large tech companies with him. A genuine fear that banks would soon become irrelevant to their existing customers, as obsolete as CD stores to music listeners.
“Why are libraries not as popular? Because people did not want the libraries, people just wanted the information. If Google can give you the information a hundred times a day, then you don’t need the library. Similarly for CDs. CDs are a means to listen to music, but if we can get it on Spotify or iTunes, why do you need a CD?” Piyush Gupta
The power of that fear enabled the organisation to embark on a profound shift to become a tech company. DBS’s desire to be like the tech giants was made explicit in the acronym chosen for the transformation program, GANDALF: Google, Amazon, Netflix, DBS, Apple, LinkedIn, Facebook.
With this shift, DBS managed to stay highly relevant to its customers, and capture more value from them. Those transformative efforts pushed them way beyond the traditional banking business model. Not only did they go further than any other bank in their “digital transformation”, they also explored new business models to become an ecosystem and platform company.
“I keep coming back to this general idea that banking as a separate activity could disappear and get embedded in the things people do,” Mr. Gupta says.
10+ years of investment in all types of innovation have led DBS to worldwide recognition as the World’s Best Bank. And this all started with the courage to face and act on their fear of disruption.
You can find in The Invincible Company another case where the main driver was fear. It is Chinese Insurance company PingAn that heavily invested in transformative innovation from 2008 onwards. And it was driven by fear of a dangerous dependancy to financial services made explicit by the global financial crisis.
Hunger for growth
A deep hunger for growth can also be powerful enough to overcome internal resistance and align an organisation on transformative innovation goals.
Sber is a recent example of this hunger for growth in the banking sector. In its 2020 investor day, Sber announced an ambitious plan that could be summarised in the below equation:
In Russia, SBER = Sberbank + Amazon + Uber + Netflix + Deliveroo
In all those areas, Sber currently invests to become a major player. For instance, they announced their intention to be one of Russia’s top-three online retailers by 2023.
That huge ambition is fuelled by the conviction that shifts happening throughout the world in commerce, urban mobility, entertainment, food delivery, etc. will also happen in Russia, and that Sber would rather capture that growth than leave it to Chinese or US big tech companies.
“Either Russia can feed foreign ecosystems or we can develop domestic ones. (…) If I was a shareholder, and we didn’t do this — with all our talent and experience — I’d be asking why.” Herman Gref, Sber CEO
Awareness of unforeseeable future
I sometimes ask leaders these provocative questions: “Do you think your organisation could disappear in 10 years? And do you think that a startup that you declined to invest in could take over the whole market by then?”
It seems ludicrous… But then isn’t it what happened to John Antioco, CEO of Blockbuster (1997-2007)? As his Wikipedia page now explains, John Antioco is best known for declining an offer, from Reed Hastings, Netflix’s CEO, to purchase Netflix for $50 million in 2000. He also refused a proposal from Netflix to run Blockbuster's online presence.
I warned against hindsight bias in “You can’t pick the winners at the start, in transformative innovation… and pro basketball!” so I won’t dwell on this idea here. My point is that we live in an uncertain world where CEOs can’t predict the future 10 years ahead anymore.
And guess what? Futurists and strategy experts can’t either.
“The development of mobile phones will be similar to PCs. Even with the Mac, Apple has attracted much attention at first, but they have still remained a niche manufacturer. That will be in mobile phones as well.” – Nokia chief strategist Anssi Vanjoki
For reference, Nokia chief strategist Anssi Vanjoki made that quote to a German newspaper in Q4, 2009, i.e. 2 years after the iPhone was launched and less than a year before Nokia would deep dive towards customer irrelevance.
When senior leaders realise that they can no longer plan ahead with confidence for the next 10 years - or even the next 10 months in some business environments - then this awareness of an unforeseeable future can trigger a shift in their leadership. One that makes them see the investment in transformative innovation - and the ability to adapt quicker to an emergent future it enables - in a totally different light. “Kind of like a cheap insurance policy” to quote one of my clients.
Some of the leaders I work with in the pharmaceutical, energy and banking industries have been investing in transformative innovation to create that internal capability to experiment and adapt quickly.
Why transformative innovation?
Most corporate innovation divisions gravitate towards the more concrete part of the work. For instance, focusing on improvements to innovation process, governance, structure, etc. That’s important, but that’s not all that’s required. The success of any corporate innovation division is also dependent on senior leaders’ implicit assumptions about disruption, growth, and predictability of the future.
To be successful with transformative innovation, a corporate innovation division also needs to create the space for senior leaders to make those assumptions explicit, and align on why they need transformative innovation in the first place. Without this shared understanding by leaders, the risk is high that efforts to introduce or turn the volume up on transformative innovation will hit a roadblock. For instance, when a difficult capital reallocation decision is needed. The risk is also high that innovation resources would not resist for long the gravitational pull of the core business towards efficiency innovation, and far away from the initial transformative ambition.
Whether the main driver for transformative innovation is one of the three I mentioned here or any other one, the important part is that the question of “why transformative innovation?” should be addressed by senior leaders. After all, leadership support is the most critical enabler for transformative innovation, and a corporate innovation division can’t expect to be supported by leaders who don’t know if and why they should invest in transformative innovation.
Only when senior leaders are aligned on the “why” and when this “why” not only comes from the head, but also from the gut and the heart, then enough energy is created to overcome the organisation’s natural pushback on transformative innovation.
And with that kind of leadership support, navigating all blockers along the way gets a lot easier!
