What we see in the last ten years certainly are large companies failing. Companies like Kodak and blockbuster. Have you step back and think about it?
It’s not apparent why that should be, and when you ask people why that’s so, they typically say, well, “they’re being disrupted”. But disrupted by what? disruption means, “The emergence of a new set of competitors, a different way of doing business, a different technology that allows you to do business in different ways”.
But the exciting thing is that the pace of change, the speed of disruption is increasing and in the face of that disruption, those changes what we’re seeing are big companies failing. disruption is everywhere Finance, Food Industry and even in politics these days.
Three ways of disciplines
There are three very separate disciplines that they have to be good at.
If they’re going to be successful at dealing with disruption, they have to have a process, a discipline for developing new ideas, what we call ideation. They have to figure out which of those ideas are likely to be successful, as a business, what we refer to as incubation and then the third discipline is that they have to, once they have a, an idea that looks like it can be successful, they have to have a set of processes that ensure that, that that new business gets the assets and capabilities they need to grow.
Here’s the problem. Some companies are pretty good at incubation. They’re perfectly willing to spend money to come up with new ideas. The problem comes when these businesses begin to scale, and it takes serious resources.
When that happens, suddenly these senior executives, who are all in favour of innovation realize that to develop new businesses, they may have to sacrifice some short term profits. That’s when many CEOs suddenly step back and say, maybe not.
Story of Amazon
let’s focus just for a second on Amazon. Amazon was founded in 1994 in 25 years; they have gone from zero revenues to $230 billion with more than 600,000 employees. They compete in businesses as diverse as online shopping, but they also produce television shows. They have an Amazon web service, which is the largest cloud provider in the USA.
They are in a variety of different businesses. How have they done that? They have done it by having meticulous processes for ideation, incubation, and scaling. They have a process which they call the PR FAQ F.A.Q. process. This is a process that encourages people throughout the organization to come up with ideas for new businesses. If the concept is deemed to have potential, then they immediately move into an incubation phase. They form small teams. these teams are responsible for coming up with a minimal viable product to put in front of a customer.
If that idea turns out to look potentially successful, they immediately move into a scaling mode where they provide resources for it.
Amazon escalates it and they get senior management attention. One of the things Jeff Bezos says is that most companies don’t do experiments. They don’t take significant risks.
What Jeff Bezos says, “If you place big bets, just a couple of those big bets succeeding will pay for all the small failures”.
The beautiful thing about companies like Amazon and Walmart and some of these other companies is that they do these things at a very rapid pace. That is, they don’t take forever to decide whether a new idea is potentially valuable or not. The problem is that in big exploit organizations, the processes are typically very measured, very slow and that frequently can kill innovation. So when you do these things, you need to do these processes rapidly.
Is this a leadership issue?
This is a leadership issue. When we look at companies that have failed, have been disrupted, it’s not because of technology, they fail because they didn’t have leaders who could play multiple games simultaneously.
Almost all companies today are interested in innovation, but the thing that they often are not sophisticated enough at is making this distinction that we’ve been talking about between ideation, incubation, and scaling. The best of these companies have managers who understand that it takes all three of these disciplines.