By Julian Ritter and Ben Shaw

“Now more than ever, organizations must be ready to react to the new world emerging around them.” This was part of the introduction to a webinar on innovation I recently attended, and a good example of a popular innovation myth that begs debunking: Corporate innovation is not only about reacting to a new world. It is also about actively anticipating it.

Organisations can no longer wait to jump on trends once they are proven.

The myth that corporate innovation should focus on reacting to today’s new world comes from the idea that a big organisation can wait and see and jump on emerging trends when others have proven them to be huge, sustainable and profitable. In the old days, this may have been true. But now new technologies are accelerating trends at such a fast pace that it is no longer possible to maintain growth by only playing catch-up. In fact, trying to play catch-up, i.e. reacting, is the perfect way to be disrupted and lose out. And this becomes obvious when looking at some figures from only 10 years ago.

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8 of the 10 most valuable companies in 2010 had fallen off that ranking by 2020.

Go back for a moment to the year 2010. Exxon Mobil is the world’s most valuable company. 8 of the top 10 most valuable companies in 2010 are destined to fall off the list by 2020. The two companies that will remain in the top 10 are Apple and Microsoft. Apple only joined the top 10 in late 2009 with an approach focussed on shaping the future rather than reacting to a new world, successfully developing new business models but also taking bets that were to publicly fail like iTunes Ping. Microsoft has been around for longer but like Apple focuses on launching new business models rather than merely reacting to what others have proven to be successful. In 2010, it generates hardly any revenue from cloud services; by 2020 these will account for more than 30% of revenues. The S&P 500 looks very different too: nearly 200 of its constituents in 2010 will no longer form part of the index in 2020.

The companies that fell out of the top 10 list of most valuable companies or the S&P 500 are diverse. What they all have in common is that they either didn’t anticipate what the world would look like in 2020 or weren’t able to make the necessary changes quickly or successfully enough. Hindsight makes judging those companies easier of course. And nobody can expect companies and their executives to accurately predict the future. But we can be certain that most industries will look very different in 2030 compared to 2020.

Future backwards thinking imagines possible worlds in 10 years from now and takes action today to be successful in them.

Shareholders should expect executives to structurally analyse different scenarios for what will shape their industry in the long run and to place certain bets to prepare for those shifts – similar to the approaches that have made Microsoft and Apple so successful. That is what corporate innovation must deliver: A future backwards thinking that imagines possible worlds in 10 years from now and takes action today to be successful in that future world. This approach can be implemented through strategic acquisitions of promising digital businesses or the structured building of new corporate ventures.

Current corporate innovation often takes a present forward approach, where today’s world forms the basis for all innovation.

Current corporate innovation, on the other hand, often exclusively takes a present forward approach, where today’s world forms the basis for all innovation. For example, corporate accelerator programmes often focus on business models that help a corporate solve an existing problem within its core business. But that approach often fails to challenge underlying assumptions about the longevity of the core business model, fails to look for innovation beyond the core and does not take into account early emerging trends that have the power to drive significant disruption. This can become dangerous: Anecdotally, the existence of accelerator programmes has been linked to a false sense of security within corporates, an innovation checkbox exercise.

Anecdotally, the existence of accelerator programmes has been linked to a false sense of security within corporates.

The present forward mindset is closely linked to how most large and successful organisations are run in general. Priorities include quarterly budgeting, a focus on short-term profitability and efficiency and avoidance of risk-taking. Growth is driven through short-term initiatives within the bounds of the existing business model. Present forward innovation therefore focuses on incremental changes based on today’s world, business model and processes.

Present forward innovation forms a necessary part of the overall strategy as it can drive efficiency and growth within the boundaries of the existing business. But it cannot be relied on to safeguard a large organisation from disruption and long-term decline. A successful strategy must therefore also include future backwards innovation.

Stock markets appreciate long-term innovation efforts long before these show significant results.

Future backwards innovation has a different focus and needs a different environment. Executives need to change their mindset to face the reality that disruption is threatening most industries and that the right strategy requires long-term future backwards thinking. In a forthcoming study we found evidence for the fact that stock markets appreciate long-term innovation efforts long before these efforts show significant results. Furthermore, the right corporate governance structure must separate innovation units from the core business. This separation enables the innovation team to remove anchoring to the core business in their thinking and allows for the creativity to look beyond the short term.

Selective and well-structured risk-taking must be welcomed and budgeting and success tracking must reflect the difference in the nature of future backwards innovation compared to the existing business. Does this approach guarantee decades of corporate success? Of course not – there’s never a guarantee. But in today’s fast-paced environment, a future backwards approach is the only chance a corporate has, to be ahead of the curve, driving growth through new business models. When implemented properly, it significantly increases the chances of long-term corporate success. Present forward innovation does not.

So what is the takeaway? Innovation efforts should not only be about reacting to a new world emerging around us. True innovation is about imagining possible future worlds and acting now to lay the groundwork for success in those worlds. Can we expect companies to exactly know what the world will look like in 2030? No. But we can expect companies and their executives to make a structured effort to anticipate it, to analyse likely scenarios and prepare for those. Because what we do know is that our world in 2030 will look very different to the world today.

 

Julian Ritter is Associate Partner at Stryber and previously was the cofounder and CEO of Airgreets. Ben Shaw is also an Associate Partner at Stryber and former Director of Programs & Strategy at the InsurTech Hub Munich.

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Stephen Johnston
Stephen Johnston

Sounds like futures work and scenario planning needs to make a comeback. That seems to have gone off the boil recently, with most corporates seeming to favour startup scouting over scenario planning.

Gene Gerrienne
Gene Gerrienne

Are they mutually exclusive? Think big, think crazy in terms of innovation could mean that startup ideas could be part of crazy scenarios / outlier scenarios? What do you think Stephen?