When pioneering economist Joseph Schumpeter introduced the notion of an innovation economy in 1943, he argued that evolving institutions, entrepreneurs and technological changes were at the heart of economic growth.1 So how is it that nearly 80 years on, so many companies are failing to deliver on the most basic concepts of the theory?
By contrast, those featured in Boston Consulting Group’s Most Innovative Companies 2021 list (including the likes of Apple, Amazon, Google, Netflix and Tesla) are all credited with bringing customers breakthrough products they were unaware they needed.2 Since then, universal adoption of these products has meant these brands have gone on to become among the most valuable in the world.
More recently, younger contenders such as Bumble, Brewdog and Lemonade have cut through what appeared to be already saturated markets with innovative approaches to their product strategy, leading to critical acclaim and impressive growth.
The following two key factors appear to differentiate these market leaders from the pack.
1. The right leadership
2. An innovation system
The two are symbiotic of course. The leader (often, but not always, the founder) must instigate and promote the right innovation system which, in turn, encourages the organisation to challenge the leader to do things differently and better.
THE RIGHT LEADERSHIP
In ‘Good to Great’, iconic author Jim Collins claims that among the key differentiators to becoming successful are the core values a leader must bring: vision, diligence, humility and perseverance.3 Fast forward to today and inspirational entrepreneur Steven Bartlett credits self-reflection as a critical value for success, focusing on self-analysis and finding insight and underlying truth. Innovation is not just an interest or passion of a great leader, it’s part of their DNA. By extrapolation, it therefore becomes a central pillar of their organisation’s way of working – intrinsic to everything they do.
For example, Netflix’s founder and CEO Reed Hastings includes curiosity, courage, passion, innovation and impact in his company’s values. Netflix’s global growth and multiple pivots is testament to these values. James Dyson identifies his company as different, authentic and pioneering – aspirations that are backed by his industry-changing inventions, like the bagless vacuum and blade hand dryer. Billionaires Jeff Bezos, Richard Branson and Elon Musk are literally taking innovation to new heights with the 21st century private passenger space race.
Meanwhile, newer entrants to the market are creating a mission narrative based on positive social impact. Bumble’s CEO Whitney Wolfe Herd has the mission “allowing people of all genders to make empowered connections in all areas of their lives”, which derived from wanting to make a dating app where only women had the ability to make contact first, a directional change from competitors. She truly did walk the walk when she became the youngest female CEO to take a company public, with the iconic photo of her holding her child while striking the Nasdaq opening bell, sending out an inspirational message about what great leadership looks like.
AN INNOVATION SYSTEM
Even the most inspirational leaders cannot expect to develop a culture of innovation without an innovation system at the heart of the company. ISO 56002, the definitive set of innovation standards, describes an innovation system as “a set of interrelated and interacting elements, aiming for the realisation of value”. We interpret this to mean the internal framework and operating model that allows an organisation to develop and deploy innovation capabilities, evaluate performance and deliver results.
An excerpt of Gate One’s framework for innovation systems is included below, alongside some practical examples we’ve seen deployed in some of the world’s most innovative companies.
|Innovation system pillar||Example of how this is used|
|Innovation woven into the vision, strategy and values||One of Gate One’s values is entrepreneurship, reflecting our desire to challenge prevailing assumptions and come up with new ways of thinking. We put our money where our mouth is with our own internal Incubator, through which staff can generate ideas and receive the advice and funding to turn them into reality.|
|A stimulating mechanism to generate ideas||The Lego Group created the Lego Fan Designer, where anyone can create their own Lego set designs and the winning ideas are submitted for production. Not only does this create the opportunity for creativity to thrive, but it also deepens the relationship between the brand and consumer.4|
|A robust and transparent evaluation process||Merck use an innovation platform to manage its innovation initiatives in a structured way. Ideas can be managed and evaluated effectively, leading to developing and launching at scale.5|
|Governance that ensures ideas align with the innovation strategy and objectives||Richmond Housing Partnership achieved number one in the Dolphin Index by commercialising its digital housing systems and embedding a culture of innovation to align with its corporate strategy.6|
|Culture of experimentation with a ‘fail-fast’ mindset||Noted by Amazon's CEO Jeff Bezos, "Failure and invention are inseparable twins. If you already know it's going to work, it's not an experiment”.7|
|The agility to quickly scale and commercialise ideas||Holland & Barrett is developing minimum viable products along the theme of customer journeys that are incubated from the core trading business. Test apps are being built and tested for adoption and commercialisation with small groups of customers.|
|Recruitment criteria places importance on an innovative mindset, diversity of thought, background and experience||A number of companies, including Apple and Google, have dropped the need for recruits to have a degree, as it was perceived to be a barrier to diversity, with the priority now being to employ the best and most dynamic talent on the market.|
Applying the above to create an innovation system can be the difference between success and failure. This is how you do innovation and successfully embed it into a business with the right leadership.
MAKING IT A REALITY
Back to Schumpeter, who stated that the conditions for growth needed both “continuous innovation” and “creative destruction”.1 Yet even today, many visionary leaders have not invested in the innovation systems that Schumpeter describes.
The most forward-thinking organisations understand that innovation is not just a one-off activity, or a part-time objective, but a continuous process of learning that takes commitment and perseverance.
1 The Theory of Economic Development | Joseph A. Schumpeter 1981
2 Overcoming the Innovation Readiness Gap – Most Innovative Companies 2021 | Boston Consulting Group
3 Good to Great | Collins, James C. 2001.
4 LEGO Fan Designer | The LEGO Group
5 Liberty Global – Creating a Sustainable Innovation Program | Hype Innovation
6 What we do | The Dolphin Index
7 A Harvard Business School professor on how companies like Google and Amazon use experimentation to innovate, grow and improve | Business Insider
At Gate One, we help senior leaders establish and deliver effective innovation systems. This includes strategy and visioning, high-impact innovation Accelerator events, innovation organisation and operating model design, in addition to how to use our bespoke Incubator service for idea generation and scaling.