There are various reasons why established businesses fail at innovation, but one stands above all: CEOs don’t really want a new business model.
True innovation, not the incremental type, brings forth new approaches and business models. If you are an upstart, that means you are probably creating a new business model. For an established company, it means coming to grips with the reality that your existing business model is going to become irrelevant; if you don’t act first.
But, no matter how many times we see an established business drop rock bottom because its leaders failed anticipate and change with the times, CEOs of other businesses are content with maintaining the status quo. Seems like learning from others doesn’t fit their mindset.
Cannibalization is a strong word thrown around by consultants, heck it’s a word most CEOs don’t use because it literally means that they should blow up their existing business model, the one that powers their cash cow, with the strong possibility of losing everything. Ask most CEOs about what they think about emerging business models and technologies, and they’ll quickly ask about what competitors are doing; only then will they become curious.
In other words, they won’t act unless they feel threatened. This is the status quo bias in action, one that dominates even the smartest and most experienced CEOs. So, what should they do?
Though most CEOs inside established companies sound the horn of “innovate or die”, many don’t walk the talk. I was reminded of this on my recent trip while talking to my uncle about his experience in the IT world. At the end of the 90s he saw the potential the internet would have in the gaming industry, which would cascade to the world of IT. He acted quickly to put together a team, which included another uncle, that would develop custom network software for businesses.
They built their business on licensing their software and their software development firm grew quickly. But a funny thing happened along the way, just like Microsoft, they failed to adapt to web development. Their cash cow was based on licensing their software, not on online subscriptions. They assumed they could maintain their customers on traditional software; today their business no longer exists.
Of course, they are not the only ones. Many well known and iconic businesses have disappeared because they failed to “transform themselves”.
The bottom line is that as CEO, you must find the revolution before it finds you. How? By looking far and wide in adjacent industries, exploring new business models and emerging technologies, acquiring insight from people outside your business domain and by experimenting relentlessly with new approaches.
Every company in every industry will need to transform itself at some point, the questions is “why wait until you have to?”.