Large Firms Need Disruptive Innovation to Survive

As for the singularity that will be brought about by Digitalization , signs of a change that will fundamentally transform the structure of society are beginning to appear all over the world. For large Japanese companies, whose traditional strengths are promoting improvement and efficiency, there is an urgent need to promote innovation. How should large companies face innovation in the future in order to survive?
[Fujitsu Insight 2017 "Cutting-edge Application of AI and IoT" Keynote Report]

The New World Created by Digitalization: The Innovation Companies Need

Noboru Konno
Professor, Tama Graduate School
President of KIRO (Knowledge Innovation Research Office)
Chairman of the FUJITSU Digital Business College Advisory Board

The Digitalization Wave is rapidly changing our daily life. I believe that the biggest business opportunities will be created by changes in social structures and systems rather than technological changes, or mere digitization such as going paperless and the transition from film-based to digital photography.

As a familiar example, consider the cashless society, a recent hot topic. In Sweden, one of the most advanced cashless societies in the world, a 200-year-old bank went cashless two years ago. The bank has no ATMs, safes, or bank teller because it does not handle any cash. It causes no PoS terminals, cashless payment apps, etc. Thus, societies with different concepts from the past have already been created.

Cashless, Virtual Residents... Countries Move towards Digitalization

Behind Sweden's cashless society, there is a big story called the "Digital Single Market" (DSM) of the EU. The DSM aims to promote digital society by unifying communication, institutional and legal frameworks throughout member countries using digital technologies. Though individual European countries' economic scale are small, when they gather together, they comprise the world's richest economic zone. The DSM is an attempt to adapt to major social changes by digitizing this large economic zone.

Another recent topic has been Estonia's attempt at "e-Residency," which allows anyone on earth to become a virtual resident of Estonia. Japan's Prime Minister Mr.Shinzo Abe is said to be an Estonian virtual resident. In a small country with an area about one-tenth that of the state of California, efforts towards a completely new digital society are underway.

Large Firms Now Need of "Societal Innovation"

So, what do companies need in the era of the Singularity? The "Singularity" usually refers to the technological singularity; however, the singularity's advent does not encompass only technological aspects. In the near future, we will experience various singularities such as cultural, social, and environmental singularities. During the coming age, companies must promote innovation by developing insights into the latent needs of the entire society as well as identify and solve problems for which there are fundamental demands, not by using digital technologies with a view to the 20th-century way of improving efficiency, but for achieving higher value for society and industry.

Therefore, "pivoting" is crticial for companies to develop new businesses in times of dynamic changes. Pivoting means "to adjust to the rotation axis," "to change direction," or "to change routes." Going forward, companies must pioneer businesses in an agile manner, aiming to "make the world better"--not just "making good things."

To make another point, the term "social innovation" has become popular in the business world as well. Social innovation means to solve problems by focusing on a specific social group. However, in the coming singularity era, "societal (social structure) innovations" will be more necessary to change the structure of society and economy as a whole, including that of social systems, cities, and living and work styles.

The Key to Successful Innovation: Focus on "Purpose" over "Objectives"

So, what specifically should companies do to innovate? The important thing is to have big purpose (e.g., "What should we do in society?") rather than short-term objectives (e.g., "improve something by a certain percentage" or "increase sales to a certain level").

Many studies found that companies which are highly aware of their purposes are more suited to achieve innovation in various aspects (e.g., introducing technologies and entering into new markets) than those that are not. For this reason, "what percentage of employees are always working with solid purpose in mind?" becomes an important question. Innovation can be achieved by properly setting "driving objectives or mid-purpose" to coordinate individual players' small purposes under the large purpose.

Aiming at Disruptive Innovation in the Era of Start-ups

Another thing large firms need is "management in the era of start-ups." Today, startup events are held around the world with the agenda: "Who will design the next world?" It is often said that large companies cannot innovate; however, we are now entering the era in which large firms also innovate by learning from start-ups.

Why must large companies learn from start-ups? There are three types of innovation: disruptive innovation, sustaining innovation, and efficiency innovation. Every company should have experienced "disruptive innovation" during its start-up stage. However, many Japanese large companies are good at sustaining innovation and efficiency innovation, which efficiently help promote and maintain business operations. In other words, as companies grow, they tend to become reluctant to take on new challenges.

However, if companies focus only on maintenance and efficiency, then when customers become more demanding or development costs increase, such efficiency deteriorates, thereby decreasing profits. Then, the companies gradually reach their limits of growth and require new innovation. This means that the key for large companies to survive is to cause "disruptive innovation" like the ones they experienced during their start-up phases.

Many companies have a management model in which they maintain an existing core business and develop innovative new businesses around this core business. However, such a management model does not work well for new businesses because the gravitational force of the core business is too strong and new businesses are determined by the KPIs of the core business. Rather than whether a business is a core business or new business, what matters is "innovation management" as a whole that can simultaneously address three areas: "the area to deepen," "the area to evolve," and "the new area." This management model is becoming a standard worldwide.

(Figure 1) Innovation Management

Two Key Points in Innovation Management: The CIO and Design Thinking Culture

I will introduce two key factors to practice innovation management. One is "to position the Chief Innovation Officer (CIO) at the core of management."

The CIO is the concept of an officer with the primary responsibility for promoting innovative activities for products and services as well as transforming business processes. The CEO must create a management environment that facilitates innovation by appointing these officers especially who are advanced in the field of digitalization and by educating individuals who can serve as managers. New executives like the CIO will be indispensable in the future for companies to ride the Digitalization Wave and use digital technologies to make various achievements.

Another factor is "Design Thinking", an approach that solve people's complex problems through design. The practice of design thinking has spread throughout global businesses.

In Design Thinking, the important thing is to discover "potential problems" or customers' jobs that usually go unrecognized but if solved would improve convenience or fill the gap. People's lives will be better by proactively identifying and solving these problems rather than addressing them out of necessity.

Going forward, critical and dramatic innovation management will be inevitable, by means of which new areas will be developed as companies learn the basics of Design Thinking. This will also lead to the disruptive innovation I mentioned earlier. I hope all of you aim to build the well being society to live in by practicing innovation management.

  • Noboru Konno Professor, Tama Graduate School
    President of KIRO (Knowledge Innovation Research Office)
    Chairman of the FUJITSU Digital Business College Advisory Board