Why do some companies manage to find their way in face of competition, internal and external changes and other challenges, while others struggle and even perish? How can companies proactively set themselves up for success? The most popular, almost cliched answer is “innovation”.
Everyone understands the role of innovation, and acknowledge the fact that innovation is something that is responsible for getting companies and industries where they are. It has contributed fundamentally to the development of human race; and it is what will drive our future as a species. And herein lies the paradox.
Biopharmaceuticals is an industry known for innovation, and yet recently is in the news for facing the heat of increasing cost pressures and declining profit margins. The industry continues to rely on its old innovation engine based almost exclusively on discovering and developing new treatment products, and no longer seems capable of innovating beyond this narrow focus to identify new drivers of growth.
In my multiple interactions with senior corporate leaders I have noticed that they understand the need for innovation well and are vested in moving the agenda on the same. However, in corporate environments, especially where the incumbent has been successful and industry leader for a long period, the focus is on building a replicable machine that runs the core business over and over again efficiently. Risk taking is minimized in this situation and replaced by standard operating procedures, efficiency overrules experimentation, pre-defined metrics drive performance, and incentives are tied to near-term financial returns. The spirit of innovation, taking risks, experimenting – the very characteristics that made the incumbent successful in the first place – are often lost.
In my view, incumbent industry players in the biopharmaceuticals industry (and for that matter in many other hugely successful sectors as well), who were once innovators responsible for some of the most significant advances, have become overly confident in what made them successful in the past. Blinded by their historical success as participants in this change, these incumbents have created an internal and external barrier restricting themselves to a single source of innovation i.e., discovering and developing new products.
As market pressures constraint their ability to sustain the underlying business mode, these incumbents largely ignore the massive environmental change taking place that can disrupt the value of their core innovation product. Instead they take a narrow view of innovation focused on relatively minor modifications to their current business model while trying to maintain profitability, rather than increasing investment on identifying new sources of innovation for growth and sustained viability.
One characteristic that is common amongst these incumbents it the temptation, extending to overconfidence and even sometimes arrogance, to be 100% right every time. As a result, instead of focusing an overarching vision, they are more afraid of not making mistakes along the way. However, any disruption is associated with it’s fair share of risk and failure. Instead of being risk averse, intentional innovation requires a combination of fast failure and an objective review of the same.
In our recent book Redefining Innovation: Embracing the 80:80 Rule to ignite growth in the Biopharmaceuticals industry” , we introduce the 80-80 Rule governing how to adjust thinking and behavior when the urgency to innovate is evident: “Being 80% confident that you will only be 80% right the first time should feel normal.” The 80-80 Rule is not a statistical methodology for predicting success in business, but a guiding principal to enabled a required philosophical shift to enable incumbents towards challenging the status quo in just about every aspect of business innovation.