Nurturing Innovation in Established Businesses

Singapore Press Holdings converting their media business into a not-for-profit model raised many armchair critiques on how incompetent their leadership are in a largely monopolistic competitive landscape. There can be a lot of different reasons unbeknownst to us that led to this decision and hence it is not my intent to comment on that. On the other hand, I thought that it is a good case study for a more generic management issue: Innovation.

It is obvious that the media industry has been disrupted by digital technology. Was SPH oblivious to this trend? I don’t think so. SPH dabbled in the online space with various online business startups, acquisitions and investments: AsiaOne, STproperty, Qoo10,, Magzter just to name a few. Even for their core press business, they are reported to have invested to the tune of S$50million a year for the past 5 years (mentioned by Minister Iswaran in parliament).

So it is not the lack of trying. But why is it so much harder for an incumbent market leader to innovate?

Business Strategy Focus

Established corporations are engaged in a war for market share and their strategies are therefore typically focused on defending and/or growing the existing core businesses that are bringing in the revenue.

Most companies know the value of innovation but against the “war” backdrop, the innovation bandwidth will be dedicated to improving their existing products and services. These are known as sustaining innovations and are necessary for continuous market growth and profitability.

The “war” environment however, is not conducive for disruptive innovations that usually begin as “loonshots” (as quoted by author Safi Bahcall in his book of the same name) or crazy ideas. In battling for market share and sales, there is no room for executives to be thinking of some random crazy ideas, much less to nurture such ideas and give them room to grow.

In their paper[1] reviewing their theory of Disruptive Innovation after 20 years of publication, the authors led by Prof Clayton Christensen highlighted some points often misunderstood or overlooked by companies that can be applied in this case:
Disruption is a process

In the beginning, infrastructure and equipment were limiting factors to digital advertising. Mainstream media companies continued to serve advertisers well through their traditional platforms. Investments were focused on “sustaining innovation” (ie., improvements on existing solutions). Early foray into digital hardly made a dent and were soon largely ignored. Meanwhile, the digital ads were taken up by those who largely cannot afford the expensive mainstream media.

Yet when iPad was launched in 2010 and Singapore’s broadband speeds and bandwidth increased significantly, media consumption began to shift (especially starting from the lucrative “Aspirers” segment (young up-and-coming professionals with high propensity to spend). Usual incumbent defense strategies will be to make existing offers much more attractive so that advertisers will not consider the new options. By the time the erosion is significant enough (ie., when mainstream advertisers begin to shift budgets to digital), the pressure is high for the likes of SPH and Mediacorp to replicate a successful digital platform almost immediately. But since disruption is a process, it is almost impossible to create one overnight, not to mention the less than conducive environment for such innovation.

Disrupters often build business models that are very different from those of incumbents

Digital platforms offered data-driven products allowing advertisers to target specific audience. In traditional media, no one has a clue who exactly saw your ad. There are some demographic data used for extrapolation, but never behavioural data. Google and Facebook changed marketing with the introduction of “buyer’s journey” and “micro-targeting”. In fact, it can be said that Digital platforms killed the magic of Advertising. Through the use of large amount of logos appeal (new concepts, “academic” reviews etc), they made it, well, logical to use digital. Traditional media were unable to argue with the same level of data.

Essentially, Digital platforms changed the ball game, introduced new rules which put incumbents in a huge disadvantage. Today, there are academic research that shows that the claims of digital advertising agencies and platforms are overrated at best and inaccurate at worst. However, marketers have already been “brainwashed”. It was never on the radar for incumbent media companies like SPH and Mediacorp to innovate business models.

Image by Michal Jarmoluk from Pixabay

How should companies manage or cultivate innovation?

In Safi Bahcall’s book “Loonshots”, he mentioned the importance of having Structure to guide/form Culture. I concur. When you have a structure that demands sales performance as a key performance indicator, no amount of brainstorming retreats or calls for innovation (or putting innovation as a corporate value!) is going to facilitate innovation.

Just like how Nespresso was made independent from its parent company, Nestlé, 10 years after filing the patent for the innovation, disruptive innovation usually requires an independent structure to protect it from internal politics that may fear the cannibalization of existing markets and business. 

Corporations should remember that a competitor within the family is better than one from outside the family.

A competitor within the family
is better than one from outside the family

Next, there is a need to separate sustaining innovation and disruptive innovation.

Sustaining innovation refers to the improvement of existing systems and products. By this definition, Uber is deemed as a sustaining innovation by Christensen despite the fact that it disrupted the street hailing industry. Managers of existing businesses have the best understanding of the business and should therefore shoulder the responsibility of constantly looking at sustaining innovations. The “culture” of innovation that most companies are looking to foster circles around this mostly.

Conversely, a separate team should be studying the markets and technological advancements to look out for and/or create disruptive innovations. This is essentially having “intrapreneurship” team.

Is the difference important?

Well, I’ve stopped saying that I’m an entrepreneur. Instead, I am merely a “businessman”. Being an entrepreneur requires by definition for me to be creating a NEW (ie., disruptive innovation) product, service or business model. I am, at this point in time, still a person who has started a business offering solutions similar to those in the market (albeit of a different quality and approach). So yes, with the right definition, we can encourage the different forms of innovation within a corporation.

There is a Chinese saying that the wealth of a family will not last beyond three generations. Essentially, the pioneer generation that created the “business” are the entrepreneurs. As the business prospers, the next generations are not in the environment that necessitates innovation. Soon, they will either go into decadence or lose out to new innovations.

The same can be said of a country and of course on a much smaller scale, a company. For sustainable growth, both sustaining and disruptive innovations are needed. 

[1] Clayton M. Christensen Michael E. Raynor & Rory McDonald. (2021, March 8). What Is Disruptive Innovation? Harvard Business Review.