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Enterprises don’t need to fear disrupters,
but the disruption in the capital market

A growing number of enterprises feel the headwind from capital markets. Up and coming businesses get valuations far above conventional businesses that may be more than ten times as big. Those warning signals all too often are simply ignored. But that could become a fatal mistake.

Innovation takes 7 to 10 years

Theoretically, enough time for any established market player to respond and fight back. But it isn’t quite that easy. If you look at the early years of the then, new automaker, Tesla, you notice that the established players sold more cars in some metropolitan cities in a month than Tesla sold globally in an entire year. Airbnb sold so few vacation rentals a year that established hotel chains didn’t even notice. Early freelancer platforms connect some inexpensive workers with businesses who had a short-term need in a way that the established recruiting firms didn’t even take the time to understand their business. Now, some people may say this is ignorance. But taking the sheer number of companies and enterprises that have tried something and failed into consideration, an enterprise cannot respond to any brain spark that may happen in this world. However, one group does take that time and effort for a very different reason.

Financial Market Analysts get Extremely Smart


In the past years, top investment firms completely disrupted the financial market. Yet it went almost unnoticed. With far more detailed insights, more intelligent tools, and evolving algorithms, they are able to predict the success probabilities of new market entrants/enterprises to a degree that was unimaginable just a few years ago. CEOs, Board Members, Unions, Investor representatives, and enterprises as a whole will need to shift gear when it comes to innovation. Future-oriented investment decisions drive market caps (value of a company) into new directions. It’s no longer only in the tech space but now also in all other industries like the auto industry, the tourist and hospitality industry, in the business services where a substantial shift is happening: The capital market favors innovation over profitability and size. One newcomer in that market is investment management company ARK-Invest who states on their website “We Invest Solely In Disruptive Innovation”. And the reason is obvious; in the next 10 years, it is more likely that those new and innovative businesses will win, than the established and slowly evolving companies.

Innovation is Entering all Industries

We randomly choose Hospitality, Automotive, and Business Services in our research. You can see how companies with rapid growth into a large industry segment, while there is no or no adequate response from the current market leaders are seen by the capital market today.
AIRBNB
2007 first 3 guests – the company was founded
2009 21,000 guests
2018 300 Million guests
2021 market cap $93 Billion *
2021 Hilton market cap $36 Billion *
TESLA
2012 2,000 or so cars
2015 35,000 cars
2020 1,000,000 cars
2021 market cap $570 Billion *
2021 Daimler market cap  $84 Billion *
FIVERR
2010 Some 1,000 jobs at $5 each
2012 estimated $6 Million
2018 estimated $100 Million in revenue
2021 market cap $7 Billion *
2021 Kern Ferry market cap $3.1 Billion *
at $2 Billion in revenue
* = June 15, 2021

Is the world insane? Then, what was with the market caps of Intel, Cisco, Microsoft, Google Facebook, and so forth. What happened to their competitors like DEC, Amdahl, Zilog, Alta Vista, AOL, or MySpace? Today the disrupters are identified much earlier and get evaluated much earlier to higher levels. Not to help them and not to kill others. The new behavior is only a logical consequence of the desire to be in a rising giant early. The advantage for established enterprises: They get a brand new early warning system. But even then, there is a potential for huge mistakes as you can see in our mini case study below.

Innovate or Get Disrupted

Trying to counter-attack a market intruder that has a disruptive business model or disruptive product, by trying to build something better is not leading to any success. A weak attempt to focus on “Gradual Innovation”, which is nothing but improvement, is definitely not an adequate response either. The only way to counter an innovation from a competitor, no matter what size or age, is by another groundbreaking innovation. Improvement is important – but it isn’t withstanding an innovation. Trying to be better than the new innovator is only an improvement and makes the former leader a follower of the new innovator.

MERCEDES BENZ CASE STUDY
The Daimler AG was an investor in Tesla. But eventually lost interest and sold the shares. Tesla was built on 5 unique aspects: 1) A very fast electric motor 2) New high capacity batteries 3) A big display giving space to all kinds of information 4) A digital experience that went far beyond the proprietary “Board Computer” and 5) A customer experience not seen from the conventional carmakers.
The competition only saw the electric motor and battery. They also did not see the timeline that it took 5 years from introducing the first Tesla to getting it at least a bit off the ground. Chevrolet killed its EV short after launch because they thought the market does not exist. Mercedes ignored it completely, then began to invest and built the EQ series. But it was only the replacement of the motor and tank for an electric motor and batteries.
Only with the EQS, Mercedes finally pushed the innovation button in many ways – BUT – chose not to really talk about it. Still, a market leader by the volume of cars they produce, Mercedes became a follower and did not push their innovation but what Tesla has since 10 years: Motor, Battery, and a “hyper display”. The digital experience and also the customer experience fell behind. And the innovation they made was not even mentioned. When the tough gets going the going gets tough.

Instead of standing their ground and continuing rejecting a large display in or on the dashboard and introducing their innovative head-up display – they competed in a space that has no future for both cars. Instead of drumming up their real innovation, they ignored it because they did not understand what customers want. The innovative MBUX system with a large display mirrored on the windshield, supported by a perfect and unique augmented reality system was not part of the competition. The leader turned into a follower and the capital market recognized it. How is this possible?

Things you can do to correct the current direction

Innovation is everything but a small club of thinking and researching innovators playing in their innovation labs.
1) It needs an innovation mandate from the CEO.
2) It needs a robust innovation strategy that is blessed by the board
3) It requires innovation managers with exceptional talents and abilities – not skills.
4) An innovation process that empowers the team to develop brilliant ideas and then conducts relentless execution.

THE FIRST STEP however is an innovation readiness assessment that makes sure enterprises have the foundation for what is coming.
BlueCallom offers free Innovation Readiness Checks with no obligation at all.

WHY DO WE CARE EVEN BEYOND OUR OWN BUSINESS
Part of that first step is the understanding that by 2050 we will want to change our energy supply, the energy grid, or whatever we can create, we need renewable energies and tap into energy sources we don’t even think of today. We will want to create transport infrastructure for people, goods, and service infrastructure that is far beyond our today’s abilities. We need to have digitized commerce, business transactions, return services, and handling that is far more intelligent than today. We want to make sure that our health systems, health understanding, and sources for health failure are much better structured, organized, affordable, and available. While we could theoretically feed all people on earth even with a 20 billion population it works only if we can integrate those 20 billion people as contributors to our global society, economy, and humanity. Today only a handful of people seriously try to engage in terraforming mars or build a lunar station. That is far too less to be effective and far too less to prevent new monopolies.

Innovation is an extremely counterintuitive business.

For most people outside the innovation space, Innovation means radically new or significantly improved products. Interestingly enough, product innovation is the least successful model. There are various ways to innovate. Highly successful and radically disruptive innovations today come from business model innovation. For instance, in my old company, Computer 2000, we changed the business model for tech distribution from the ground up. With our tiny startup in the 1980s, we took on competitors of multi-hundred million dollars in revenue. It looked like the chance to survive is exactly 0.00%. Today it is a $37 billion business leading the tech distribution in the world. And still, most competitors did not notice the difference and why we could become a global market leader. It was a business model disruption that went unnoticed. Another example is Airbnb. The company caters to travelers’ needs to stay in a more individual apartment or house instead of a small room in a hotel. Hotels, however, perceive the competition as a price war since there are less expensive apartments too. The hotel industry managers, who never understood the competition, fought back with legal acts and did not compete on the service. As a result, they never brought their services in alignment with customer needs. Zappos, an online shoe dealer, changed both. Their business model and commitment to organizational innovation. Soon thereafter, they also started an experience innovation project and became a great example of multi-facet innovations. Let’s explore the big five innovation types.

The Big Five Innovation Types

Obviously, the topic can split even further. Still, we realized that these five innovation types need different approaches, different methods, have different financial or operational impacts, and call for a different innovation team composition.

Product Innovation

Focused on the product side. This is the classic way to innovate and the most obvious to be recognized by the market. However, it is also the easiest to copy and to outperform quickly. Product innovation offers room for different degrees of innovation like a profound improvement of a product that changes the way users work or introduces a radically different product that may change a whole industry segment. Competing with product innovation is oftentimes done by starting a price war, and very quickly, the innovator may be forced to reduce pricing, increase marketing effort, or take a much longer time to grow market share. Alternative products as such innovation can quickly substitute product innovation is the most obvious, the most visible, and the fastest to understand. In the past 20 years, business model innovation, experience innovation, or organizational innovation continuously won over product innovation. Probably one of the best examples is the automobile industry. Companies fight on the product level: electric motor or combustion engine. One company, Tesla, does not lead on the product level but uses one of the hardest nuts to crack, multi-facet innovation.  On the surface, it is, of course, the electric car. But when looking under the hood, not literally speaking, it is the business model innovation, the organizational innovation, and the experience innovation that makes the company the market leader despite having a much smaller production volume. While the global awareness for Tesla was achieved with its super fast and wide-ranging electric car plus its early engagement in autonomous driving, the whole wide-angle view of the Tesla management, including building the charging stations and the gigantic innovation on the battery side, came from an organizational innovation thinking, the way the cars can be configured and ordered and how easy it is to understand what a user gets is part of the experience innovation, the whole pricing pressure, initial losses and ways the cars get sold is part of the business model innovation. No other car manufacture in the world was so innovative on all fronts and took the automobile no longer as a single product – but a part of holistic user experience. Another example is Microsoft. It’s no news that Microsoft never invented a single product. The operating systems, DOS, and Windows have been acquired, and so were all the office products, the SQL server, and other tools acquired. So one could say Microsft is the least innovative tech company in the world. All they did is integrated all the products and sold them under their own brand. Many are still not fully integrated – 30 years later. Instead of putting all the resources, time, and money into building the solution, they needed to fulfill the vision they acquired. Microsoft’s real innovation is to create a user experience through integration and seamless exchange of data that nobody else saw as important. Nobody else did as well as they did. The experience innovation did not need a product but an architecture. The other innovation was a business model innovation. From the very early days, they committed not to build their own computers but pushed computer manufacturers to use their software. The non-compete commitment from Microsoft was compelling enough to get an exclusive commitment from the computer vendors. And knowing that all the office apps will need their operating system was good enough to give the OS away for peanuts. Business model innovation and experience innovation were strong. Understanding how the company operates and what they offer was so confusing for most competitors that nobody cracked their dominance – till today. As we will discuss other innovation types in the following posts, you will see the difference of those innovation types relative to the ‘good old’ product innovation. You will see that product innovation is not going away – it’s still an important part of an innovative business. Product innovation is becoming a commodity – but is no longer a differentiator.

#ProductInnovation

In the next parts, 2, 3, 4, and 5, we will go into the other innovation types details. Here is just a quick snapshot to put the above in context.

Experience Innovation

The most effective way to innovate, only recognized by users and communicated through advocacy. Experiences include general customer experience all the way to entire entertainment solutions such as theme parks or highly interactive restaurant types, and lately, space travel. Experience innovation is very hard to copy and very hard to compete with. Usually, it takes highly creative minds to piggyback on a concept and develop a different model that makes the experience unique.

#ExperienceInnovation

 

Business Model Innovation

The most successful way to innovate with a big impact on the industry. Typically, business model innovation goes hand in hand with experience innovation. It is the hardest innovation type for any competition to copy, even to compete with. Changing a business model is hard enough for a business to develop – it takes years for the competition to emulate and follow. Business model innovation has been the most successful type of innovation in the past 20 years. The biggest number of business model innovations emerged from the US.

#BusinessModelInnovation

Organizational Innovation

Innovation within the organization, mainly for process acceleration, customer experience, resulting in increased profitability. It is tough to copy (if not done by consultants), making it very hard to understand from the outside and even the inside. Organizational innovation often requires a deep injection of new processes, different employees, and often a different management team. In large organizations, hundreds or even thousands of people may be affected by organizational innovation when they cannot unlearn and learn new ways of conducting their work. One question quickly rises to the top: “Is innovation killing jobs or the wrong team killing innovation?”

#OrganizationalInnovation

Structure Innovation

Supra-Enterprises, companies bigger than 25,000 employees, seem to have the hardest time creating truly ground-breaking innovation. In particular, in the western world, Top Executives, boards, Investor representatives, Unions, Industry associations, local government representatives, and maybe more have to agree on creating a new leadership structure to bring innovation forward. Inventing disruptive solutions often require major changes in the current teams as skills and experiences may shift significantly. Disruption in the automotive, energy, food industry requires knowledge and deep experiences in those industries not only on the enterprise side but also in external structures. A startup as a small company can go under the radar – a public company cannot.

#StructureInnovation

Learn more about the General Innovation Type Differences.

The Quest for more Innovation

In the last five to ten years, pretty much any business and any government was pushing for more innovation. But if somebody was asked “How do I innovate? Tell me to step by step”, there was no tangible answer. When I was asked that very question, in particular, the “step by step” part, it daunted me, that there was simply no answer that could satisfy this question. Tens of thousands of consultants help people to “open their mind”, other use the “design thinking” model to process ideas – actually very well. But the question remains: “How do you CREATE those innovative ideas on-demand” in the first place – so you can then process them in any of the models!

Innovation on Demand

Innovation was an accidental event – a combination of many instances, experiences, and the brain pushed out an idea. In some cases, those ideas have been big enough to warrant starting a whole new business. But today, we have a situation where we don’t want to have an accidental brain flash leading to a possible innovation. In times where we have a crisis, we actually would want to have solutions on demand.  But as long as we don’t even know how ideas are created, we are far away from creating ideas on demand.

Maybe the Biggest Shift in Innovation History

Neuroscientists helped me understand that human beings are not really creative – we can only COMPOSE ideas from past experiences, from whatever we saw, heard, felt, and so forth. All our daily experiences are actually get associated with existing experiences and create some interesting IDEAS of which we actually don’t really know. The biggest idea machine is our mind when we sleep. There is much to explain but the net of it is: We are not creative and we create ideas by the millions. So what is the problem?

Our historic evolution, our culture, our education, and our brain itself poses a problem: It is conditioned to allow only the most obvious and the least demanding ideas to pop up. Only one in a trillion or less is actually making it from our right brain to the left and stimulates communication between the two, which forms a “thought” that may break through all the other barriers. And once we understand that process, we have the foundation for creating innovation on demand, like we create a house or bridge or something as simple as a paper plane.

Deep Innovation Design – PoC

in 2016 we began our first careful attempts to help startups to come up with disruptive business models. What was thought to be a “one of a million” chance, turned out to be better than 50%. Half of the startups in that, for us historic batch, we’re creating a disruptive model – on demand. They created what we call a “Disruptive Moment”. Disruptive moments are the part of a business model that will push competitors to change their course in order to catch up with these startups. It was the first version of a Prove of Concept (PoC). In the past two years, we went deeper into the “mechanics of our mind”. We learned what we needed to actually DO to play with our billions of neurons and synapses to form those innovative ideas. After two years of work, we found an early concept that works well enough to come up with an innovative solution, whenever we want. It was in itself an innovative concept to create innovation. We called it the “deep innovation design method”.

Four ‘T”s, one “M” of Deep Innovation Design

1) TALENT
We need people who have a “talent” for creating innovation. Very much like others are talented to play music, paint pictures, drive race cars, cook amazing meals, create fashion, help others or simply entertain people. Talent is the ability to play with ideas, seek experiences, are least pre-conditioned, reject conformity, create their own rules. We have millions with that trait. Almost any toddler has that talent until we press them into a societal system that unknowingly suppresses that talent, but it is still there – hidden. Do you remember: “Don’t be so childish”, “you are a dreamer, be more realistic”, “Focus, learn your lesson, you need to repeat it tomorrow in class.”

2) TEAM
Like a music band, or a football team, innovation is a team sport – if you do it alone you end up waiting for accidental ideas. And one of the most important players in the “Innovation Play”, are the affected people: Customers, users, victims. If you start the game without them you are doomed to lose. And if your actors (innovators) are all of the same trade, you will lose as well. Diversity is the magic formula. Understanding that part makes it also very obvious why enterprises CANNOT be innovative. They try to surprise the customer with their ideas instead of co-creating an experience. And their ideas come from a monoculture called R&D centers, engineering teams, or other experts. And finally, the decision-maker, who may not be able to ‘experience’ the idea in their mind will need to reject the idea. It almost couldn’t be worse. We learned that ‘innovation’ is one of the most counterintuitive activities humankind is conducting – yet mother nature is pushing it out wherever she can.

3) TRAINING
Our brain is an old machine with lots of upgrades. More upgrades than any other organ in our human apparatus. It is also the most adaptive body part. To overcome some of the 300,000-year-old habits and some even go back 5 million years, we need to train our brains. I often wonder how long our children would crawl if we never help them to walk. We need to train our bran in opening a treasure chest that is heavily guarded by about 200 million nerve strands or Axons, our so-called Corpus Callosum.
With good talents, a great team, and well-defined techniques we actually can. And that is the beginning of “Innovation on demand”.

4) TOOLS
You know the saying: “I think my head explodes”- right? And that is always when you reach your capacity limits of learning or thinking, or comprehending – or – innovating. In an interesting way, it’s all the same. For the last 12,000 years, we experience this more and more often and we have built more and more tools and ever bigger teams to deal with exactly that problem. We have yardsticks to measure distances much easier than computing them in our brain. We build cranes big enough to lift the weight we need to lift without architecting it over and over again. And today we developed tools, methods, and finally technology that shall help us to go through this rather demanding process called innovation. And guess what – it is no different from what athletes perform in their contests, musicians on stage, race drivers on the street or on the water, and so forth. Both athletes and innovators, can easily loos one or two Kilo of body weight, during such processes. When I processed complex ideas or learned entirely new things rather fast, I fall asleep, equally exhausted than after a 20 km run (12.4 miles). Our brain can consume massive energy! That energy consumption is of extreme importance to know when we try to get groundbreaking ideas out of it.

5) MARKET
Here is when the rubber meets the road. There are an estimated 100 Million patents in drawers that have been never used. It shows that the initial value of innovation, even patented is exactly ZERO. The value is only and exclusively created when an idea gets executed, brought to life, and into the market. The value then grows with the size of its distribution. We can be as innovative as we want – if we cannot make it available to a market or the market is not interesting, the value remains to be zero. In the end, sales channels, creative marketing, service and support organizations, transport (and if it is the Internet) are key to the success of any innovation. This success is seen best when we look through the macroeconomic lens: A company creates a product. It is sold through distribution and dealer channels, it is shipped across all oceans, it is serviced locally, maybe education organizations provide training, maybe consulting companies help apply the product. At the same time, new ideas pop up from companies that build add-ons to that product and create even a market extension. All of a sudden a company with 5,000 employees actually creates 50,000 indirect jobs. That innovation is clearly valuable. The worst of all versions is to create a valuable idea, get a patent and then not only not use it but prevent anybody else from creating it. It is a crime on society – stealing an advancement, just based on self-interests.

How to start from here

On April 23, the BlueCallom Group who worked on the Deep Innovation Design Model for four years is providing a free online seminar (webinar) and explaining how the Deep Innovation Design Model works, where you can get trained and how you can create innovation on demand. The World Innovations Forum is providing training programs and support in emerging countries and is able to provide stipends for talented innovators to learn how to be extremely innovative.

 

In the past four years, we were attempting to understand how innovation is actually created and analyzed how we were building startups that became ten years later billion-dollar companies. We were also exploring how other startups that became billion-dollar companies created their ideas and successes. We found striking insights about the difference in innovations power between startups and established billion-dollar enterprises – who were startups themselves just a few decades ago. Also, we explored the difference between invention and innovation.

From invention to innovation

The automobile evolved from INVENTION to INNOVATION. The disk brakes moved from INVENTION to IMPROVEMENT. The first electric BMW car made it from INVENTION to an EXPERIMENT, while Tesla made it to INNOVATION without even having it invented. A self-driving Mercedes S-Class made a 1,000-mile journey from Munich to Copenhagen and back in 1992! It was already using computer vision and computers to react in real-time. The autonomous car achieved speeds exceeding 110 miles per hour (175 km/h) on the German Autobahn with nearly no human intervention for 95% of the distance. It drove in traffic, executing maneuvers to pass other cars. Also, here, all the necessary inventions have not been taken to innovation but ended up in drawers. Analyzing the reasons is equally complex and interesting but exceeds the purpose of this post. We will do this in another post.

Invention vs. Innovation

In most enterprises, we may find hundreds if not thousands of geniuses with fabulous ideas but no way to go. There is this massive difference between INVENTION and INNOVATION. INVENTION is the act of having and documenting an idea, maybe building a prototype, and perhaps even being granted one or more patents. Unfortunately, the invention is of no value at all. Bringing such an invention to market, scale the business or business unit and make it a global success is when we talk about INNOVATIONS. The full cycle of invention, prototyping, market validation, product-market-fit, funding, marketing, testing, producing, launching, more funding, branding, selling, customer engagement, servicing, business model optimization, more funding, going international all the way up to being a global player in that segment is a successful innovation. Innovation is neither a product nor service nor the marketing or sales effort to make it big – INNOVATION is the result of a series of activities, engagements, teams, and market conditions that lead to groundbreaking new solutions for a larger group of users.

The value of innovation grows with its distribution!

The good news, pretty much every large enterprise on earth is struggling with being innovative. Even enterprises that came just two decades ago with highly innovative solutions to market, now struggling to be innovative. The bad news, more innovative startups, than ever before in history challenge any size enterprise. The question arises: Is the lifecycle of the innovation, the future lifecycle of a company in general?

The five biggest mistakes

  1. The company never developed a comprehensive plan to identify the brilliant ideas, which their employees already created, usually based on their experience with the problem. Inventors are mostly not communicative managers but more introverted engineers!
  2. Seeing the brain spark of an invention already as innovation and wonder why it is not successful in this highly competitive global economy.
  3. Completely ignoring the fact that innovative businesses require a lot of funding to become that innovative business everybody is dreaming about.
  4. Running innovation alongside and hoping for magical growth and market disruption.
  5. Management teams never asked themselves where these ideas are actually coming from and how they can be harnessed.

What to do

  1. A great starting point is to see the act of invention as an ignition point that triggers a comprehensive process of innovation.
  2. It is far better to develop trust in the “Innovation Potential” of the company’s employees than looking into startups.
  3. Rationalizing that any major innovation is also a significant investment, and there is no difference between a startup and a global enterprise.
  4. Creating a serious effort to include customers into the innovation process and stop looking at what the competition is doing.
  5. Stop hoping that employees think like startup entrepreneurs. If they would, they would be long gone, and if they stayed, they much better contribute to an enterprise-level innovation process.

We will share more findings and more insights as we progress.