When a new species enters an ecosystem, it can be disastrous for the existing inhabitants. The same is true in business.
Financial markets are awash with innovation – fintech rules the day. Established players, worried that they may suddenly get ‘uberised’, have been forced to sit up.
Read more: Fintech is coming to take your banking job
Many large firms try to acquire the challengers, and others look to beat them with innovation labs, committees and incubators.
But these tactics often result in new ideas being strangled by entrenched bureaucracies. And some have even set up entire venture capital arms to manage their ‘other bets’.
While this can work, the risk-reward dynamics of VC operations sometimes sit uneasily within an organisation’s higher corporate goals.
The game therefore can appear inherently stacked against the big beasts: startups seem built for speed and agility. They are motivated to win in the here and now – no matter the cost – while large companies have customers and reputations to think about.
However big firms are starting to shift the odds back in their favour. The solution lies in playing by different rules – rules that favour scale, and amplify the natural advantages of the big guys. Rules that take inspiration from one of the creative forces of all time: natural selection. This is the theory of natural innovation.
Eureka moments are rare.
Innovation is more often the result of a steady stream of improvements that follow a hunch or gut instinct. This makes it a function of effort and resource, and large firms should take advantage of their abundance of both.
Many will have a large number of innovation initiatives underway, but these are typically haphazard, uncoordinated, and marginalised in favour of day-to-day work.
Those that take a more strategic and organised approach are more likely to succeed.
Chart a course for change
As with evolution, innovation comes from throwing the dice as many times as possible. But time and resource limit how many throws businesses get to take.
Successful businesses manage this by deciding on a clear direction, communicating it to all parts of the organisation, but then allowing employees to pursue that goal in different, unconstrained ways.
Smart people work for large firms too, and they can be just as innovative as their peers in nimble start-ups when given the freedom to think creatively.
Nature doesn't care where innovation comes from
Many large firms think of innovation as something they either do themselves or buy in. And yet nature is full of symbiotic relationships where multiple species cooperate to mutual benefit.
Finance is a good example of an industry ripe for cooperation of this sort. Many of the mutual challenges relate to areas such as compliance – issues that pose significant barriers to smaller entrants, but which large businesses have capability in.
Above all, the best firms aren’t precious about where innovation comes from. All that should matter is whether a new idea works to improve customer experience.
Rewarding success and failure
Mother nature is ruthless in condemning failure but she doesn't measure it with quarterly spreadsheets. Her measurement is subtle, qualitative and constant. Measurement of innovation needs to be more regular, more flexible (yesterday’s competitor may be tomorrow’s partner) and more precise (‘prove idea to five customers’ rather than ‘grow sales by x per cent’).
It’s important to be prepared to try, fail, and to respond by thinking differently about the area of focus. More initiatives will fail than succeed, which is why a granular approach works best. If the direction has been set correctly, failures become steps on a successful journey.
The rules of natural innovation mean that being small doesn’t equal an advantage. So rather than trying to beat the little guys at their own game, large firms would be better off making intelligent use of their size and resource to fight back.