In this exclusive BDLN article with serial innovator Mike Harris – founder of Egg, First Direct, Garlik and IconicShift – we discuss why professional services firms need to revolutionise their culture and embrace failure if they want to become genuinely innovative. We will discover what innovation really means and how firms can harness it to stay ahead of the curve…
Innovation is simple to define: it happens when someone/something meets an unmet need. That unmet need can either be a known need (better battery life, for example), or an unknown need. The classic example of an unknown, unmet need is the one solved by the motorcar: “If I’d asked them what they wanted, they would have said a faster horse,” said Henry Ford!
An innovation could be a product, process, experience, new type of business architecture, or a mixture of the four. And we can measure innovation in a few ways. Does it make more money or create more economic value? Does it reduce risk or change the risk/reward ratio? Is it quicker? Or is there an emotional or experiential benefit?
Innovation is fed by speed and experimentation. And, unfortunately, for big companies and those that rely on ‘safe’, tried-and-tested processes – like many in professional services – those two things do not sit well. In fact, the culture in companies that are not reliant on innovation – banks, law firms and accountancy practices, for example – is designed either to slow down or to crash experimentation. That’s because the system is built to protect the status quo and reject anything that may disrupt secure processes.
On the other hand, companies built on innovation – Apple and Google for example – understand what it takes to be truly innovative and grasp the fact that nine failures and one big win from ten attempts constitutes an excellent success ratio. As such, they realise that the key to successful innovation is to fail quickly and cheaply and to ensure that the rare successes are big. At non-innovative companies, the idea of any sort of failure tends to cause panic.
Another reason why professional services firms tend to reject innovation is because it often reduces billable hours. Innovation causes you to do things more quickly and more cheaply, which is less expensive for the customer and, in turn, makes less money for you. Innovation may cannibalise your existing business.
However, the world is changing rapidly, and so are customer expectations: artificial intelligence is on the rise and digital technology continues to develop incredibly fast. Professional services firms that do not change their culture to embrace innovation may find themselves – at some future point – in existential peril.
At the Massachusetts Institute of Technology, where I ran annual workshops for corporate leaders on innovation for 13 years, I learned the mantras of the business gurus on the faculty. One is: cannibalise your own customers before someone else does it for you. In other words, you should not avoid implementing an efficiency innovation simply because it would reduce revenues by 50% – the reason being that revenues would be wiped out by 100% if a competitor were to implement the same innovation.
How to innovate at your firm
So, how to encourage innovation? One of the best ways to start is to collect customer insight. Ask yourself: What problems do your customers have that they would most like you to solve? It’s a key question and few can answer it well. The answer is constantly changing but if you always have an accurate response in mind, then you’ll be in great shape to generate the insight needed for innovation.
Secondly: What new firms are being created in your industry? What are they doing that you’re not doing?
Thirdly: What new technology is around? What could I do with that technology and how would it make a difference to my customers?
Fourthly: Could I improve our business architecture? Could we organise ourselves better to create more economic value?
Once you have the insight needed to drive innovation, leadership must back it up. Innovation does not happen without the CEO or a very senior person pushing for it. Generally speaking there will be no ‘burning platform’ – the firm will not be under imminent threat. In the absence of that, it’s crucial to create the strategic context for innovation. Communicating why innovation is required is critical. The message could be something like: competition is going to drive us out of business in 15 years unless we get our act together.
Next, you must make innovation safe. If you just let it rip, it could disrupt business, make things more expensive and less reliable, and could in fact put at risk everything you need to be successful. So you have to protect your existing business from innovation. At the same time, you must protect the delicate new ideas from the culture that tries to kill them in self-defence.
Fail quickly, safely and cheaply. Win big.
Article written and edited by the BDLN.
If you would like Mike to speak at your upcoming conference, away day or AGM about innovation, please contact firstname.lastname@example.org