Driving innovation to create value and growth
Although often associated with startups, innovation plays a crucial role in the survival of all companies. To innovate effectively, however, the management of established organizations have to embrace the unknown and accept failure as part of the process.
To understand how innovation works in an established firm, it is important to make the distinction between “exploitation” and “exploration,” says HEC Paris Professor, Laurence Lehmann Ortega. Exploitation is what a company uses to run the business and “bring in the money”. Exploration, however, focuses on “learning, driving innovation and imagining the business models of tomorrow.”
For Professor Lehmann Ortega, innovation plays an essential role in enabling companies to reinvent themselves, meet the challenges of the future and ensure their long-term survival. “If companies don’t question their way of doing things, their business model will be disrupted by new competitors and they will disappear,” she affirms.
In order to innovate – or “explore” – organizations must create an environment where failure is accepted, and employees and leaders can challenge the status quo. “Finding the money and right talent isn’t the most difficult,” says Professor Lehmann Ortega, “the real challenge is questioning industry beliefs and getting people to think in a different way.”
Measuring failure is just as important as measuring success. “I think companies should measure the failure rates of their experimentation,” states Professor Lehmann Ortega. “A very high failure rate is a good way to measure how innovative you are. It’s like telling your child they need to walk, but not to get up because they’re going to fall.” To innovate, companies need to know they are going to “fall” – and that may require changing the culture.
BMW’s DriveNow program is one salient example of innovative exploration. The program, which allows customers to rent a BMW by the minute, anticipates a future where car ownership is less widespread. “To prepare for success in future markets,” Professor Lehmann Ortega concludes, “you have to start exploring them today.”
Laurence Lehmann Ortega