Using innovation to unlock trapped value

Most management teams talk about the need to unlock the value that is trapped inside their current business models, supply chains and wider markets.

The best way to do this is to innovate. Indeed, innovation in Asia-Pacific is a non-negotiable discussion. But don’t assume there is a “one-size-fits-all” plan for everyone. Companies need to be globally connected but locally relevant. When a company thinks about innovation, at the forefront of managements’ minds should be: it’s not just about new technology for technology’s sake. It’s about how you can use what the technology gives you to gain a competitive advantage in a long-term, sustainable manner.

For established corporations, implementing successful innovation is extremely difficult. Protection of the existing business, risk of cannibalisation, highly structured internal processes – these are the reasons why incumbent companies are vulnerable to disruption from new entrants whose nimbleness make them a threat.

To be fair, both disruptors and incumbents have their challenges. It’s the disruptors, not the incumbents, that are quickest to capitalise on emerging technologies. However, disruptors struggle to scale up and expand while incumbents are often handcuffed to their core businesses. They cannot divert investment without risking the existing profit streams.

Further, because of the cost of capital, a typical corporation cannot afford the risk that comes with true innovation – where failure is a real possibility. Start-ups stand in complete contrast to this, and they have an additional advantage of offering very powerful incentives, such as risky, yet appealing capital gains to employees.

So what do management teams of incumbent companies need to do to become flexible enough to innovate?