Why the empowerment of innovation is now a universal imperative
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Why the empowerment of innovation is now a universal imperative

Kenny MacIver — December 2020

Thought leaders debating at the recent Global Peter Drucker Forum — a virtual event for 2020 — explored ways in which the obstacles that hold back much innovation can be overcome to address the momentous challenges faced by business and society.

The Global Peter Drucker Forum innovation panel:

Yoshikuni Takashige, chief strategist, Global Marketing at Fujitsu Limited
Alex Osterwalder, business model innovator and co-founder of Strategyzer
Falco Weidemeyer, senior partner, Ernst & Young
Darja Isaksson, director general of Vinnova, Sweden’s innovation agency
Howard Yu, professor of management and innovation at IMD Business School
THE BIG CHALLENGES FOR INNOVATION
Q: Against the pressing need for action by leaders everywhere — on climate change, on wealth inequalities, on diversity, on business responsibility, on managing the fallout from the global pandemic, and more — the world needs innovation more than ever. However, there are still too many factors that limit or even obstruct innovation efforts. What are the main challenges for innovation today?



Yoshikuni Takashige, Fujitsu
We are now experiencing a very uncertain, disruptive moment. The outbreak of Covid-19 is clearly having a huge impact on us all. One result is that digitalization has been accelerated everywhere; digital is now becoming the default mode of many aspects of living and working. Moreover, we are facing very serious global challenges such as climate change and our aging populations. To overcome such challenges, creativity is needed more than ever before.

 

“Yoshikuni Takashige, chief strategist, Global Marketing at Fujistu Limited=
Yoshikuni Takashige, chief strategist, Global Marketing at Fujitsu Limited


However, one big challenge is to change the mindset and behaviours of people towards innovation. Often we are all entrenched in our existing ways of doing things. Our businesses attempt innovations but often fail or lose direction. So the question I would ask is: how can business leaders influence and bring together the power of their people to deliver the innovation that is badly needed?

Alex Osterwalder, Strategyzer
For me, three key things are holding back innovation. First, a lack of understanding that there are different types of innovation: efficiency innovation (making things better); sustaining innovation (creating new value propositions) and transformative innovation (focusing on new business models). So it is not a single thing.

Everybody can do efficiency innovation but not everybody knows how to build a new growth engine along the lines of, say, Amazon Web Services. That is a different ballgame and requires a different discipline. So we need to start treating innovation as a professional discipline. Too often, people think that innovation is just business as usual. Rather, innovating and exploring [new growth engines and business models] is something we need to learn and become experts in.

But the biggest challenge here is that innovation lacks power. So while there are plenty of people practicing innovation [in hubs, incubators, etc] they’re not empowered. Indeed, having ‘innovation’ in your job title is usually career suicide today because your reporting lines are likely to be multiple layers away from the CTO and CEO. So what we really need to do is give innovation power and stop what a lot of people call ‘innovation theater.’

There are a lot of innovation activities out there, a lot of smart ideas and projects in almost every company, but those great initiatives lack power, they just don’t make it to the top of the organization.

Falco Weidemeyer, Ernst & Young

“Falco Weidemeyer, senior partner,  Ernst & Young=
Falco Weidemeyer, senior partner, Ernst & Young


When innovation is talked about, I often observe that it’s very limited to the technology aspect, whereas it actually has a much broader focus. Another issue is that innovation is not a value in itself; it’s actually a means to an end, especially in times like these when we are experiencing the need to pivot from management to leadership, from efficiency to direction.

There is also a tendency to talk of innovation in a very inflated way: I’ve even seen fashion companies talking about their next collection as innovation. Therefore, innovation needs to be put in the right light. There’s also an underlying misconception of innovation, that innovation is a field in its own right. And actually it’s at its most successful when it’s woven in [to the rest of the organization] rather than set apart as island.

Howard Yu, IMD Business School
When we speak to senior executives or board members, we find there is a lot of innovation activity happening around companies, both in terms of sustaining innovation and transformative, disruptive innovation. What companies struggle with these days is not a lack of opportunities to try things out that are potentially disruptive; rather they find it awfully hard to scale. And the ability to scale is key because without scaling all these disruptive innovations essentially become side hobbies of the company.

So it’s quite common for us to see companies with R&D laboratories working on something with disruptive potential, who use Lean Startup methodologies to experiment with things or who have corporate venture funds that try to buy up startups. But somehow, all this initial seeding of disruptive innovation cannot scale and, in turn, can end in the ultimate demise of the organization. At IMD Business School, what we are trying to do is benchmark and compare companies that are able to scale disruptive innovation versus companies that fail to do so.

 

“Howard Yu, professor of management and innovation at IMD Business School=
Howard Yu, professor of management and innovation at IMD Business School


Take the auto sector as an example. Every auto company knows that the AI self-driven car is a capability that they need to build over the long run. They also know that electric vehicles are really important and [so] they need to be working on some form of shared [electric charging] scheme. Yet you see that some companies are able to make progress and scale up such capabilities while others simply try it out on the side but never really commit themselves to such innovation having a tangible impact. So I think the ultimate question today for companies is: how can they scale up these disruptive innovations so that they can stay relevant in the future?

Darja Isaksson, Vinnova
The main problem right now is that innovation is not solving our societal challenges quickly enough. If there’s anything that we need to learn from the Covid-19 pandemic, it’s that the challenges we’re facing today are global, they’re complex and they’re deeply systemic in nature. We need to acknowledge the fact that right now we’re all part of a system that’s perfectly designed for the outcomes that we’re currently getting.

And that shows in the serious vulnerabilities we’re now getting in anything from how we set up global value chains to how we manage resources — not least of all planetary resources like food and biodiversity. Indeed, even a lockdown of big parts of society in 2020 resulted in a mere blip on the radar of our global carbon emissions.


The science is clear: the next nine years are our ‘decisive decade’ — not the rest of this century or millennium; this is our make-it or break-it decade for the future of human society. It’s not about saving the planet; the planet will be fine without us. But we have some real and harsh deadlines.

If we’re to succeed, we need to turn to scientific-based targets of cutting emissions in half for the next nine years. We need to use the technologies, the knowledge, the innovation opportunities available and then we will have effectively set ourselves on a path where our children can thrive. But the alternative will be abysmal.

So I would just say the bad news is that we are in the middle of an existential crisis for humanity, we have already run out of time, we’re not on track and we can no longer afford wasteful business models [that operate] outside of planetary boundaries. And then there’s the good news: we already have most of the technology and most of the knowledge we need.

 

“Darja Isaksson, director general of Vinnova, Sweden’s innovation agency
=
Darja Isaksson, director general of Vinnova, Sweden’s innovation agency


Industrial transformation has always happened in an exponential way, and it will this time as well. Therefore, we’re also in the middle of the biggest business opportunities since the first Industrial Revolution.

The problem right now is we’re not getting the innovations we need that can solve real challenges. We have the people, we have the ideas but we don’t have the innovation system through which the innovations that we so urgently need can thrive.

SOLUTIONS TO INNOVATION BARRIERS
Q: If many innovation initiatives at large organizations are either misdirected, tokenistic or unsupported, what can be done to unblock innovation pipelines?


Howard Yu, IMD Business School
Companies can run R&D laboratories all day long and have all kinds of fun with innovation initiatives on the sidelines but, ultimately, what transforms an organization is making tough choices on priorities across the entire company: you have to let go of the core business of the past and move resources to building up a future [based on your innovation].

In that sense, what is required is for the top team to have a shared viewpoint so they can seize on opportunities [coming out from] the R&D lab or an individual entrepreneur, and then scale them big. To do that is quite tough because for one thing the top team, the board needs to have difficult conversations. There might be some firing and hiring that needs to happen. They need to prioritize knowledge over personal loyalty and to base that on a diversity of thought. Indeed, the best CEOs oftentimes are ‘insider-outsiders’ — those who understand the organization very well but, at the same time, have an outsider’s perspective. So when they scale a disruptive innovation, they are able to make the tough choices and let go of the past.

Those are the prerequisites that I see in organizations that are able to scale innovation versus those who engage in all these innovation initiatives with nothing to show.


Yoshikuni Takashige, Fujitsu
Traditionally at Fujitsu, many innovation initiatives have been closed within the relationship with a particular customer where we’re co-creating new solutions. But such innovations don’t necessarily scale. And maybe we should have been thinking of involving more diverse participants in such developments.

So one idea [for solving innovation barriers] could be to make business models much more open to outsiders, even inviting in competitors. So that kind of open approach is probably helpful in scaling many new ideas. For example, Fujitsu recently established a joint venture with FANUC and NTT Communications around the creation of a manufacturing cloud to accelerate digital transformation in the sector, and we expect many more participants on this platform.


Alex Osterwalder, Strategyzer
The solution [to innovation barriers] is we need to be open to things we don’t know. We don’t know which business model is going to succeed, we don’t know which project is going to work out. If you’re at an established company just ask yourself, how many $100,000 innovation projects does it take to produce a mega-success? Data from early-stage venture capital [investment] would suggest only four out of every 1,000 such investments have big success.

So the biggest thing in innovation that you need to understand is that you can’t pick the winners. When you are managing something, you have a clue of how it will turn out, largely because you can plan. In innovation, you have no clue, so how can you hope to manage that? A great example is [the engineering and appliances company] Bosch and how they are able to do this at scale. Just like every large company, Bosch built an innovation accelerator but [the difference is] this one is systematically churning out successes by not picking the winner. What do they do to enable that? They let the winners emerge.

 

“Alex Osterwalder=
Alex Osterwalder, business model innovator and co-founder of Strategyzer

They have invested in 200 projects over three years, taking away barriers by not selecting the projects to invest in. Anybody [at the company] can start a project and get a small amount of money and time. But after three months, each team has to show some evidence [of potential innovation viability], such as interest from customers. Based on that, Bosch then kills 70% of the projects and backs the remaining 60 teams with €300,000 over six months before killing the same percentage.

So the winners don’t get picked, they emerge because only the teams that have evidence that can show an idea could work get follow-up investments. And that is the kind of openness that is needed everywhere. We need to put away our arrogance that with innovation somehow we know which idea is going to win. Because in doing that, we’re actually going to waste a ton of money.

What we need are leaders who empower these kinds of systems — that we now know work — to let this take off, to open up and say innovation is different from deciding, say, where to build a new factory. Because we can’t pick the winners, we let the winning ideas emerge.

If you build that system, I can guarantee you are going to have winning ideas that emerge. Venture capital has done that for decades, which is why they create the startups that disrupt established companies. These established companies have all the assets to create disruption themselves, they just have to put them to work with the right system and then they can solve the right problems. So innovation is not a ‘black box’ anymore; it’s just a question of choosing [the right] leadership to make this happen.

Darja Isaksson, Vinnova
So what does it take to make innovations that transform society into a sustainable one? The research into systems innovation tells us that what’s important is a need for directionality — having a clear, common goal to enable innovation that contributes across a wide spectrum. Only with management [capable of making] tough decisions, only with management that dares to let go of previous business models, can actual transformation begin to happen.

It has to do with making bets on new and quite different business models, which you can’t entirely plan for. So you need to have the ambition to lead new value chains and you need to do that by pulling together ecosystems around shared visions.

The pandemic we are all living through is a really good example of this because it shows that when we have a clear goal we can take responsibility. It has enabled individuals, organizations and countries everywhere to make new, tough priorities and bold decisions, and it has mobilized innovation across a wide spectrum.

So innovation leaders are the ones who can lead from the future by creating strong alliances and clear and common visions of a society that we all want, not the one that we currently have.

A concrete example comes from Sweden where the steel industry has simply decided that [its current practices] are no longer viable and asked itself: ‘how do we create a steel industry that’s fossil-free throughout the entire value chain.’ That’s a really bold ambition that no single company can create by itself and involves the industry really putting priorities, money and people where its mouth is and creating that kind of collaboration.

So in practice, when we go through the exciting and exhausting journey of finding and refining our [business] offerings to the world, we need to make strategic priorities in line with the science-based targets for a sustainable world. That means integrating climate strategy into [the organization’s] vision, mission, value proposition, product, services and R&D roadmaps — at the very least.

Yoshikuni Takashige, Fujitsu
We do need to have common goals for our society. In a global survey [conducted by Fujitsu], 92% of business leaders said that delivering value to society is very important for their business in order for it to be sustainable in the mid- to long-term. So the goals of society matter to us as a business but it’s often difficult to change mindsets to work for society and spend more resources on contributing to the common good of society.

At Fujitsu we debated our purpose this year and took a deep dive into what we can do for wider society and our multiple stakeholders. We launched a new purpose, that is: ‘to make the world more sustainable by building trust in society through innovation.’ And to activate that we also launched a completely new way to work we call Work Life Shift that allows our people to choose their best way of working, whether at home, in the office or in a satellite facility, with the aim of unleashing their creativity and improving their well-being. Those commitments are just examples of what the private sector can do to contribute more to society.

Innovation is about developing new ways to solve the very human concept of ‘a job to be done.’ So it’s very important to be purpose-driven and human centric, to empower your people and create ecosystems across company and industry boundaries that solve these new jobs in a unique way.

• This panel was hosted at the 12th Global Peter Drucker Forum on October 30, 2020 and moderated by Johan Roos, chief academic officer of Hult International Business School

(Photography: Yasu Nakaoka (Yoshikuni Takashige); David Payr (Alex Osterwalder))

First published December 2020
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