Is Your Company Fighting Innovation?

What is the biggest threat to your organization, right now?

Many organizations would answer “our competition.” In the race for sales, customer loyalty, and market share, it’s easy to look over your shoulder at the other lanes and feel like your biggest threat are external.

This leads many organizations to ignore a deadly internal threat: resisting disruptive innovation which hinders them from adopting the attributes needed to achieve exponential growth. We call this phenomenon the corporate “immune system.”

In this article, I’ll go more into the depth of what an organization’s immune system is and how it has caused many organizations and industries to self-collapse. I will then share with you six different ways you can bypass your organization’s immune system, so you’ll be able to create the disruptive innovations that will accelerate your organization to exceptional levels of growth.

When Immune Systems Go Wrong

In the human body, the immune system is an interconnected network of white blood cells, tissues and organs working to fight millions of harmful pathogens and protect the body from illness. However, there are times this line of defense can work against the body.

If the body’s immune system becomes hyperactive, it can’t tell the difference between healthy cells and invaders. This is when the immune system turns against the body, causing many autoimmune disorders such as arthritis, multiple sclerosis, and lupus.

Like the body, organizations have immune systems too. The immune system of an organization naturally rises out of systems, procedures, and employee mindsets working its utmost best to stay in the comfort zone of past successes and keep the system running smoothly by the status quo.

However, an organization’s immune system can also become hyperactive. When this happens, it can’t tell the difference between an innovative opportunity and a perceived threat. The organization’s immune system will go on overdrive to attack and disarm any disruptive innovation or new element threatening to change how the organization’s body currently functions.

When an organization’s immune system is triggered to drive out change or disruptive innovations, something very dangerous happens. The organization misses out on crucial new market opportunities transforming the industry, which inevitably leads to self-collapse.

The Self-Collapse Of Industries

The immune systems of organizations don’t bring down just one company. They can in fact collapse entire industries.

It’s easy for an industry to fall into this trap because of the effect of “combined” immune systems. There is illusion of strength and safety in numbers. The collective immune system of organizations will think, “Well, if none of my competitors are taking this innovation seriously, then it’s safe for me not to either.” Before they know it, the entire industry they’ve been trying to protect has collapsed, taking them down with it.

Let’s talk about an industry where we’ve seen this play out: the music industry.

There used to be eight major music studios around the world who dominated the music industry. Then came a new innovation: digital.

These major music studios ignored the digital revolution as the valuable medium consumers saw it to be. The collective organization’s immune systems attacked it, convinced they could bring down this perceived threat by winning court battles or simply brushing it off as a fad that will never catch on or work.

What they didn’t realize is that you cannot beat this digital model. It will happen. It’s just a question of when and how. While their immune system fought to “protect” them from this perceived “invader,” the market environment continued to inevitably transform without them.

Since they did not evolve with the transforming environment, these eight major studios eventually disappeared and the music industry, as everyone used to know it, self-collapsed. A new, transformed music industry rose up in its place. Fast forward to today, and we now essentially see two digital platforms driving the new music industry and collecting most of the record sales revenue: iTunes and Spotify.

The Entire Business World Is Evolving

When climate change happens, it affects the whole population. It’s not just one species which needs to adapt to environmental change in order to survive. It’s every species.

The same rule applies in the business environment. Every now and then something will hit the world which causes a meteor-like impact. The digital revolution is one of them, and the widespread change will not just affect one major industry — it will eventually reach into and affect all industries. Organizations that don’t adapt and evolve to the digital revolution will become extinct.

I predict the car industry will be the next major industry to hit a deflationary cliff by the digital revolution, which will cull off many of today’s leading car manufacturers. We are already experiencing and witnessing disruption in the car industry. Nobody is buying a second car in Silicon Valley. They use Uber to get around. This is just one of the signs that transformation of the car industry has only just begun, and not just a passing fad or isolated trend.

Car manufacturers who brush this off as a passing fad or isolated trend will suffer the same fate as those major music studios who ignored music going digital. And yet, that’s exactly what’s happening to many of them right now. The immune systems of these organizations in the car industry makes them feel like they’re safe right now, because the only thing the immune system sees is the fact that 90 million cars are being sold each year and the prediction that emerging markets from developing nations will bring in more sales.

What their immune system fails to see is that there is a larger shift happening in the car industry, which goes beyond car sharing, and which will dramatically impact car demand worldwide. Car technology is accelerating at a doubling rate and autonomous cars are not far around the corner. There is also an increasing virtual lifestyle where people can work remotely from anywhere. Together, these factors are digitizing the car industry as we know it and will kill off the majority of car manufacturers whose immune systems are resisting the transformation.

A really interesting study by Columbia University in New York illustrates just how capable it is for the car industry to hit a deflationary cliff in just the next 4–5 years.

In the study, Columbia University found that if the entire population of Manhattan ran on autonomous cars, you could drive its commuting population with just 9,000 autonomous cars. The average wait for an autonomous car to pick you up would be about 36 seconds.

Let’s compare this to the current number of vehicles in Manhattan today: approximately 120,000 privately-owned vehicles and 13,000 taxis. That’s about 133,000 vehicles on the streets of Manhattan right now. Think about it: 9,000 autonomous vehicles to transport the same amount of commuters is just 6.8% of the current number of vehicles.

Think about the implications for the market and consumers. Traffic jams in Manhattan will likely be a thing of the past when over 90% of current vehicles are no longer choking up its streets. Commuting time would significantly drop; as would city pollution and the contributing effects to global warming. Not to mention the reduced dependency on an already depleting fossil fuel resource, and doing away with the hassle of owning a private vehicle (which is a depreciating asset most people use only 4% of the time anyway).

Can you imagine the overall consumer market turning down these advantages? I can’t. Which is why I predict the car industry — like the music industry and the newspaper industry — will be the next industry to collapse, and they will hit this deflationary cliff in the next 4–5 years.

If the digital revolution can transform the music and car industry, it can also transform your industry. If you’re not prepared to adapt and evolve to it, you will be left behind. That’s why it’s essential to introduce disruptive innovations which will prepare your organization for change and set yourself up as a transformational leader of your industry. Be prepared, however, for resistance from the immune system.

The Immune System Will Fight Any Change, Even Change For Good

I’ve learned from experience that when you’re attempting disruptive innovation inside a big company, the immune system of the company will attack you. I experienced this for myself back in 2007, when I was building out Yahoo!’s Brickhouse incubator.

I had put together a team of developers; some from within, others from outside. It was, briefly, one of the best development teams in the world (certainly everyone at Yahoo! wanted to work there). But Yahoo! wanted Brickhouse to build new products and services for the core organization rather than to create new markets for the company.

Needless to say, within weeks of Brickhouse’s launch, all vestiges of autonomy at Brickhouse had dissolved, and feelings of jealousy and resentment toward the newcomer swept through the company. (“Why do they get the best employees?” “Are they competing with my product?”).

By the end of my tenure at Yahoo!, I was spending 80 percent of my time fending off the company in an effort to protect my Brickhouse teams. Clearly a no-win situation for all parties.

Eventually, in 2008, in the wake of an attempted Microsoft purchase, Yahoo! killed Brickhouse despite it having, against all odds, launched several products that truly pushed the edges of the consumer Internet. And although Yahoo!’s immune system won that particular battle, the company ultimately lost the war.

6 Ways To Bypass The Immune System & Adopt Disruptive Innovation

From my own experience, I know it can be hard to fight your organization’s current immune system when trying to implement disruptive innovations. After all, the immune system rose up to protect the organization in the first place!

Here are six different ways you can help your organization to adopt disruptive innovations and drive exponential growth, without triggering the immune system to resist the change:

1. Only go after new markets (to avoid the immune system response). If you want to transform an existing cash cow or leapfrog a current business unit, you need a stand-alone unit with a small team that is isolated and fully autonomous.
2. Establish direct support from — and a direct formal link to — the CEO. Whatever you do, do not settle for any other reporting line below the CEO.
3. Spin out versus spin in. If you are successful, spin everything out and create a new company; don’t try to wedge the emerging business back into the mothership. A new enterprise won’t fit in neatly anywhere and internal politics will ensue, especially if you are cannibalizing an existing revenue stream.
4. The only exception we’ve found is when individual Enterprise Exponential Organizations (EExOs) are part of a larger platform play like Apple’s products, which start out at the edge and are brought into the center.
5. Invite the most disruptive change-makers from within your existing organization to work on your ExO. Management expert Gary Hamel has said that young people, dissidents, and those working on the geographic and mental peripheries of your organization are the most interesting, free and open thinkers. Look for rebels. The good news is that they won’t be difficult to find.
6. Build your Exponential Organization (ExO) completely independent of existing systems and policies. That includes actual physical separation. Try hard not to use existing premises or infrastructure unless they deliver a huge strategic advantage. As with any new startup, it’s critical for a new ExO to operate as a greenfield operation, relying on stealth and confidentiality.

As Steve Jobs said, “We run Apple like a startup. We always let ideas win arguments, not hierarchies. Otherwise, your best employees won’t stay. Collaboration, discipline and trust are critical.”

If you are interested to know how you can bypass your organization’s immune system and adopt all the business strategies and attributes of Exponential Organizations, then join me in the next intake of my interactive 3-month course, Exponential Organizations Master Business Course.

This article was originally posted on Medium on June 8, 2018.