How to promote a culture of sustained innovation
Maintaining market leadership in the tech sector is hard. Very hard. There are several factors at the heart of long-term leadership but innovation is the single most important characteristic.Without it, even the largest companies get wiped out, quickly. Sustained innovation in large companies is rare and only lasts if ingrained in both the culture and company’s organizational structure.
In the ‘big enterprise’ or ‘high-end IT’ software space, a long-term leader, like Amdocs, is differentiated from its competition by being able to provide both the software products such as complex, business-critical systems, combined with its own professional services to install and support these systems. This dual software and services model provides entrenched value which new technology entrants find hard to displace.
Usually when this type of domain is disrupted, the market-leading companies are able to pivot and respond in time to protect and expand their leadership position. Such successful responses are characterised by organic innovation and inorganic acquisitions. SAP is a good example. When cloud solutions came into vogue, SAP was able to innovate through three main channels. First it bought Success Factors, a modern cloud-based stack. Secondly, it relied on its ecosystem of partners to bring innovation around the core. Finally, it innovated around its own big data assets such as Hana, layering home-grown innovation onto its existing technology stack. These three levers allowed SAP to advance its customers on a safe path, they did not need to risk adopting a disruptive new entrant’s solution.
Unlike SAP, many other leading tech companies have been knocked off their top spots. Why are such companies unable to sustain their long-term competitive edge?
Innovation outside the core
This article will look into the root cause of sustained innovation by analysing some of the major suppliers to the telecommunications industry with a focus on Amdocs, the long-term leader in the communications IT domain. The communications industry provides an excellent case study of success and failure because it is: a) dynamic both in terms of acquisitions and product offerings, as mobile and fixed broadband services are combined with entertainment on demand, connected car and home, etc. b) globally consistent, in the sense of not being regionally regulated and fragmented by local suppliers and c) is largely dominated by a set of industry-specific suppliers like Amdocs, Ericsson and Huawei, while multi-vertical players such as IBM, Oracle and others are less prevalent.
The communications industry is a graveyard of companies that no longer exist. Companies that were once pioneers, including Tandem Computers, Nortel Networks, Alcatel, Siemens, LHS and many others have gone. These companies were unable to sustain an innovative competitive edge. In fact, in the communications sector there are arguably only two or three companies which have led the industry consistently over multiple decades. One of them is Amdocs. As a case study on sustained innovation, this paper will examine how Amdocs was able to drive innovation and leadership over a period of more than 35 years.
I joined Amdocs via an acquisition in 2009. Prior to this, I had built, run and sold several companies. I have stayed at Amdocs because I found a very unique environment in which the business supported innovation at scale. Lack of scale is a start-up’s major handicap. Not just in terms of sales reach but also in terms of quickly both on boarding and enabling top talent.
Two leaders in Amdocs were at the heart of driving the culture of sustained innovation, Rami Schwartz the President of the Products Group and Eli Gelman the CEO. Together they established a structure that allowed teams to innovate outside the business’s core machine and then, when ready, plug the newly developed tech back into the core and drive it into the customer base, taking it world-wide very quickly.
Supporting such a real start-up environment is very hard to achieve in large businesses, mostly because 1) the core is both strong and possessive of their roadmap, and struggles to focus on game-changing innovation due to the day-to-day customer demands weighing on its planning; 2) there are challenges around attracting and hiring scarce industry talent in super-competitive new domains, and 3) there is a demand for quick profits and a stigma surrounding leaders who failed in their internal start-up endeavours.
Let’s focus on how to address these three challenges effectively.
First the core units want to own their roadmap and continually innovate. However, there are times when disruptive innovation is required, either to replace parts of the core or to significantly change the roadmap when new technology requires a whole new way of running the software. Examples of this include the adoption of open source alternatives or shifting to the cloud.
By pulling any key development out of the core, the company will immediately begin to experience creative abrasion between the core business and the newly formed unit. This creative abrasion is derived from the teams working together at times and competing at times. Although not always a pleasant experience, this actually results in faster development and more out-of-the-box thinking, usually leading to breakthrough ideas and strategies. The active deployment of a creative and competitive internal environment is tough and requires a very hands-on and informed leader who intrinsically knows when to let the units collide and when to interfere to bring alignment.
Second, once a strategy has been defined for a new product or market need, it is vital to scale a team quickly. For any company dealing with disruptive innovation in entirely new segments of the market, it is always critical to find people with domain know-how. Usually these are scarce resources in a hot space – hard to find and expensive compared to internal hires. Moreover, technology talent that is always on the cutting edge of disruption is hard to attract into a large, slower moving organization.
The trick here is to take two to three capable and charismatic leaders from inside the organization and let them focus entirely on hiring for the first three to six months. Such leaders always bring with them the top talent from inside the organisation and then the hiring focus can be on outside experts. These outside domain experts need to represent only 20-30% of the team, but by working in a small forum, their knowledge spreads very quickly. Due to a flexible human resources policy, Amdocs has, year after year, been able to scale up two to three such units a year to a size of 20-100 people in a matter of months with super-efficient results.
Fail fast and learn
Finally, innovation is as much about failure as success. Once a strategy is in place, it is important to lay down several hypotheses about the market and the product, and then challenge these hypotheses in a structured way on a regular basis.
For sure, the original concepts will be off centre and the end result, whether successful or not, will generally vary significantly from the original plan. The key here is to be able to pivot and be on time to the market with the right solution or to take the tough decision to kill the program before it becomes too much of a distraction. This last point is based on a fail fast approach. Failures, if not too expensive and protracted, should be celebrated internally as much as a success. Only by fostering such a culture, will the risky entrepreneurial type come to large business and stay for the long term.
Commitment to innovation
There are many other supplemental cultural necessities for sustained innovation in a company. Recognition is one, but such recognition must be balanced across the disruptive teams and the core. If not, the company runs a risk of creating the perception of an A team and B team culture, which is poisonous to any organisation’s success and altogether inaccurate. Ensuring that the new products get enough attention from the sales organization is also a must. This requires a commitment from the CEO down, and generally needs to be reflected in the goals of the sales organization. In a large company it is usually easier and less risky to continue to promote the core product sets at the heart of the organization’s market leadership.
Sustained innovation is a cultural art. It demands a commitment from the leadership and must be a key fabric of the overall organization. Getting it right leads to long-term shareholder results and exciting technology advancement. It is also fun. Getting it wrong, well the Grim Reaper never sleeps...
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