So is it only startups that can really innovate?

It has often been observed that the Royal Mail couldn't have invented email, Blockbusters would never have created Netflix, or HMV couldn’t have invented iTunes.

So is there anything fundamental that prevents the incumbents from reinventing their world?

I've seen evidence that incumbents struggle to respond to massive changes. Back in 2000 I helped run a future strategy event for a video chain. The big issue was clear. At some point, online streaming would hit them. When and by how much was not clear, but none of the leadership team denied it would happen.

Despite this, they were collectively unable to break away from a mindset that their response had to include keeping a high street chain of shops full of customers. Their ultimate demise took longer than I expected, but to my mind, the outcome was clear as soon as they failed to act on the evidence that their market was fundamentally changing.

So what stops old world businesses thinking like the startups?

I think there are a few barriers to real innovation in the face of a changing world:

  • The accounting angle: businesses find it impossible to reconcile the cost impact of innovation in their legacy assets and investments. It’s the ‘sunk cost’ fallacy
  • The strategic angle: if strategy is the overlap between what you should do, what you are able to do and what you are prepared to do, then strategies get limited by capability and risk aversion
  • The mindset angle: a natural tendency to think that what delivered past success must be part of the answer for the future
  • The Canute angle: that they command some kind of control over their customers that stops the tide, or put more palatably, a failure to realise that startups don't care about past loyalties. This is because they know that if they can disrupt the world well enough, loyal customers will be prepared to radically change their behaviour.

Can existing businesses act like startups?

As we help businesses redesign their businesses to address radically new worlds, I think we can point to a few things that have helped businesses think and act like startups.

  1. Be prepared to destroy your existing market. If your market is ripe for major transformation, do it. If you don’t, someone else will.
  2. Go back to customer basics. What is it the customer of the future really wants, needs and values? While there are rare occasions where the customer doesn't know best, in most situations a really dispassionate and fresh look at what future customers will want can act as a strong driver for change.
  3. Forget your current business. Don't start from the premise that your future business has to build on previous operations. Fujifilm spotted the change in imaging and photography and have built an information business three times the size of the imaging business, while Kodak did not.
  4. Pilot and incubate. Piloting and incubating gives early exposure to new ideas and protects against the tendency of big businesses to kill new-born ideas.
  5. Learn from failure and back the winners. Not every idea is a winner, so don't bet the farm on your first idea. Instead, be prepared to act like a venture business – testing and finding the winning ideas, then backing them and scaling them.

This won't be easy for many people in the business, so my final piece of advice is to seek out the disrupters from within and beyond your business. Get people together who have the raw capability to change your world.

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