As Silicon Valley increasingly turns its innovative ideas towards brownfield sectors such as financial services and transportation, many commentators have failed to recognize the different levels of innovation that are occurring in these sectors. While it is true that every startup claims they will be the next Uber in their sector, the reality of the situation is that the transformative success of Uber occurs once in a blue moon. Indeed, innovation, particularly in brownfield sectors, is much more nuanced than what was initially believed.
If one were to look at innovation occurring in brownfield sectors, one can see a number of gradients in terms of not only growth potential but true innovative potential within the sector. These gradients include:
1. Copy & Automate: The easiest way for an industry player to claim that they are innovating is to layer technology onto existing processes. Nothing gives a marketing boost than being able to state that one is using "technology" in their processes to demonstrate how modern and advanced they are. Unfortunately, though, the marketing boost is mere fantasy and extremely short term. Indeed, sectors that have a significant number of industry players that merely "copy and automate" are more than likely to be industries with low innovation penetration.
2. Addressing The Symptoms Not The Root Cause: A number of startups in brownfield sectors are currently building solutions to address glaringly obvious gaps in the current system. Whether it is helping to eliminate the lack of automation in existing processes or providing tools to attempt to minimize the deficiencies with existing processes, these startups attempt to demonstrate to sectors that there remains many areas of innovative opportunity. In many respects, they attempt workaround the legal, regulatory and entrenched interests that may block or impede the high speed of innovation by working along the edges versus direct confrontation.
3. Cooperative Innovation: Enlightened industry players recognizing that innovation is in their best interests from a number of perspectives (e.g. growth, retaining market share, trends, etc.) are finding ways to integrate innovation into their value chains at varying speeds. Whether it is opening their processes to startups, purchasing equity stakes in startups or adopting startup behaviors (e.g. dress code, perks, culture, etc.), established industry players are finding ways to ensure that bring innovation in-house while retaining their existing market dominance.
4. Disruptive Innovation: The ultimate in industry innovation is the truly disruptive innovation that occurs once in a blue moon. These are the Ubers and Airbnbs of the startup world, where their ability to truly innovate and disrupt how business is fundamental done in their particular industries is creating new norms. These "black swans" while already rare and increasingly getting rarer due to the heightened awareness of established players and regulators of these disruptive startups and they are increasingly better prepared at stopping them in their tracks.
While there are clearly defined gradients when discussing brownfield innovation, how is it applicable to those pursuing innovation whether it is from an individual perspective or a corporate perspective? To put it simply one must recognize that the speed at which innovation will not only be slower but will be significantly more chaotic than in the past.
The slower pace of innovation that will inevitably occur in brownfield sectors is one where the reasoning can be easily understood. Entrenched players from existing dominant corporations to regulators will do everything in their power to control and potentially slow any dramatic innovations that will disrupt existing norms and processes.
Indeed, in a post Uber and Airbnb world, the business world is preparing itself for more of gradient options 1 through 3 (e.g. copy and automate, addressing the symptoms not the root cause and cooperative innovation) versus gradient option 4 (e.g. disruptive innovation). Startups in this era of innovation will find themselves acting less as disruptors and more as allies in reinforcing the existing established order by gradually encouraging established interests to adopt new modern business processes and norms.
While one would expect that if startups increasingly become coopted by established players that innovation would have a more linear and manageable trajectory, the reality is the very opposite. Startups backed by well funded established industry players have the potential to increase the overall competition in the market amongst the established industry players.
Due to the varying risk appetites of established industry players, if one established industry player were to adopt a more aggressive innovation strategy (e.g. cooperative innovation) versus another established player (e.g. copy and automate), the relatively competitive equilibrium could potentially be dramatically upended. Indeed, if one considers established industry competition as relatively calm waters, the introduction of any form of brownfield innovation has the potential to turn those calm waters into highly volatile and choppy ones.
As we enter a new era of brownfield innovation, it is not only advantageous to truly understand what type of innovation corporations are adopting on an individual basis but the potential industry ramifications on a macro level as well. It allows better informed decision making on the part of potential supporters and investors and enables individuals and corporations to better manage potential disruptions caused by innovation in a positive manner.
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