Why Most Companies Fail to Innovate (And How to Fix it)

In 2001, Bill Gates unveiled a prototype of Microsoft’s Tablet PC. He predicted that it would become “the most popular form of PC sold in America” within five years.

Things didn’t go according to plan. The Tablet PC died, and the iPad eventually took over the world.

Where did Microsoft go wrong?

Microsoft assumed that people would use the tablet PC for the exact same things as a desktop or a laptop which is why they simply built a smaller PC.

Steve Jobs did the opposite.

He recognized that a tablet should be a consumer device, not a replacement to a laptop or desktop. The rest is history.

Both Microsoft and Apple introduced the same device: a tablet PC. Both wanted to disrupt the tech world. But the difference between why one company’s product failed while the other’s put a dent in the world lay in their approach.

The Myth of Disruption

Disruption is a buzzword.

Startups want to disrupt the industry and turn into unicorns. Incumbents want to disrupt themselves because the executive board hopes such initiatives will move their share prices upwards.

So they go to war — founders and executives alike. They adopt bold moves and promise to delight customers. PR companies work frantically to publish press releases and arrange for interviews.

But the expected improvement doesn’t come… not at the promised speed anyway. In fact, such initiatives often end up providing unclear business outcomes at a clear (and often huge) cost.

For instance, out of 1000 companies McKinsey surveyed, a mere 8 percent successfully implemented widespread adoption of Artificial Intelligence (AI) within their organizations.

The remaining 92 percent initiated processes but enjoyed little or no success because they missed out on two critical factors.

Factor #1. How does it impact our customers?

When mainstream customers start adopting the entrants’ offering in volume, disruption has occurred. — Clay Christensen.

Disruption occurs when a practice or technology becomes widespread.

The automobile disrupted horse carriages. Netflix disrupted video parlors. The digital camera disrupted film-based cameras (and in turn got disrupted by smartphones).

But none of the companies originally set out to “disrupt the industry.” They simply set out to address the satisfaction gap — the gap between what customers really want and what they’ll settle for.

Customers compromise until they don’t have a choice. But when they come across an option that fulfills their latent needs and gives them what they want, they jump ship without a second thought.

I wanted a reliable cab service but accepted the existing taxi services. Then Uber arrived.

I used Photoshop to design low-quality images because of my poor graphics designing skills. Then I discovered Canva.

I hoped the items I ordered online would get delivered quickly, but settled for the speed of the existing courier companies. Then Amazon Prime changed things in a day.

If you focus solely on your competition and market share, your innovation will be too tiny to notice, let alone give you a competitive edge. But if you focus on identifying satisfaction gaps, you’ll get flooded with opportunities to start a movement.

“Observe. Take notes. Someone’s satisfaction gap is your unique business opportunity.” — George Barbee

However, identifying a satisfaction gap doesn’t automatically empower your company to fulfill it. Which brings us to the next crucial factor which companies that struggle to innovate miss out on.

Factor #2. How should we deliver what our customers need?

Mere investment in R&D doesn’t correlate with market value or growth. What matters is strategic alignment and a culture that supports innovation. — Booz and Company

Companies that innovate successfully do three things right.

a. They work in cross-functional teams.

Siloed functioning is a nightmare for most business leaders. It gets in the way of new initiatives which companies want to initiate, and how.

For instance, the finance budgeting process could delay use-case development. HR might not know the criteria to hire the right person for a new role. IT designs could make it tough to access the necessary data points needed to track the initiative’s progress.

Resolving stalemates turns into a nightmare. Feedback gets collected when it’s too late. Nobody knows why they’re pursuing the initiative or what the outcome should look like.

Eventually, the initiative loses steam and gets shelved, and all the company has to show for it is a waste of resources.

Successful teams, on the other hand, get people from business, operations, HR and IT work alongside each other in pursuit of specific goals. They also invest in training their people to do what’s expected. (Breakaway companies invest almost as much in training their people as the innovation itself.)

When people know what’s expected and how they’ll get evaluated, progress occurs faster.

b. They decentralize decision-making.

Top-down decision-making is another archaic practice that thwarts innovation.

Executives make decisions that sound great on paper, but prove unfeasible on the ground. Any suggestion for improvement that finds its way to them either takes painfully long to apply or gets ignored.

The result is that people follow failed processes just because they’re expected to do so. They feel like mere cogs in a machine. Everyone remains busy, yet nothing gets achieved.

But successful companies entrust people close to the ground with the authority to make critical decisions and use their insights to improve processes.

Decentralized decision-making motivates people, enables teams to organize themselves, and fuels quicker and smarter decisions. People trust the organization, work harder and stick through setbacks.

Put your people in a position to succeed and they will.

c. They encourage a shift in mindset.

Most organizations pay lip service to the need for innovation. But when it’s time to act, they stick to tried-tested-and-outdated processes to avoid the string of initial failures that accompany any initiative.

Successful companies, on the other hand, understand that by doing the same thing, they paint a target on their backs. Hence, they foster a culture where people act decisively with limited information, where they break things and learn fast.

Such a culture demands a shift in collective mindset from risk-aversive to risk embracive, from staying in the comfort zone to being willing to fail and learn fast.

Such a culture can only work when the leaders build a zone of psychological safety for their people to admit their mistakes and learn from them.

A growth mindset is a prerequisite for any business unit or organization that wants to succeed in innovation.

Summing Up

Innovation is not an end in itself. It’s a means to create value.

Trying to innovate without clearly understanding why it’s important and aligning to a specific goal is like walking in a blizzard.

But knowing how it will impact your customers and aligning your team for it’s empowering. You create value for your stakeholders, which includes your customers, vendors, shareholders, employees, and society at large. This value returns to you manifold in the form of long-term profits.