I’ve been reading several papers (old and new) as part of my research to apply for PhD programs related to Corporate Innovation and Strategy. Many of the insights and highlights are still very relevant, especially for people from the industry like me.

One of the core challenges of innovation in established organizations, especially large enterprises, is the tension between optimizing for Business as Usual (BAU) and pursuing riskier innovation for future growth. I would like to explore several insights and quotes from these papers.

Established companies or institutions are often very good at sustaining innovations that provide solutions to their customers and align with their business models. These incremental improvements are essential for short-term performance and maintaining customer relationships. However, as Christensen and Bower (1996) argue, “Neglect of disruptive technologies proved damaging to established… [companies] because the trajectory of performance improvement that the technology provided was steeper than the improvement trajectory demanded in individual markets.“

By focusing on just existing customer needs, companies often fall into the trap of stagnation and repetition, making them vulnerable to disruptive players—usually smaller companies—that emerge in growing or competitive markets.

Disruptive innovations often offer more straightforward or affordable solutions that initially appeal to a niche market. Sometimes, customers don’t need more features; they just need simpler ways to do things. While they may not seem threatening initially, Christensen and Bower (1996) found that established firms often “intensified their commitments to conventional technology while starving efforts to commercialize new technologies—even while the new technology was gaining ground in the market.”

The challenge lies in the resource allocation process. Established firms, driven by customer demand and clear market signals, prioritize sustaining innovations with immediate revenue potential. As Christensen and Bower (1996) note, managers tend to back projects “where the demand for the product was assured.”

Projects focused on disruptive innovations often need more apparent market demand and face significant uncertainty. This lack of immediate returns and risk aversion inherent in many organizations—the larger an enterprise is, the more risk averse it is—can lead to underfunding and neglect of these potentially game-changing opportunities.

How can companies escape this innovation trap?

1. Embrace Ambidexterity: Companies and Institutions must develop an ambidextrous approach, simultaneously pursuing evolutionary and revolutionary change. This involves creating separate structures, processes, and even cultures that support incremental and discontinuous innovation. Tushman and O’Reilly (1996) emphasize the importance of building “ambidextrous organizations” that manage incremental and discontinuous innovation. However, they acknowledge that achieving ambidexterity is organizationally challenging. It requires creating separate structures, processes, and even cultures to support these different types of innovation. This echoes Christensen and Bower’s (1996) finding that spinning out independent units can effectively enable established firms to succeed in disruptive technologies.
2. Challenge the Resource Allocation Process: Managers need to recognize the inherent biases in resource allocation towards BAU and create mechanisms to champion disruptive innovation. This might involve establishing separate innovation units, ring-fencing resources, or using different evaluation criteria for radical projects. It is interesting to read Furr and Eggers’s (n.d.) papers highlighting the “motivational bottlenecks” that hinder corporate innovation. They argue that companies need specific triggers, such as opportunity or purpose triggers, to motivate a shift from a focus on BAU to the pursuit of more radical innovation. For instance, “opportunity triggers” involve a proactive approach to identifying and capturing new opportunities, even if they don’t align with the existing business model, which might trigger allocating the right resources for future growth.
3. Cultivate a Culture of Experimentation: Fostering a culture that encourages calculated risk-taking, tolerates failure, and embraces learning from experimentation is essential for exploring disruptive opportunities. However, I often see companies do small-scale experiments only for things “near to their BAU.” and don’t explore far enough outside their existing market and expertise. Gavetti and Levinthal (2000) argue that organizations frequently engage in “local search” based on their existing knowledge and experience. While this can be effective for incremental improvements, it can limit a company’s ability to explore radically new ideas or technologies. This connects to the concept of disruptive innovation, as these innovations often emerge in areas far from an established firm’s existing market and technological expertise.

By acknowledging the tension between optimizing for the present and investing in the future, companies can position themselves for long-term success in the face of continuous change. The hardest part of implementing this is having leadership with a strong vision and consistently pushing the boundaries forward. Have you ever been involved in an ambidextrous organization? What do you think about sustaining innovations in your companies? Share your thoughts in the comments!

#innovation #disruption #corporateculture #strategy #leadership