A new species entering an ecosystem can be disastrous for the existing inhabitants. The same is true in business. Financial markets are awash with innovation. Fintech rules the day. Established companies, worried that young disrupters may arrive suddenly to turn the industry on its head, have been forced to respond.
Many large firms try to acquire the challengers, whereas others look to beat them with innovation labs, brainstorming committees and incubators. These tactics often result in new ideas being strangled by entrenched bureaucracies, however. Some have even set up venture capital arms to manage their bets. Although this idea can work, the risk-reward dynamics of venture capital operations sometimes sit uneasily within an organization’s higher corporate goals.
The game can appear inherently stacked against big firms. Start-ups seem built for speed and agility. They are motivated to win in the here and now — no matter the cost — whereas large companies have established customers and reputations to consider.
Big firms are starting to shift the odds back in their favor, however. The solution for them lies in playing by different rules — ones that favor scale and leverage their own innate advantages as dominant members of the food chain. If they seem familiar, it’s because these rules have their roots in one of the most creative forces of all time: natural selection. In innovation, as in nature, the fittest are usually the ones left standing. With nature’s example in mind, here are some ways that large companies can rethink the innovation process:
Have patience. Eureka moments are rare. Innovation is more often the result of a steady stream of improvements that follow a hunch or gut instinct, which makes it a function of effort and resource, and large firms should take advantage of their abundance of both. Many will have a large number of innovation initiatives under way, but these are typically haphazard, uncoordinated and marginalized in favor of day-to-day work. Those that take a more strategic and organized approach are more likely to succeed.
Chart a course for change. As with evolution, innovation comes from throwing the dice as many times as possible. But time and resources limit how many throws businesses get to take. Successful businesses manage these restrictions by deciding on a clear direction, communicating it to all parts of the organization and then allowing employees to pursue that goal in different, unconstrained ways. Smart people work for large firms too, and they can be just as innovative as their peers in nimble start-ups when they are given the freedom to think creatively.
Pay no attention to where innovation comes from. Many large firms think of innovation as something they either do themselves or buy. And yet nature is full of symbiotic relationships in which multiple species cooperate to their mutual benefit. Finance is a good example of an industry ripe for cooperation of this sort. Many of the mutual challenges relate to areas such as compliance — issues that pose significant barriers to smaller entrants but in which large businesses have capability.
Above all, the best firms aren’t particular about where innovation comes from. All that should matter is whether a new idea works to improve the customer experience.
Understand success and failure. Nature may be ruthless in condemning failure, but it doesn’t measure shortfalls with quarterly spreadsheets. Nature’s judgment on whether a move is one of success or failure is subtle, qualitative and constant. Measurement of innovation needs to follow the same approach in its regularity, flexibility and precision. Yesterday’s competitor may be tomorrow’s partner, and it might be a better strategy to prove an idea to five customers rather than to grow sales by X percent.
It’s important to be prepared to try, fail and respond by thinking differently about the area of focus. More initiatives will fail than succeed, which is why a granular approach works best. If the direction has been set correctly, failures become steps on a successful journey.
The rules of natural innovation mean that being small isn’t necessarily an advantage. So rather than trying to beat the little guys at their own game, large firms would be better off making intelligent use of their size and resources to fight back.
Steve Grob is director of group strategy at Fidessa, a financial technology firm, in London.
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