Data can be interpreted in various ways.
Between 29 April and 6 May 2019, YPO conducted a survey of its members — chief executives in more than 130 countries — to get their thoughts on innovation and what it means for the future of their businesses.
Customers drive innovation
One of the top findings is that customers and employees are the main sources of innovation inspiration.
Customers and employees, more than any other factors, are viewed by CEOs as the top sources for innovation inspiration — more than double that of consultants and think tanks.
24% percent identified their C-level peers as individuals who inspire them to innovate.
Consumers have always been the leading source of innovation. The bad news, it took decades to recognize their role vis-à-vis that of producer innovators. The good news, we now have good models to incorporate consumers in the innovation process.
There’s a symbiosis emerging that will enable unprecedented models of innovation and production.
CEOs should always be on the look-out for lead users. This is a category of your consumers that predates market demand. They expect a high benefit from a solution and have a high capacity to innovate.
Breakthrough solutions tend to come from lead users. Engaging them in collaborative innovation is a way to anticipate emerging technology and market trends and stay ahead.
Investing in innovation
A comparatively large percentage of CEOs are also extremely likely to cite products, internal processes and technology, as areas that will receive innovation investment in the next 12 months.
4 in 10 CEOs cited products, internal processes and technology as extremely likely to receive innovation investment in the next 12 months; more than data/business intelligence, talent or business development.
On the one hand, we see leaders clearly understand there is a need to become more innovative. Everything from trying to move their culture to become innovation-centric by embracing design-thinking training for their leaders, to global Fortune 1000s opening Silicon Valley innovation centers. However, that still leaves a big hole in terms of understanding what innovation is right for their company and what they actually need to do.
The challenge we find with a lot of leaders in organizations we talk to is that they still think too much in terms of the one big singular, ‘betting the house’ innovation solution. Which is, of course, both risky, and hard to find.
Rather, we see more culturally intrapreneurial companies with a growth mindset and a focus on learning being able to move quickly and respond to market needs. Those companies wisely chose to invest smaller USD1 million+ amounts in numerous experiments, rather than USD500 million+ on one big one, making multiple, iterative, continual learnings to get to the intended outcome.
Finette’s advice for CEOs
- Leaders must understand that in this day and age, with incredible access to so many tools, such as AI and machine learning for example — one can really shift one’s thinking from 10 percent incremental innovation to 10-times innovation. There are so many possibilities and opportunities.
- A key assessment leaders must make to focus their innovation is to figure out exactly where they are operating in the stack and where do they need to operate? Are they building a piece of infrastructure as part of the stack or are they/will they leverage all of the stack and create a value add at the top? Leaders often operate with no sense of where they have strength, expertise or excess and where they don’t. To innovate successfully, one must have clarity on one’s core value.
- A mindset shift is often underrated and yet is critical. A mindset that is afraid of failure, will not wish to experiment. But, one driven by learning will be hungry to try again. Belief systems we hold about innovation will equally determine the success of a project or initiative. It is important to question what “I” and my team believe about what innovation means, what is in scope, and how it is actually done.
To a large extent, innovation globally is becoming culturally one. For example, the people behind startups in Berlin and Silicon Valley are similar. That being said, real cultural differences do exist. For example, it is easier to fail in the U.S. than in Europe or Asia, both structurally and culturally. There are many countries in the world where becoming bankrupt will be a mark against you for life and even land you in jail. It’s easy to see how that would deeply affect a business culture toward being risk averse. In other parts of the developing world where we see less infrastructure, we also see an entrepreneurial spirit that is hard to match. These startups have to work much harder than in other countries, and they are creative and have the tenacity to succeed.
Another clear finding in the Global Pulse data was the difference among family businesses, entrepreneurs and hired professional managers.
Family business leaders have less appetite for risk, usually wait for others to innovate, are less likely to plan for innovation and are more focused on internal process.
Entrepreneurs are more likely to be innovators, have more appetite for risk and innovation, and to consider their own companies innovative. They are also more likely to invest in talent innovation.
Professional managers are more likely to recognize the need to innovate and proactively plan for innovation, are more concerned about customer experience, but more hesitant to invest overall. That said, professional managers are more likely than entrepreneurs and family business owners to invest in business model innovation and technology innovation.
Comparing founder-entrepreneurs, family business leaders and “professional” managers is tricky because it is like asking who is the better athlete? A basketball player, a footballer or tennis champion; the answer is they all have different skills and capabilities because they are playing different games.
If you think about it, every family business was started or built by an entrepreneur and if they are successful, they are run by professional executives.
I would argue that the research clearly demonstrates that the three models of business leadership bring different strengths to their firms.
Family businesses compete on a long-term vision, patient ownership and tend to be in more stable industries, so by definition they will be less likely to make innovation their key success factor.
These leaders focus inward to meet the emotional needs of their family and stakeholders. They are driven by strong values and are disproportionally ranked as the best places to work. It is also important to point out that research shows that 52 percent of the family business successors (the next generation) state they probably will have a different leadership focus than that of their predecessors.
Entrepreneurs are building something new, so by definition they are innovating. Founder-entrepreneurs wake up each day knowing that they control their own businesses and are solely responsible for planning strategy, investment and governance that will make them successful. They have created a venture that gives them the freedom to achieve and enables them to live life on their own terms.
Successful entrepreneurs are a “majority of one” driven by their vision so they don’t have to waste time on board fights or planning. Their vision provides a roadmap their plans and actions. Entrepreneurs exploit this advantage by making quick decisions and aligning their employees around themselves and a powerful shared vision.
The professional manager’s behavior is that they must focus on technical skills and knowledge because they do not usually have the control that ownership provides. This means they focus on technical tasks such as strategic planning to create success, and in a dynamic marketplace, innovation is a great technical skill. Their position also doesn’t give them the personal power in the organization that a family leader and entrepreneur have naturally.
Carlock’s advice for CEOs
- Build your leadership and strategic planning on your strengths — a family business has a natural advantage for building strong cultures and long-term relationships that support powerful employee and customer connections;
- Expose your next generation (successors) to outside work experience, business school and YPO so they appreciate that there are many different ways to run a family business. I would encourage your children to work for an entrepreneur or even launch their own venture so that innovation and creativity become a part of their leadership DNA;
- Identify new opportunities as a part of your strategic planning and ensure that resources (people and money) are available. Then reward people who exploit these new businesses by paying bonuses, never saying no to an idea, and promoting the people who make things happen;
- Last and perhaps the most important is with every action you take, support risk taking, creativity and empowering people as the basis for your corporate culture. You want people to see you not as the founder, owner or executive but as the entrepreneurial leader who helps everyone in the firm grow the business in hundreds of different ways every day!
Changing market conditions
The Global Pulse 2019 data also points to changing market conditions, in which more than technology or new competitors are seen by CEOs now as disrupting their business.
36% strongly agree – changing market conditions
24% strongly agree – technology is disrupting their business
20% strongly agree – new competitors are threatening their business model
The marketplace in most industries is being reshaped by rapid change, new players, innovative business models and breakthrough technologies.
Position and scale are no longer reliable sources of competitive advantage. The true competitive advantage of a startup is its ability to respond to an unmet customer need, or an untapped customer base.
Our own data show that CEOs believe that they are not sufficiently in tune with the needs of their customers, are too slow to respond, and do not have the tolerance for experimentation and failure required to innovate. The current focus on customer discovery and empathy helps foster deeper understanding and uncover new, unmet needs while capitalizing on the resources and market reach of being a large organization.
This is the code organizations are trying to crack today.
Corboz on planning for innovation
The solution to develop an innovation DNA is a great deal more complex than setting up an incubator or providing employees with innovation time off, or an innovation bonus. CEOs need to consider:
- How their organization connects to context and customer needs.
- Whether they have an organizational culture that supports diversity and teamwork and an organizational structure that is as flat as possible to increase flexibility and speed.
- Whether they are comfortable with a culture that supports the explorative, uncertain, wasteful nature of innovation. Failure is part of innovation.
Corboz on regional differences
Developing markets are working on solutions around frugal or reverse innovation, simplifying overly complex products or services to cater to the local markets with different needs and wants. They have a deep understanding of customer needs, having learned from past failures at implementing solutions that did not correspond to the local context. These innovations are now finding their way into mature markets, redefining the boundaries of some industries. In mature markets, the focus currently is primarily around business model innovation, i.e., creating a product or solution by rethinking the business model, as with fintech, insuretech and the like.
Read the full report
The full Global Pulse 2019 report offers greater detail into what chief executives are thinking when it comes to innovation and what is likely to receive investment. Find the full report and supporting documents here: YPO Global Pulse 2019.