Why leaders are the key to digital disruption

Why leaders are the key to digital disruption
It turns out that the key to handling digital disruption is not through your website, your data or your team of geeks - it’s you. Drawing on a global literature search combined with indepth local interviews, Dr Jane Cherrington uncovers the critical role of leaders in managing innovation

Here’s an anecdote for your next dinner party. When electricity was first introduced to steam powered factories, way back in the 1870s, how long did it take for the improvements in productivity to kick in? Five years? Ten years? Twenty? 

It was 30 years.

Why? Because that’s how long it takes for a generation of managers to retire. Despite the logic of the new technology to improve reliability, safety, stability and power in a factory setting, it took the passing of a generation for the systems, methods, training and customer expectations to kick in. In the relentless march of technological change it's often easy to forget that the human factor may in fact turn out to be one of the most pressing limitations.

Fast forward to today and think about the influence of the Internet in retailing. The logic of ‘clicks’ over ‘bricks’ in the retail sector is overwhelming. Convenient, frictionless, with a theoretically limitless inventory, e-shopping is unquestionably the way of the future. And yet how is it that e-retailing occupies just seven per cent of New Zealand’s retailing industry? Could it be the human factor – that managers and customers are still hooked on the old system? Will it take 30 years before the tipping point is reached?

The human dynamic in managing innovation is one of the topics covered in the first Quarterly Briefing, a new executive research programme set up by Tangible Media (creators of this magazine) and brand consultancy String Theory. The Briefing, Managing the Digital Tsunami, from which this article is taken, focusses on the massive impact of the internet on business. 

The key finding: that the way executive leadership thinks about things is critical. Now there’s a surprise. Okay, so it’s not that unexpected, but it is important to know what actually makes the difference. It could, for instance, just as easily have been location or R&D spend or industry type that makes one company survive digital disruption and another suffer. Instead, what came out strongly is the primacy of management and their attitude. 

Take, for example, R&D, which is often a (mistaken) proxy for innovation.  An annual PwC monitor of the world’s 1,000 largest corporate R&D spenders identified that higher spending was no guarantee of greater financial returns. It was the ten most innovative companies that had financially outperformed the world’s top spenders, despite putting significantly less into R&D.

There is a critical distinction between innovation and R&D. The latter is a source of innovation, sure, but innovation is  a management practice, an ethos and a culture – in other words, it's a leadership issue. 

Orion Health's Ian McCrae is one whose company has turned cloud tech into a business.

An example of the difference between innovative leadership and R&D is the story of Lucozade. Originally ‘Glucozade’ and developed for illness recovery, Lucozade was sold in a glass bottle with a yellow cellophane wrap until 1983, when falling sales prompted the management to innovate.  A typical R&D response might have been to reinvent the taste or change ingredients but a more prosaic route was chosen: to rebrand as an energy drink to shift the brand’s associations away from illness. After the rebranding, between 1984 and 1989 UK sales tripled. Then in 1990 Lucozade Sport was launched as the UK’s first mainstream sports drink. The brand now has a reported 17 per cent value share of the energy category and remains the UK’s category leader. The range has since been extended to include a nutrition bar and carbohydrate gel.

The story of Lucozade is worth observing, for the very reason that the company didn't change that much. No billion dollar research programmes here. Innovative leadership pulls on every lever in the business, even if it is as simple a lever as packaging. 

When companies really understand and invest in innovation, the results are very powerful.

Back to PwC for a second. In 2011, an ongoing international C-Suite survey by PwC on innovation flagged a sea change in executive sentiment; a move from rating better penetration into markets as the greatest opportunity for growth, to a belief that innovation was the key to new revenue and cost reduction opportunities. 

Fast-forward three years and it is no surprise then that the most innovative companies are predicting growth rates three times higher than their least innovative peers and almost twice the industry averages.

Readers of this magazine probably don’t need convincing about the benefits of innovation. But the how remains as elusive as the Holy Grail. The good news is that there’s a robust literature on the subject and a growing consensus on what executives can do to improve their innovation management. The Briefing’s first report has identified eight clear determinants of success for innovation to flourish - and they all rely on great leadership. 

Here's what to do:

First, integrate innovation into your company’s strategy. This includes a thorough and honest analysis of how the operation is run and asking informed questions about what can be improved and where opportunities might lie for the business, beyond what is successful now. 

Second, focus on getting executive-level support. Given that disruptive innovations describe a different value proposition and – in the short term – will usually see reduced product performance, strong support is required at a senior level. Permission to ‘fail’ is also required, as long as failure is properly risk-managed through robust filtering and assessment processes and has the learning looped back into ongoing activities.

Third, you need specific policies, investment and processes, not just wishful thinking. The combination of the right attitudes with correct process will create a culture in which innovation can flourish. The literature is clear about the use of project management tools. Don’t neglect the benefits of clear timelines, resources, task allocations and checkpoints to provide focus.

Fourth, get the best people. The interview subjects in The Briefing frequently talked about the importance of highly skilled people and deep expertise. There is a danger that you can hire experience and get the same-old same-old; experience does not always count as deep expertise. Nor is it shorthand for upskilling. Successful organisations are ones where constant learning and training are valued.

Fifth, foster collaborations and promote the use of interdisciplinary teams. Innovative leaders  also look for partnership opportunities both inside and outside the organisation.

Sixth, keep the new ideas flowing. Successful innovators create processes for maintaining an ideas pipeline – especially from external collaborators.

Seven, test your ideas in the marketplace using tools that accelerate innovation, such as rapid low-cost prototyping and getting products into the hands of the end user for feedback into iterative design processes. ‘Fail fast’ is a common mantra.

Finally, figure out how to solve real-life problems. So many inventions fail because they they are ‘a solution looking for a problem’. Sucessful  innovators start by getting out and engaging with consumer experiences to identify problems.

Looking back through that list you may be surprised to see a lack of tech buzzwords, such as ‘cloud computing’, ‘big data’ or ‘3D printing’. 

There’s no doubting the importance of all these disruptions and the report covers them in detail. But here’s the thing: there always has been and there always will be the Next Big Thing. 

Leaders that embed the eight factors listed above will be equipped to handle whatever comes next. The alternative is hardly worth contemplating.

Key characteristics of innovative leaders

Much paper is wasted on describing leadership, though perhaps the simplest definition is a leader has followers. More recently, a focus by academics on leadership in innovative organisations has identified some distinct and sometimes surprising characteristics. An excellent article by business psychologist professor Tomas Charmarro-Premuzic in Harvard Business Review offers a useful summary of the five innovative traits.

Xero's Rod Drury.

An opportunistic mindset: This helps to identify gaps and opportunities. Opportunities are at the core of entrepreneurship and innovation, and some people are more alert to them than others. In addition, opportunists are genetically predisposed to seek novelty or new and complex experiences and variety in
their lives.

Formal education or training: Contrary to popular belief, most successful innovators are not dropout geniuses but well-trained experts in their field. Without expertise, it is hard to distinguish between relevant and irrelevant information; between noise and signals.

Proactivity and persistence: These enable leaders to exploit the opportunities they identify - the key to innovation is execution. Effective innovators are more driven, resilient, and energetic than their counterparts.

A healthy dose of prudence: Forget the image of the wild, risk-taker - research suggests successful innovators are more organized, cautious, and risk-averse than the general population. (Although higher risk-taking is linked to business formation, it is not actually linked
to business success).

Social capital: Innovators rely on their networks throughout the entrepreneurial process. Serial innovators use their connections to mobilise resources and build strong alliances both internally and externally.

Popular accounts of entrepreneurship glorify innovators as independent spirits and individualistic geniuses, but innovation is always the product
of teams. 

Entrepreneurial people generally have higher emotional intelligence (EQ), which enables them to sell their ideas and strategy to others, and to communicate the core mission
to their team.

However, the literature is clear: the combination of innovative leadership and organisational enablers produces consistently successful outcomes.

Disruptive leadership in action

Fit Now

In 2008 Charles Teague, J.J. Allaire and Paul Decristina founded Fit Now, the company behind Lose It, a weight loss app that has taken millions of customers from Weight Watchers and Jenny Craig. They still only have eight employees. They also have an ongoing digital relationship with millions of people who supply them with vast amounts of data about the category. 

Prior to the digital era this was unthinkable. But while the digital tools are critical they were also available to the traditional players. It took entrepreneurial leadership to deploy them.

Burberry

In 2006 iconic brand Burberry was struggling. 

In an increasingly digital world the threat of a shift to online was
a growing reality. 

Then Angela Ahrendts took the helm as CEO. She developed a clear vision of where the company was going and communicated her vision across the organisation.

Amongst other things, she aimed to bring the digital and the physical into relationship. Sales teams were retrained with multi-media re-education programs in each store. 

Inside the stores they blended digital offerings into traditional activities using what a recent MIT analysis called an omni-channel approach to retail.

Instead of selling items that are always physically present, assistants began to act more like a concierge, helping customers locate and obtain whatever they wanted using screens and tablets, even offering customers digitised versions of themselves in Burberry’s flagship London store, a showcase for digitally enabled instore selling.

The Spoils of Innovation

A global survey by PwC showed that innovative companies are predicting growth three times higher than their non-innovative counterparts.

Managing innovation

Innovation need not always require expensive R&D. It can be as simple as adding a screw cap or putting wheels on a yacht (behold, the BloKart!)