When thinking of innovation, many people typically consider technological innovation in dynamic industries. In particular, tech companies from the Silicon Valley are mentioned by many managers when talking about innovation, for example, Google, Tesla, and Apple. Despite this typical focus, innovation goes substantially beyond technological innovation in highly dynamic industries. On the one hand, innovation comprises non-technological changes, such as new services or new business models. On the other hand, innovation is an important basis for achieving a competitive advantage in mature industries with traditionally limited market dynamics.
In fact, innovation becomes increasingly important in industries that are often considered relatively mature, such as utilities, financial services, and logistics. First, the trend towards digitization provides new innovation opportunities in these industries, and it threatens the established business models of the incumbent firms. Second, the established companies aim at identifying additional avenues for business development and growth in increasingly dynamic markets. Consequently, they put attention to innovation as a central strategic variable. There has always been important innovation activity in nearly all mature industries, but the ‘return on innovation’ is expected to further increase over the next years.
Executives in mature industries need to develop their organizations towards a stronger innovation orientation and entrepreneurial culture. In particular, the innovation guidelines in many companies in mature industries are imposing limits, but the existing standards are often too limited when looking to the future. When a really innovative product or business model comes on the market, there may well be no market for them – why else would they have been created? Many firms in mature industries that experienced a major transformation have been marginalized by competitors, and such an evolution may potentially affect the majority of large established companies in many sectors. Digitization and related trends, such as Internet of Things, connectivity, and Industry 4.0, are only one important reason.
On this basis, the general relevance of innovation has been acknowledged by most firms by now – even in mature industries. However, the full impact of innovation on their business activities, value chain, and ecosystems has usually not been understood in detail. Moreover, many companies are characterized by a ‘wait and see’ attitude. However, taking action is a requirement rather than an option because of major evolutionary trends, such as digitization, are here to stay. Thus, executives need to start innovation programs now to protect their firms’ business and to benefit from the opportunities that are associated with digital transformation and related trends.
However, many large organizations have settled in their comfort zones. In order to change something, they have to leave their comfort zones, and this requires developing an entrepreneurial mindset internally. In order to really change something, companies need a sense of opportunity. This entrepreneurial sense is reflected in the ability to recognize how external knowledge could benefit one’s own work. This ability, as well as the courage to radically change one’s perspective, are the keys to setting trends of your own, especially in light of digital transformation.
Companies in mature industries need to fight the innovation coma. In particular, they need to overcome their focus on avoiding crises in order to defend the competitive status quo with their innovation initiatives. Instead, executives should aim at having an impact by making the world at least a slightly better place based on their innovations. Even companies that traditionally did not excel at innovation do not have any other choice in the context of growing technology dynamics. It is time to actively embrace innovation and to start suitable projects. A passive ‘wait and see’ attitude is more detrimental than experimenting with the risk of failure.
In this regard, executives need to navigate complex contexts. Multiple technology enablers provide industry-specific market applications. As such, companies have to focus on the most critical management challenges. In fact, executives need a clear strategic compass for their innovation endeavors. On this basis, they need to take the first steps of carefully designing the business models for their new solutions. For example, with respect to digitization, new solutions often comprise integrated bundles that combine lock-in solutions and add-on services with established and new products in an intelligent way.
The wide variety of opportunities and challenges requires strategic direction in order to navigate with a clear focus. In this regard, there is potential for improvement in nearly all firms. To further strengthen a company’s innovation capacity, innovation programs need to be promoted from the top of the organization. Thus, the top executives need to use budgets to actively shape the focus and content of these programs. In light of digitization and related trends, there are severe risks for the medium- to long-term competitiveness of established corporations. Many of these companies have no option other than to remain innovative because competing purely on price against firms with superior digital solutions is usually not an option in the long run.
Thus, innovation should not be considered as a means to immediately improve the bottom line by a few extra points. Instead, it should be regarded as a means to shape a firm’s future core business, which often depends heavily on innovation. In contrast, a lack of proficiency in managing innovation could have dramatically negative consequences – up to the loss of a firm’s independence or even the demise of the firm. To avoid these risks and to realize the major potential of innovation, it is necessary to avoid limiting development efforts to just new products. Instead, innovation should more broadly be considered as a continuous, strategic adaptation of the business model. Developing an entrepreneurial mindset across the internal organization is a decisive first step.