Just because a firm is at the leading edge of technology, it doesn’t mean that its business practices are similarly progressive. Robert Demir, lecturer in strategic management at Lancaster University, explains why innovative methods need to apply just as much in the boardroom as they do in the R&D lab
You might expect mobile phone and broadband providers to be among the leading lights of digital innovation, but they are actually among the worst-performing companies when it comes to the experience they offer consumers.
They may be bringing new products to market all the time, but their leaders aren’t keeping up with the pace of innovation. As a result of the outdated practices they persist with, they’re shifting the complexity associated with these products on to their customers.
I’m sure that most of us have experienced the fun involved with arranging broadband connections when moving home, for instance. Such a complex process is something that even businesses with a “DIY proposition” have managed to avoid. Take Ikea, for example: it has lowered the complexity (and price) barrier to such a degree that its patrons are happy to spend their own time and energy assembling its products.
Now that consumers are willing to change providers at a drop of a hat, mobile phone and broadband companies should be wary of competition from more innovative challengers, whether these are on the fringes of their industry, in other sectors or even yet to emerge.
Project Loon (owned by Alphabet’s Other Bets group, pictured) is a particularly good example of innovation in tackling a serious challenge facing broadband providers. It has started to close the digital divide that prevails in many remote parts of the world – a problem yet to be addressed by policy-makers and numerous big players.
Loon extends internet access into these rural areas by sending balloons 12 miles up into the stratosphere. In doing so, it refines and combines existing tech – including the vital components of cell towers, plastics, solar energy and predictive models – to create a novel technology that transcends the limits of standard internet infrastructure.
To suggest that Loon’s methods could threaten the jobs of all the people driving around the country laying broadband cables would be an overstatement, perhaps. But this case does illustrate the disruption to the industry that the likes of Loon, Facebook (which recently abandoned its drone-based internet project) and China’s Tencent could cause.
Such potential threats also shed new light on some geopolitical conflicts, in which national governments have persuaded their network operators to install substandard connections to important sites in other countries. The Chinese wireless system at the Pakistan customs authority is a case in point.
Established operators are deeply embedded in their fields, using their social influence to form alliances with consumer groups, tech partners, policy-makers and other influential stakeholders. This offers them great access to useful resources. But challengers know how they work and will strike at any point of weakness to provide an offering that better satisfies the market.
This is how Virgin has challenged the big players in several industries. It seeks and addresses market imperfections that are usually created – mostly unintentionally – by market leaders.
Leaner business practices
Simply releasing new products and services is not enough to retain your customers. Challengers typically redefine what an industry takes for granted – prompting consumers to start questioning the value of existing offerings.
These innovative firms ask new types of questions and highlight suppressed or neglected issues. In doing so, they help the market to see the world from a different viewpoint – as Apple did with the iPhone – even if their new offering costs more.
High technological costs can be made more palatable by the benefits gained from adopting smoother and leaner business practices. These practices are geared towards solving problems more quickly and precisely.
Because they tend to be unfettered by historical and cultural straitjackets, challengers find it easier to adopt lean business practices. Research shows that such practices (often referred to as heuristics or rules of thumb) accelerate decision-making and are more responsive to challenges arising in dynamic, even turbulent markets – a typical characteristic of hi-tech industries.
Does this mean that established firms are liable to the spell of history? In a sense, yes. But many leading firms have transformed themselves over and over again to keep abreast of change and managed to escape vicious circles of strategic drift.
Apple, Ikea, Volvo and many others have shown how innovative changes in organisational culture and practice can help them regain control over the market and draw advantages from their technological innovations.
Robert Demir is a lecturer in strategic management at Lancaster University Management School, where he teaches strategic change and renewal. His research covers topics such as collaborative strategies, the emergence of unsanctioned management practices and the digital transformation of traditional firms.