The Innovation Risk - The Bakery %

The Innovation Risk

Andy Kemp

Disruption and change in the world of business is a constant. However the rate of change and level of disruption has increased considerably over recent years and more so in the current climate of a pandemic.

Sustainability, technological developments and digital transformation each carry a set of rapidly changing legislative and regulatory measures which require resource, investment and new processes. This all accumulates and deflects time and capacity for teams to focus on creating growth, which hinders the capacity to generate new revenue streams and diversify products and services. Consequently companies see declining profits and a lack of relevance in the market compared to other players who have consistently explored new opportunities and therefore gained stronger competitive advantage.

There are a plethora of corporations which have demonstrated that short term thinking and a slow response to change leads to failure. The assumption that repeating the same actions will reap greater profits has, in reality, led to extinction. This has been exemplified by the stories of Blockbuster, Kodak, Myspace and countless others. Innovation does carry a calculated risk, investments in some projects may not see a return, whilst  others can be highly profitable. Unfortunately, this risk has deterred many companies from investing in innovation, especially in times of uncertainty where, instinctively, companies narrow their focus on protecting losses. However a mid-to-long term focus is needed to create the capacity for businesses to innovate, differentiate, diversify and grow. Businesses must develop the opportunity for constant reinvention, as true competitive advantage lies in creating a culture of innovation, which as a consequence, leads to successful services, products and revenue streams.

The ability to succeed in the face of uncertainty and disruption lies within business agility. Persistence in exploring and transforming to create solutions and market worthy products is where the challenge lies. Nintendo began by manufacturing playing cards in Kyoto in 1889 and has established itself as a major player in the gaming industry, the corporation has sold more than 5 billion video games and more than 779 million hardware units across the globe. The recipe for success has been a culture of innovation, Nintendo “continues to think outside the box, creating projects that may be smaller in scale but massive in impact”. The organisation demonstrates an entrepreneurial approach, taking on calculated risks by placing a number of small bets across a number of projects, some which have failed and did not translate into sales, and others which have been incredibly profitable. Nintendo’s competitor Atari, however, stopped innovating as rapidly as it once had, and therefore lost market share to both Nintendo and Sega and filed for bankruptcy in 2013. There are no doubt risks in innovating, however there is greater risk in not innovating – companies become stagnant and those that remain agile grow from strength to strength.  The current disruption that we are facing poses major challenges, but it is also a time of opportunity. It has become necessary to take on a fresh perspective and reexamine strategies when consumers are reevaluating their everyday lives and moving forward in a different way. There is value in taking on risk in a measured approach. This allows organisations to remain agile and competitive despite the constant disruption markets face. We look to companies such as Tesla where innovation is weaved into the very fabric of the corporation. While the company does produce innovative products and employs world changing technology to address climate change, Tesla’s entrepreneurial approach is a core pillar of its success. The company has continuously invested across a range of industries and products, ensuring that the products and services are diversified. While the general population may view the company as a car manufacturer or tech company, Tesla has in fact gained pace and expanded its market share, immunising itself against market downturns and disruption. The corporation produces glass roof tiles, batteries, solar panels, computer chips, entertainment systems and tequila.

More recently Tesla announced it has bought $1.5 billion worth of bitcoin, to introduce “more flexibility to further diversify and maximise returns on our cash”. They also announced that they will start accepting payments for products in bitcoin, making it the first automotive company to do so. While the move diversifies the company’s investment portfolio, adopting bitcoin as a method of payment further demonstrates a forward thinking approach around how digital currencies may be used in the future. Tesla is aware of the risks attached to being an early adopter, stating “the prevalence of such assets is a relatively recent trend, and their long-term adoption by investors, consumers and businesses is unpredictable.” This demonstrates an entrepreneurial approach, placing (relatively) small bets across a range of industries, products and payment methods which consolidates their positioning and future.

Through the exploration of innovation giants such as Tesla and Nintendo, and the failures of Atari, it is clear that an innovation strategy is a fundamental pillar to longevity and success across periods of disruption. However, one of the barriers corporations face when investing in innovation is managing the risk in a measured and controlled method, to ensure the company can continue to invest in a sustainable manner. The innovation risk requires a specific approach and methodology, how do corporations manage these to reach winning outcomes? The Bakery will be delving into how corporations can effectively manage these risks in our next webinar where the following points will be discussed in detail:

  • How to construct and build an innovation pipeline
  • How to overcome the obstacles in creating repeatable innovation success
  • How to calculate the ratio of success to failure for your innovation pipeline.

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