Following Spikes Asia Festival of Creativity in Singapore last month, we spoke to Sandipan Roy, Chief Strategy Officer, Isobar Asia-Pacific to discuss the ROI of innovation.
You discussed the ROI of innovation at the recent Spikes Asia festival. Can you tell us more about your thinking on that?
There’s sufficient macro-economic and corporate data to indicate that innovation either isn’t working or there’s not enough of it happening. Here are some quick data points:
We are living in an era of economic stagnation. Our productivity rates are just about 1%. If the definition of productivity is maximizing output with minimum input, then the delta has to be innovation. But if productivity is only 1%, obviously innovation isn’t a big part of it.
Companies are sitting on massive cash reserves and distributing huge amounts of dividend every year. Trillions of dollars are trapped in low- to negative-yield financial instruments. And yet innovation is nowhere near getting its fair share of this cash. So, there is a lot of cash out there but it’s not finding its way into innovation.
The start-up failure rate is high. The success rate of new products is abysmally low.
There is a Harvard Business School study that says over 84% of CEOs sees innovation as a board-level agenda but only 6% are satisfied with the success of their companies’ innovation.
So obviously, something is going wrong somewhere.
Why are businesses and brands unhappy with the success of innovation?
Fundamentally, there are a couple of problems with the way innovation is being done. One, innovation is more of a solutions-first approach, which means you build solutions that then have to find problems to solve, as opposed to the other way around. Two, even when big companies are doing innovation on the side i.e. skunkworks, startups, innovation teams, they find it difficult to integrate these outputs with their core business. So, when integration between the core and innovation sides results in failure, innovation is always seen as guilty before being proven innocent and in the core business, it’s exactly the opposite.
In spite of this, the disruption of legacy incumbents is inevitable. It’s not a question of ‘if’, it’s a question of ‘when’. It’s not an event called disruption, it’s a process of disruption. Every sector of the economy has already stated getting disrupted, the speed depends on how mature the technology in that sector is — so while technology may impact the speed, it is not the reason for disruption. GPS and mobile has existed for a couple of decades, but that never disrupted anything by itself. Uber had to put a business model around it to disrupt the transportation industry. Streaming has existed for a couple of decades, but Netflix had to put a business model around it to disrupt the entertainment and media business.
So where are companies going wrong?
The thing about disruption is the fact that more often than not, companies are not getting disrupted as much as they are destroying themselves. The crucial factor there is that they aren’t organising themselves around the customers’ needs. When companies are startups, in the stage of disrupting, the focus is always on customer needs for e.g. “how can I meet customer needs?” Once these startups start becoming bigger and better, they remove the focus on customer needs and on to their products instead i.e. “how can I make my product better?” The final nail in the coffin is when they feel their product is better, then they focus on their operations — “how can I make my company more efficient?”
Kodak is the poster child for how a big company got disrupted. But interestingly, they did do a lot of innovation — they improved their print quality, film quality, etc. But they were innovating on the wrong end of the business. They were innovating on their core processes and systems, while the disruption was happening on the consumer side of the business with new developments like Instagram and iPhones.
So, I think there’s a lot of fear amongst legacy incumbents — they dread cannibalization. They think that if they embark on innovation, they would cannibalize their own business. But I don’t believe companies can disrupt themselves. Very few companies have managed to disrupt themselves successfully such as Netflix, Facebook, or General Electric. But by and large, disruptive innovation is best done in another zone of the business and then integrated with the core in a systematic manner.
Is innovation still important to businesses and brands, or should we shift the focus?
Innovation is fundamental not just to success, but to the existence of any business because essentially innovation is about meeting customer needs in a new and different way, and not necessarily a better way. Innovation is fundamental to neutralize risks of disruption to the core business as well as to seek opportunities to be disruptive.
Where do you see the next opportunity for disruption?
I am very hopeful and passionate about healthcare. It contributes to a fifth of every economy’s GDP. Not disrupting healthcare means a big sector of the economy isn’t being impacted. We do see some progress, such as IBM Watson’s AI work with oncologists at Sloan Kettering, but it’s not happening fast enough for a number of reasons — regulatory, safety and security. The other area is education. With increased importance around re-skilling due to unemployment caused by automation, transformation of the education sector is of massive importance.
Finally, what’s your one piece of advice to businesses and brands on innovating?
Ultimately, there’s a demand and a supply side to every business and the successful existence of any business is to organise themselves around newer and different ways to meet unmet customer needs. Strategy is about value creation so identifying areas where value can be created or destroyed and then developing frameworks and mechanisms to institutionalize it is key to long-term success.
This piece was originally published on Isobar’s global blog.