Garth Saloner is Philip H. Knight Professor and Dean of Stanford Graduate School of Business
For large corporations there is a huge difference between being aware of innovation, and learning to embrace it.
From the loss of iconic retailer Sears to Amazon, or the music industry’s slow response to Apple and Spotify, the strategy literature is replete with examples of industry giants who have lost their leadership positions as a result of a failure to innovate.
Whether these companies are complacent, obsessively focused on perfecting legacy products, processes, or services; they are trapped by routines that support the status quo or rely too much on feedback from existing customers rather than prospective ones.
Once-household names often succumb to the forces of creative destruction. Meanwhile, rivals, often new firms, unencumbered by legacy, propel themselves forward by embracing disruptive technologies or business approaches.
Being ensconced in Silicon Valley, deep in the nexus of these changes, it would be easy to say this is a myopic view. However, the evidence is present for all to see and innovative new companies are reaching scale in traditional markets at a torrid pace.
The meteoric rise of companies like Uber founded just seven years ago, whose recent fundraising valued it higher than both Ford and General Motors, as frothy a valuation as that might be, is a case in point.
Companies must be aware of the need to put innovation first, but even more crucially they must aspire to this practice. It must be a conscious mindset, imbued across all operations, not lip-service.
Even in our own organisation, we are mindful that too often “the cobbler’s children have no shoes,” so as much as we strive to study and teach innovation, we also openly embrace it in our programs and methods.
It isn’t always easy to resist the temptation to focus excessively on defending positions in which we are already strong. It’s similarly challenging for a school that prides itself on doing everything well to take risks with new ventures that might fail. Yet we must take risks in order to lead.
Stanford Ignite, our international part-time programme, for example, is a new initiative, and one that reflects our own needs to adapt to the changing landscape of business education.
Grief of change
The psychology behind how legacy organisations and their management teams react to innovation is fascinating. The risk and change it presents to those in senior positions, instigates something akin to the business equivalent of the Kubler Ross Grief Cycle.
The speed at which management teams move through this cycle marks how successful a company is at embracing innovation. Those who quickly accept the inevitable disruption it brings, and progress to find a positive way forward in this new landscape, are those which thrive. Unfortunately, some languish in denial and anger for too long, and if there’s one thing innovation doesn’t have time for, it’s those who fiddle while Rome is aflame.
Education of senior staff is the key here. A management team which understands the core tenets of the innovation process, and knows it is neither a linear short term ‘fix’ or a threat, is one which will harness it effectively. Companies must go into the innovation process with their eyes open from the outset, taking time to understand the theory behind it and why it may rankle with traditional operations and processes.
Therefore, only by teaching the benefits, pitfalls and processes of this at the most senior level, will it successfully take root inside big companies. While outsourcing innovation to specialist teams is a good way of bringing focus and unique skills to bear, it shouldn’t happen in isolation from the core business or without the firm backing of decision makers.
Don’t outsource risk
Incubators, labs or innovation arms can add huge value, however many management teams view them as the corporate equivalent of a risk management exercise, keeping them at a safe distance from the parent company.
Innovation thrives only when it is embraced, not excluded, and the new ideas and approaches which it can germinate need to be given oxygen in order to succeed. The most precious thing for every startup is scale. Why deny your own innovation access to this by over-cautiously hiving it off at a distance?
Only by teaching and reinforcing such a mindset within large companies, will innovation be provided with the foundations to take root, allowing it to spread out into more tactical aspects of the enterprise.
Given necessary licence, innovation will evolve outmoded legacy processes, services and products, however, this must start with education at the uppermost corporate level.