Are there "Burning Platforms" for Strategic Innovation?
With increasing uncertainty having multiple strategic options help in managing disruption risk. Let's explore some burning platforms to strike up a conversation when considering strategic innovation.
Key Takeaways
Strategic Innovation and Corporate Venturing can provide alternative execution options to address typical business issues and challenges.
As a persistent capability, it can particularly help where there is disruption and potential pathway to be taken is unproven, unclear or unknown.
It can be complementary to a traditional transformation objective and program.
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Setting the Scene
Burning Platforms is a term often utilised to describe those critical issues and challenges that demand immediate attention and action from a company or community ("entity"). It is also frequently used to reassess priorities, drive alignment and catalyse an entity, unifying it around a directional shift or transformation change. Both are usually working to sustain an unfair advantage or increase resilience in an ever-evolving market.
Though they proceed with the best intent and detailed business case, the literature often states that most large-scale transformations fail. Much has been said about the factors that may influence a transformation's chance for success, and frequently, through hindsight, it is usually a combination that, at times, is unique to the entity's unique situation and circumstances.
Common factors that frequently resonate include a loss of focus, too long to deliver, missing capabilities and an inability to prove the return on investment. And, therefore in combination, these factors can tell the story that while one transformation is in flight, another has commenced, compounding the complexity involved in getting things done. Typically, a transformation tries to execute one core option.
Given the fast-paced and ever-evolving market and environment in which most entities operate, more than one executable option may now be required because, despite all efforts, some transformations do not work out as expected. Such a case is a prime situation where the capability to innovate strategically can provide various options in response to increasing uncertainty and potentially accelerate objective delivery.
As with a transformation, a strategic innovation capability's initial and continuing investment must be justifiable. Furthermore, one may need to overcome a cynical perception of innovation being viewed as theatre and discretionary.
Adopting the hypothesis that strategic innovation (including corporate venturing) is a persistent capability for the entity, it is important to tie it back to its everyday issues and challenges, the "burning platforms".
As with all business dilemmas, "it depends"; however, through conversation with those considering strategic innovation as an execution alternative, below are five potential burning platforms to start the evaluation or business case process.
Five potential Burning Platforms for Strategic Innovation include:
Changing Market Dynamics
Advancing Technology & Sciences
Stacking regulator attitudes
Desired talent disengagement
Capital constraints
Let’s explore each at a high level. But it is also worth noting that there is always debate on whether prioritising innovation or any strategy solely from a burning platform is optimal, fulfilling and purposeful. This article is not about the merits of burning platforms; it is only about using them as a tool to start a dialogue.
Changing Market Dynamics
Changing market dynamics is not just about rapid or unexpected shifts in an entity's targeted market(s) but also the slow and visible.
The rapid and unexpected market disruptions are often the cause of technological advances, changing consumer preferences and societal expectations. Depending on one's capability to either be ahead of the curve or even fully explore what the disruption may involve, their impact, the timing of the effects, and an appropriate response are usually unclear, unproven, or unknown. Therefore, selecting only one option as a response can be limiting and problematic as new direct and indirect competitors will emerge in such an environment.
Emerging competitors, disruptive start-ups or even industry incumbents with a more significant capability to leverage and exploit new trends and patterns through innovation and agility will build a variety of innovative and alternative propositions, experiences and business models and release them to the market - with varying degrees of success.
They may also be in a better position or have a greater capacity for a faster rate of change based on market reactions and learnings, further accelerating the long-term viability of an entity's existing value proposition and unfair advantage.
As mentioned, it is not just about the rapid and unexpected.
A persisting market share decline against existing competitors and market incumbents can indicate erosion of an entity's unfair advantage and ability to compete. Potential drivers include a weakening product or service offering, customer experience or market positioning.
Stagnant and declining revenue growth is a pressing concern, particularly as an entity strives to sustain profitability and long-term viability to attract and retain customers, investors, and other stakeholders. And an indicator of broader sustainability concerns.
Lastly, adverse divergence in consumer preferences, behaviours, and demographics may alter a product's or service's relevance and how consumers or customers want to interact, experience, or expect from the entity. Assessable through increasing customer churn, lower lifetime customer value, increasing customer acquisition costs and negative customer feedback. All of which may lead to a fall in future revenue and potential brand equity.
In the face of changing market dynamics, investing in strategic innovation can build a strategic options portfolio that can include viable alternatives to offset, respond to or take advantage of changing market dynamics. The portfolio may also help accelerate or expand on existing priorities by having alternative options ready if previously selected pathways or transformations need to be revised, as with the market change, new data and information are available.
From a day-to-day perspective, it, too, can reduce the level of disruption risk and assist an entity by taking a proactive approach toward systematically monitoring and exploring new and emerging trends not just in target markets but their adjacencies as well as developments in both the technological and scientific fields.
Advancing Technology & Sciences
As mentioned, advancing technology and sciences can cause market disruptions. Not only can it make existing value propositions redundant or reduced in value, but technology advances also often reduce the barriers to entry for new entrants, whether they are technology-based or technology-enabled versions of established players in mature markets. One such sector is "fin-techs." Furthermore, they can open the door to potential new and innovative business models and technological adaptions to overcome existing challenges. However, advancing technologies can lead to increased dependence on obsolesces, particularly in the form of outdated technology.
An increasing reliance on obsolesces poses long-term competitiveness and sustainability risks. Though the impacts may take time, flow-on effects can include
a rising technology cost base,
increasing stack complexity and technology debt,
scarcity of capable resources and reduced ability to drive continuous change promptly.
Increasing cost to secure those with or train talent in held technologies
In the face of advancing technologies and sciences, strategic innovation is the capability to systematically explore, test, learn, and critically evaluate new technologies to rapidly determine their relevance and potential suitability for an entity's situation. And, where appropriate, adopt that technology promptly, whether from a buy, build or partner approach. Applying such an approach complements the traditional vendor and implementation-oriented relationship with third parties.
Furthermore, by gaining access to external innovation sources or investing in new technological disruptions, strategic innovation can secure a long-term unfair advantage by working proactively rather than being reactive to the specific advancement in a risk-reduced environment.
Shifting Regulator Attitudes
Constant regulatory changes are an ongoing need for action for entities across various industries, posing challenges related to compliance, risk management, and adaptation to an evolving legal landscape. The shifts in regulators' attitudes can stem from shifts in government policies, industry regulators, or international standards requiring an entity to navigate complex frameworks to remain competitive and compliant.
Failure to effectively address regulatory changes can result in penalties, legal liabilities, reputational damage, and operational disruptions, highlighting the critical importance of proactive regulatory compliance strategies.
Changes can range from simple to complex and often consume a significant proportion of an entity's annual budget. Entities face this, particularly in heavily regulated industries such as Financial Services, Utilities and Telecommunications. Increasing compliance complexity reduces the entity's ability to prioritise new value creation and focus predominately on safeguarding existing value-generating assets, particularly if tied to aging technologies and delivery models.
A strategic innovation capability can play a pivotal role in helping an entity overcome the challenges presented by a regulatory change, and the productivity of the compliance infrastructure needs to be maintained.
As strategic innovation can improve an entity's agility, it can enable the entity to anticipate regulatory shifts, determine their implications and proactively adjust business practices and processes to remain compliant while working to sustain and create new value. Incorporating a forward-thinking mindset and fostering a culture of continuous improvement can open up possibilities to seek alternative technologies and approaches that could optimise and reduce the cost of an entity's compliance infrastructure.
Given that, particularly in heavily regulated industries, there can be existing organisation capability, it will be essential to determine the effectiveness of an entity's existing regulatory intelligence, risk and control monitoring and automation capabilities.
Desired talent disengaging.
As mentioned, disruption can impact an entity's competitiveness in the market. However, it can also affect an entity's ability to attract, develop, and retain critical and top talent with the needed capabilities to sustain its unfair advantage, drive innovation and achieve long-term growth objectives beyond what it knows today.
With increasing competition for skilled individuals, demographic shifts and evolving workplace preferences present obstacles for an entity to overcome to build and sustain a high-performing and productive workforce.
A strategic innovation capability can address talent challenges by fostering a culture of innovation, learning and empowerment that attracts and retains crucial talent. It also enables companies to rethink established approaches to talent management, development, and incentives to drive engagement and alignment for the entity and the options executed from the strategic options portfolio. For example, it is utilising existing talent to work and set up and implement a new venture business with its own incentive and reward structure.
Typical indicators may include desired talent attractiveness, employee engagement and retention and declining performance in an entity's capability to deliver to expectations, whether it be a transformation outcome, a sales target or operational efficiency. Reflecting on an entity's overall capability mix and past performance may highlight current and future gaps or mismatches against strategic priorities.
A strategic innovation capability and its portfolio of options can also accelerate closing future gaps through various buy, build or partner execution alternatives.
Capital Constraints
Overcoming capital constraints and managing an increasing cost base are critical challenges that most large and complex entities must overcome. It is particularly relevant to today's economic environment, characterised by increasing uncertainty, market volatility, and new competitive pressures. It can also be a symptom of the factors above, such as disengaging talent, increasing dependence on obsolete technology, increasing compliance costs and even transformations and existing methods that have yet to deliver on their stated objectives.
Furthermore, in the face of rising costs and capital constraints, innovation itself is often deprioritised for more certain short-term outcomes. However, investing in a strategic innovation capability can be a powerful tool for addressing cost challenges.
Such a capability can enable an entity to optimise resource allocation, drive efficiency improvements, and unlock new sources of value creation from within, from new constructs and vehicles and the strategic options in the portfolio.
By investing and validating viable alternatives, an entity can shift its business models, operations, and value propositions to thrive in a constraining environment and simplify the business overall. Monitoring for efficiency, investment return from transformation or project delivery, and margin decline may identify the need to invest in alternatives to overcome limitations in the status quo.
Wrapping Up
The above is not an exhaustive list, nor does it represent your entity's priorities or challenges. However, it should be able to start a conversation to determine whether a strategic innovation capability, in whatever form, may fit your needs.
However, one crucial advantage of strategic innovation is its ability to manage situations where only one option, putting all your eggs in one basket, does not adequately mitigate the perceived risk. Therefore, it makes the capability of a candidate for proactively tackling market disruption and disruption risk where the pathway forward is unclear, unproven, or unknown.
Remember, a strategic innovation capability is not a silver bullet for all entities and situations; however, it can be a powerful tool to create options and execute alternative pathways to drive growth, competitiveness, and resilience to overcome increasing uncertainty.
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