Ring Fencing Constrains Innovation

It is the very act of ‘ring-fencing’ we have constrained innovation. We then can limit risk, as well as we are constantly separating it from the center of the company, even though many of us try to push it back towards the core.

Innovation remains separate for the clear majority of our companies even today as it is full of unknowns and question marks. Top executives just do not like the sound of this, so they seek to ring-fence innovation. One where they want to contain it, to try to tame it, so it can mirror their (mistaken) believe that our world is one of order, control, and stability.

Instead of embracing that the real world is actually an innovating world, full of opportunity, for those prepared to take a greater risk, will have much to gain. Regretfully we still see many companies operating with a 20th-century mindset. Thankfully the pressure upon companies to innovate, to get their growth back, is getting a very tough place to operate in today without tangible demonstration of innovation being realized. There is this need to “embrace” innovation. If not, rapid extinction is occurring for many that choose to ignore the sweeping changes we are witnessing in the business world, where more open and technology-driven innovators are connecting and collaborating. Those companies that only halve-heartedly attempting change are fearful and still want to “box” innovation in. A transformation where innovation and technology go hand-in-hand does have to be utterly full on to succeed!

Talk to any executive and out they will trot that comfortable sound bite of: “well we need to strike the right risk-reward as the balance to achieve”. Probe that a little further and they start shifting uncomfortably when you focus in on innovation and their support to its activity. Just ask yourself how many people are totally dedicated to innovation compared to managing the financial risks? Innovation provides growth and future value, financial management mostly focuses on cost containment and utilization of existing assets to manage near-term value. We seem to get this risk-reward totally out of whack!

The creeping effect of Ring Fencing Innovation

I call much of what is currently going on around innovation as simply “ring fencing” so as to limit the risk that undertaking innovation can expose you too. “Ring-fencing” limits innovation impact as you continually push it back into a prescribed approach on how you view the world, one that is stable, safe and having prescribed borders and markets. Every innovation initiative is surrounded by metrics of success that are for “known” business outcomes, programs are “contained” to selected teams, labs are separated from the mainstream to ideate but fail to integrate back, business units are denied “decent” resources to pursue truly game-changing innovation. The constraining of innovation is at work, we are ring-fencing not breaking down borders.

Well, one big surprise, all of that intent on holding innovation change back are the ones drowning, or eventually being thrown out of the window on retirement packages or being sacked. If you don’t fully embrace innovation in today’s world you are the ones heading for extinction but at what price for the countless thousands being caught up in salvage attempts, arriving too little, too late.

Think about this for a moment, we are actually wanting to limit our exposure to innovation in many companies. Well if this view of mine is correct then it is no wonder it becomes hard to ‘allow’ innovation to take hold and drive a business. It is consciously being held in check as it conflicts with the present design of an entity built and designed in the 20th century. It is like the sailboats giving way to steam-driven ones or horse-drawn carriages to make way for the car. It is the (inevitable) march of progress, good or bad it happens, at speed, in disruptive force, and in gut-wrenching ways.

To break innovation into parcels of expertise, limit its resources, constrain its funding we are simply ring fencing innovation to protect the existing, to preserve the “old” order because many know of any different way of working.

Remove the Ring Fences and see what can happen – some examples of innovation being at the core

We are seeing many examples of where innovation has been totally embraced, as the core of what the company is undertaking. One good example that has ignored this 20th-century approach of managing a business is Amazon. It has been a runaway success, in taking technology innovation and exploring all the possible weaknesses in the current systems of business design. Amazon has disrupted books, supply chains,………..and so many other established industries or services that it continues to set about disrupting, and all others feel the impact. Let’s look at five:

CBInsights nicely puts it in its Amazon teardown document as “Amazon barreling into physical retail, financial services, healthcare and AI-led computing” All of these on the back of a massive e-commerce presence, transport, logistics, developing hardware devices, food delivery, open-source educational resources and advertising. It is a “colossal”  in that it prowls everywhere where it see’s inefficiency and complacency and sets about learning about the sector, disrupting it and offering the final buyer, the consumer, increased value or alternative options. Just imagine the position of AWS, the positioning of its AI assistant of Alexa, both cutting edge and learning platforms. These are real, ground-breaking innovation moves in services and imagination.

Then you have Alibaba, equally a technology-centric business built on connecting up providers of services and customers in a very technology-based approach to platform services. Alibaba is extracting out the inefficiencies of the old system by designing a new set of innovative ones built on platforms to conduct business, squeezing out margins, building scale and appeal for its customers. Alibaba is one of the most pioneering firms around, built from its firm grip on China as its core market for harvesting and experimenting. It has become known for the connecting up of the whole supply change and fulfillment consumption chain as a real leader.

Then you have the best case of taking innovation into the core and designing solutions that solve many of our previously unrecognized needs. Here I am talking about Apple, they gave us the ultimate example of good innovation, tangible products, well designed, in ways unimaginable until they are in front of us, ones that change our lives. Most of us can’t imagine being parted from our smartphone, tablet or computer today and Apple still seems laser-focused on products or usability. In CBInsights Apple teardown ” They see Apple further delve into “focusing upon Augmented Reality, Wearables, AI, Cars, And More”

Just look at Tesla and Elon Musk. What he is attempting in scope and breadth is staggering (Useful reference link). Covering off alternatives in Aerospace, AI, Automotives, Telecommunications, Transportation (space travel), Energy and Radical Manufacturing and Material Supply Chains are all so pioneering it is leaving everyone else racing to catch up. Clearly, they are at the edge of radical innovation in much of what they are pursuing.

Then we have Alphabet or Google. We all experience that omnipresence of Google in all its services under this brand. With Android Operating System, You-Tube and countless acquisitions it has spawned a business that is touching all our lives. Their approach to investing early and then exiting if it does not look to be making the “jump” into major revenue contributions is again, highly innovative, demanding on those involved and constantly experimenting to find the winning formula’s to achieve this growth acceleration.

Each of these five powerhouses of innovation has defied the traditional logic of how a business should be managed. They made innovation the core, through the use of technology, imagination, and sheer, determined visions of recognizing complacency by many of the existing incumbents. You will also recognize each of these five companies have very strong visionaries, they drive innovation from the very top.

Those left in the destructive path of companies like these visionaries and innovators

The numerous companies left in this destructive path have been struggling to survive or simply attempt to try and catch up. For so many companies they are not even embracing technology in the ways they should. They stay mired in legacy, viewing “their” established markets through very narrow prisms, distorted from today’s realities, of change transforming swaths of industries not seeing all of this coming. They refuse to see the value of connecting everything up or bulk at the cost of this. Their growth has dried up, hence why innovation is the most overused (under-worked) word that company leaders wish for but can’t come to terms fully with, it is out of their experience zone. Many simply can’t let go of their past experience, to step out of their existing models to embrace the changes underway.

They are so many laggards in the truest sense, having a self-belief of maintaining dividends, giving back to their investor’s constant returns but continuing to strip the company of its richest resources and assets; those of ingenuity and creativity, in this dominance of squeezing out all efficiency. People are creative but only when they are allowed to be  So these laggards make continuous attempts to phase innovation in, piecemeal. They shift the ‘ring-fencing’ in incremental steps. They have not realized they must “pull down the fences” they have built around innovation and unleash it, it totally different and radical ways. They are strangling the very life-blood of their future by not embracing innovation full-on.

Innovation is entering the boardroom but it still is not central to many decisions still being made- why?

We do see innovation creep increasingly enter into the boardroom but it clashes constantly with all those negative feedback loops that clash. It is a constant fight between the many forces at work. Working in innovation spaces are messy and unpredictable, companies look for predictable outcomes and drive efficiency. So much innovation progress is negated even with the positive feedback by the ‘forces’ of status quo. We keep having these countervailing forces in play. The need for maximizing efficiency, extracting constant additional value from core offerings comes up alongside venturing out of those zones of certainty into the zone of uncertainty that innovation gives.

It is a different world and ring-fencing innovation, to corral its impact is a self-defeating tragic mistake that must change.

Innovation should be the core, we have so many examples of the greater value and worth of the companies that did embrace it.