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Business models in nearly every industry are experiencing massive disruption as a result of technology innovation. Indeed, just 12% of the firms that were on the Fortune 500 list in 1955 are still in business today, according to AEI.

But there is good news. Even though technology is causing disruption, companies can draw upon the innovative and nimble ways that startups are being run to deal with disruption and stay relevant.

Large organizations have the capital, the best and brightest of talent, and various other resources available to them to drive business innovation. Yet time and again, they get disrupted by more nimble companies (Amazon v. Borders, Apple v. Motorola). 

Motorola invented the cell phone, yet they got disrupted and are not relevant anymore.

It’s not as though leaders and managers in in big companies are unable to see disruptive changes coming. Nor do they lack the resources to deal with disruption. Yet time after time they get disrupted – why?

Here are some points to consider as to why large companies are so vulnerable to disruption, according to Anil Earla, Head of Information and Data Analytics, Global IS, Visa:

  • Companies need to be brutally honest in assessing their organizational capabilities as candidly as they assess people capabilities.
  • Most companies do a good job of assessing people capabilities but take a biased view and turn a blind eye to organizational capabilities.
  • Great managers can identify the right people for the right jobs and train resources effectively. However, they assume that assigning the right people to projects will roll up all the way up to the company capability level – this is where there’s a huge gap.
  • The key to dealing with disruptive innovation is having a plan in place way before the stakes get too high. When changes are made late in the game, the results can be worse than not making any changes at all.
  • When changes are made too late in the game, there is a chance that leaders can destroy the very capabilities that helped the company succeed thus far – or the very capabilities that have sustained the company and enabled the company’s growth.

Three factors primarily impact successful disruption:

  1.  Resources
  2.  Processes
  3.  Values

Why do so few established companies innovate successfully?

Motorola smartphones vs. Apple iPhone

Motorola not only invented the cell phone, but it also had all the functional knowledge, talented engineers, and deep pockets; whereas Apple had no experience in the telecom industry. Yet Apple disrupted the market with the iPhone.

“My feeling is that Motorola faced disruptive innovation,” said Earla. “They got their people working on new innovative products without thinking a lot about whether the organizational capacities they currently had would enable them to deal with disruption. Motorola required newer organizational capabilities but they got their people working on new, innovative products within the existing organizational structure which were designed to deal with old challenges and not the disruptive innovation that the company was facing. The results are very clear – Motorola is not relevant anyone anymore in the cellphone business.”

Below are some critical questions that Earla believes would have helped Motorola:

  • “Does my organization have the right resources to support this innovation?” Resources supporting business-as-usual – people, technologies, product designs, brands, customer and supplier relationships – rarely match those required for new ventures or new innovative products.
  • “Does my organization have the right processes to innovate?” Processes supporting an established business – decision-making protocols, coordination patterns – may hamstring a new venture. 
  • “Does my organization have the right values to innovate?” Consider how decision-makers decide whether to commit to a new venture. For example, can executives tolerate lower profit margins? 
  • “What team and structure will best support the innovation effort?” Should the organization use a team dedicated to the project within the company? Create a separate spin-off organization? By selecting the right team and organizational structure for innovation – and infusing it with the right resources, processes, and values – companies heighten their chances of innovating successfully.

Selecting the Right Structure for Your Innovation...

If your innovation…

Select this type of team...

To operate…

Because…

Fits well with your existing values and processes:

Functional teams that work sequentially on issues, or lightweight teams – ad hoc cross-functional teams that work simultaneously on multiple issues.

 

Within your existing organization.

 

 

Owing to the good fit with existing processes and values, no new capabilities or organizational structures are called for.

Fits well with existing values but poorly with existing processes:

 

Heavyweight team dedicated exclusively to the innovation project, with complete responsibility for its success.

 

Within your existing organization.

 

The poor fit with existing processes requires new types of coordination among groups and individuals.

The poor fit with existing processes requires new types of coordination among groups and individuals:

 

 

Heavyweight team dedicated exclusively to the innovation project, with complete responsibility for its success.

 

Within your existing organization for development, followed by a spin-off for commercialization.

 

In-house development capitalizes on existing processes. A spin-off for the commercialization phase facilitates new values – such as a different cost structure with lower profit margins.

 

Fits poorly with your existing processes and values:

 

Heavyweight team dedicated exclusively to the innovation project, with complete responsibility for its success.

 

In a separate spin-off or acquired organization.

 

A spin-off enables the project to be governed by different values and ensures that new processes emerge.


CIOs and other practitioners who have been involved with business transformation and disruption recognize that successful execution requires a carefully blended combination of people, processes, and technology. In the second chapter on this topic, Anil Earla will share key considerations for facilitating innovation.

Anil Earla will be speaking at the upcoming 2017 Silicon Valley CIO Executive Leadership Summit on August 24th.