Five ways leaders can cultivate disruptive innovation

As the evolution of digital technologies accelerates and markets become superfluid, how can organizations become disruption ready?

Change can be terrifying. And for the most part humans are ill-equipped to deal with it. But the days of maintaining the status quo are over. Now more than ever before, leaders and the organizations they lead must be prepared to navigate uncertainty and embrace experimentation to thrive in an environment of intense, change-driven ambiguity.

This ambiguity, in part, is a result of the advent of superfluid markets and the global flow of innovation enabled by digital technologies. These trends challenge traditionally structured innovation practices. In superfluid markets, the democratization of data and decision-making capabilities empowers customers and erodes the control of incumbents who act as digital intermediaries. The confluence of IoT, artificial intelligence and blockchain will directly connect everything to everyone. Machines will transact autonomously with other machines, as well as directly with people, to request services, trigger inventory replenishment or bid for goods.

Superfluid markets also erode fundamental company structures by allowing core functions to be outsourced efficiently.

As markets become superfluid, and the evolution of digital technologies continues to accelerate, companies need to be disruption-ready.

1. Think organism rather than organization

What does this mean? Tim Kobe, founder and CEO of Eight Inc., argues that it’s time to think of the company as an organism rather than an organization. Like an organism, companies must have a number of receptors to sense their market environment.

Vanessa Colella, Head of Citi Ventures and Chief Innovation Officer at Citi, extends the metaphor. Just as humans rely on the billions of bacteria in each of us to create our unique functioning physiological ecosystem, companies must be permeable to outside innovations and innovators. As traditional institutional structures evolve, “the question is how you become a good host organism to innovation,” she notes.

2. Focus on human capabilities

For the past 10 to 15 years, large organizations have focused on customer-centricity. However, many still find it challenging. Start-ups that are disrupting incumbents, on the other hand, seem to have it mastered.

Organizations spend so much time and energy on the tools or the content of change (e.g., AI or blockchain) that they sometimes lose sight of what’s actually important. To effect the change that will allow them to thrive in uncertainty, they need to focus more on shifting mindsets and leadership principles to cultivate human capabilities.

After all, what’s disruptive is not just technology; it’s having the imagination and creativity to connect the seemingly unconnected. Key to making these connections is fostering “productive collisions,” interactive cross-functional conversations at scale within the company.

As automation and ecosystem partners increasingly supply the “exploiting” functions (manufacturing, operations, sales, etc.) in superfluid markets, the value of work that focuses on “exploring” (ideation, creation, innovation) will grow.

The focus on the human also extends to the customer. This entails employing design thinking at the front end to identify customer needs and not jump too quickly to solutions. “You have to start the process with an understanding of the human outcomes you want,” observes Kobe.

3. Develop a new talent and leadership model

Where knowing more used to be a differentiator in career progression, today it is about how effectively you can collaborate and connect knowledge internally and externally to create value for the organization.

Middle management is a potentially rich source of ingenuity that remains untapped. People tend to emulate the qualities that got their leaders promoted and middle managers are no exception. However, the middle management qualities that were typically valued in the past—execution, incrementalism, risk management— are inadequate for the demands of the future. To unlock their innovative potential, middle managers need leadership that models risk-taking and rewards disruptive innovation initiatives.

You also have to have the right talent mix — both people who can operate the core business now and those who can ultimately disrupt it.

4. Move from “no” to “how”

Becoming disruption-ready also means working closely with regulators, as well as internal compliance functions, such as legal, risk and internal audit. It is important to engage these stakeholders to understand their needs and help them tap into the knowledge and diversity of thinking required to address new opportunities. Companies need to help them move from the more conditioned position of saying “no” to saying “how,” says Colella.

5. Sustain investments in disruption

Developing the attributes of disruption readiness demands sustained investment in organizational transformation, capabilities and innovation initiatives. One-off, disconnected projects will not have lasting impact. For this reason, the CFO, CEO and board need to align to a shared ambition for disruptive innovation to guide the needed investment, governance and message to shareholders.

The message to institutional shareholders is particularly important. EYQ recently surveyed 100 institutional investors worldwide, each with at least US$1 billion in assets under management, to understand their perspectives on disruption and its influence on their decision-making. We found that global institutional investors embrace a corporate disruption readiness agenda that sees more upsides than risks in disruption.

• 55% agree that the pace and scale of change today require that market leading companies invest resources in exploring potentially disruptive new business models.
• 67% agree that companies should undertake potentially disruptive innovation projects that may be risky and not deliver short term returns.
• 73% agree that corporate disruption readiness will become more important to their investment decision making over the next five years.

Effectively communicating your innovation ambitions is key to attracting institutional investors who will support your disruption readiness agenda. It is also important to test your innovation vision with your current investor base. Do they support it? If not, you may need to work to change your investor base.

Act now and prepare for the future

Fear can either be a motivator, or it can be paralyzing. The key is to embrace it, says Kobe. Jeff Wong, EY Global Chief Innovation Officer, adds that “companies need to shift from reacting to creating.” They also need to have an iterative mindset. Things are moving so fast that what we think is different today may not be what we think six weeks from now. Wong advocates by staying focused on customer problems, companies will be able to find the answers they need.

Create open workspaces. Foster imagination. Make space for productive collisions. Put business thinkers and creative thinkers together to have productive conversations that move things forward. And continue to think about the human outcomes that we frame everything against. These are some of the actions leaders can take to make their organizations ready for the disruptions ahead.

Action agenda