Most large corporations will admit to struggling with innovation. But in reality most companies, particularly those that manage to last for any reasonable period of time, do day-to-day innovation extremely well. After all, your laptop (if you still use one) is much more reliable than it was a decade ago. Your television picture quality is significantly better. Your cellphone sounds clearer and drops fewer calls. Your shampoo leaves your hair feeling cleaner. Your toothpaste leaves your mouth feeling that much fresher.
Where companies struggle is with the breakthroughs that reinvent existing categories or create entirely new ones. It's not like large companies never manage to do it. Apple spent most of the past 10 years riding successive waves of breakthroughs. Amazon.com turned its own internal IT capabilities into a multibillion-dollar cloud-computing offering called Amazon Web Services. And Nestlé has created a similarly large business of coffee devices and related consumables under its Nespresso brand.
But study the stories of these and related corporate breakthroughs, and it often seems that success traces back to a large dose of serendipity or the heavy hand of a charismatic founder. And there are plenty of stories of big bets that ended up disappointing. So it's no surprise that one of the most frequent questions senior executives ask us is how to increase the odds that their big bets on breakthroughs will pay off.
From our studies of corporate breakthroughs and our own experience in helping corporate giants such as Medtronic rethink the pacemaker market in India, Walgreens transform its corner drug stores into a disruptive mechanism to treat patients suffering from chronic conditions, and a Fortune 100 financial services company reinvent private banking, we've come to understand that large corporations have the best chances of successfully breaking through when three ingredients come together:
- When the company focuses on a latent job to be done. A latent job is an important problem that customers really have but can't readily articulate. For example, a decade ago, it's unlikely that small-business owners would have told you that they needed a flexible way to host data and applications, one that preferably turned the fixed cost of computer hardware into a variable cost of renting capacity. But that's exactly the job Amazon realized so many of them needed when it developed its "elastic cloud-computing solution." That's not as exotic a bet as you'd imagine when you consider that just about every business owner is always looking for increased flexibility and opportunities to make fixed costs variable.
- When the company rides an enabling trend. An "enabling trend" is some technological or societal shift that makes it feasible to address the latent job. The increased availability and affordability of high-speed Internet bandwidth, for example, enabled Amazon's own technological innovation in cloud computing to reach wider swaths of the market. Spotting transformational trends early can increase corporate confidence in bets on breakthroughs.
- When the company takes advantage of its own catalytic capabilities in developing its offering. Corporations can't hope to innovate faster than the hordes of start-ups that nip at their heels. But they can innovate better than those start-ups if they take advantage of a unique capability, such as a hard-to-replicate asset or market access earned over decades of operations. Amazon leveraged the infrastructure it had built to power its own IT systems to provide its unique offering.
Developing a breakthrough idea will never be a paint-by-numbers exercise. But this should not stop large corporations from redoubling their investments in breakthroughs. For as much as the world extolls the virtue of start-ups, large companies are uniquely positioned to address global challenges such as making health care more affordable, feeding the world's surging population, or dealing with challenges resulting from rapid urbanization. While it isn't easy, it is worth the effort.