Artificial Intelligence (AI) has been darkly painted by many as the technology that will destroy jobs and render humans unemployable and obsolete. But in an expansionary era of stagnant wages, economies at full capacity, cheap capital and flat productivity, a vital point is often missed: unless we come up with new ideas to drastically improve our productivity, economic growth and increased prosperity for future generations will become things of the past, fading memories that will haunt the history books of the late 21st century.
And yet, innovation seems to be all around us. Indeed, as scholar and educator Clayton Christensen has argued in his book the Innovator’s Dilemma, innovation seems to be the main cause of the “mass corporate extinction phenomenon” that’s also profoundly evident. An organization called Innosight suggests in its research that 75% of the S&P 500 will be gone in the next decade. The lifespan of companies is also shrinking: in the 1960s, the average company survived for 60 years, meanwhile, companies are only expected to have a 10-year lifespan by 2025.
The mass corporate extinction event
We are thus faced with a paradox: on one hand, fast innovation is obliterating slow-changing companies, and on the other, fast innovation isn’t delivering the productivity boost we need to grow our economies. Something is obviously amiss. Perhaps we’re not scaling innovation effectively. I’ll explain.
The startup movement has demonstrated how fast innovation can happen. Combine entrepreneurialism with creativity and powerful software tools, add smart capital, allow for failure and experimentation, and the results can be amazing. But, if you think about it, what startups actually do is accelerate the process of traditional R&D departments, with two major differences.
Firstly, the cycle from research to commercialization has drastically shortened due to agile product development practices. Secondly, and most significantly perhaps, innovation has accelerated because it has become collaborative. Sharing and trust are paying handsome dividends in the world of open-source systems and collaborative communities. But why? What is it about sharing and collaborating with strangers that delivers such super-linear value?
In 2010, two physicists from the Santa Fe Institute made a very interesting discovery. By studying the size of cities and correlating size to productivity, they showed that every time a city doubles in size, innovation and productivity per resident increases by 15%. Correlation is not causation, of course, however the scientists also observed that this phenomenon only applies to cities that have good transport systems. This is an important observation that explains why megacities in the developing world, growing fast but lacking good transport infrastructures, don’t exhibit the same productivity dividends. It’s because people in these mega-cities are excluded from gaining access to the knowledge and expertise of others, and are instead trapped within the confines of their familial surroundings.
So here’s what probably happens: people in efficiently growing cities have a higher probability of chance encounters with ideas and people outside their immediate circle. It’s the unpredictable, unplanned, serendipitous and chaotic that make us innovative and productive. If only we could replicate this phenomenon in business. But how can we capture chaos in our organizations, when the very purpose of an organization is to manage and reduce, or eliminate, chaos? How can we rethink human collaboration when our current models impose barriers and create silos?
The innovative organization
Fast-innovating startups can be too small and slow-innovating corporations can be too big. When startups grow, they can become like big corporations; their innovation slows down and their dynamic culture dilutes. Processes and compliance take over. Breaking things is replaced by ticking boxes. That’s why I think the problem with innovation is a problem of scale. And scale can only emerge by rethinking business organization. How can we scale organizations so they retain their startup agility and avoid the mass corporate extinction event? If you’re a business leader, transforming your organization should be your top agenda item. But transform how?
In a digital economy, in which people and things become increasingly interconnected, the innovative organization is made up of six fundamental pillars: right strategy, right culture, right work organization, right technology stacks, right data and right cybersecurity. Each of these pillars needs special, in-depth treatment.
In next week’s blog, I’ll focus on two of those pillars – right technology stacks and right work organization – both of which distinguish an innovative organization from its predecessors, and are instrumental to scaling innovation.
Learn more about comprehensive cybersecurity from Willis Towers Watson.