Using innovation to unlock trapped value
Management teams must develop architecture that embraces innovation throughout the organisation
Most management teams talk about the need to unlock the value that is trapped inside their current business models, supply chains and wider markets.
The best way to do this is to innovate. Indeed, innovation in Asia-Pacific is a non-negotiable discussion. But don’t assume there is a “one-size-fits-all” plan for everyone. Companies need to be globally connected but locally relevant. When a company thinks about innovation, at the forefront of managements’ minds should be: it’s not just about new technology for technology’s sake. It’s about how you can use what the technology gives you to gain a competitive advantage in a long-term, sustainable manner.
For established corporations, implementing successful innovation is extremely difficult. Protection of the existing business, risk of cannibalisation, highly structured internal processes – these are the reasons why incumbent companies are vulnerable to disruption from new entrants whose nimbleness make them a threat.
To be fair, both disruptors and incumbents have their challenges. It’s the disruptors, not the incumbents, that are quickest to capitalise on emerging technologies. However, disruptors struggle to scale up and expand while incumbents are often handcuffed to their core businesses. They cannot divert investment without risking the existing profit streams.
Further, because of the cost of capital, a typical corporation cannot afford the risk that comes with true innovation – where failure is a real possibility. Start-ups stand in complete contrast to this, and they have an additional advantage of offering very powerful incentives, such as risky, yet appealing capital gains to employees.
So what do management teams of incumbent companies need to do to become flexible enough to innovate?
They need to focus on how they can transform their core business to drive investment capacity. This requires developing more competitive cost structures to improve flexibility and increase profits in the existing core business model. Solutions range from using zero-based budgeting to embracing cloud technologies and intelligent automation.
The next step is to grow the new business as independently as possible, with asset-light models that include digital marketing and analytics to gain fresh operational insights and to improve connectivity with clients via the web and variable cost structures (crowdsourcing, cloud, partnerships).
A new idea is only as good as the viability of its implementation. Here’s where scale comes into play.
Management teams should be developing architecture that embraces innovation throughout the organisation. An innovation hub or partnership that churns out a new solution risks failure if it doesn’t have support across the board: from the C-suite and the IT room to the entry-level, customer-facing staff.
That means companies need to pilot wisely – by providing enough leeway and making sure not to financially constrain the speed required to deliver innovation.
Unlocking trapped value is key to transforming a business of yesterday and today into one that is successful in the future.
Gianfanco Casati is group chief executive for growth markets at Accenture