Ep 28 – Why Innovation Groups Fail, How Kraft Heinz is Thinking like a Challenger, and The Rival B2B Playbook
🧠 The success stories of innovation groups and flanker brands from incumbent organisations are few and far between. Those that exist are the exceptions that prove the rule. And yet, many (if not most) big enterprise businesses continue to follow the same model and playbook, expecting a different result. What was it that Einstein said about insanity?
Innovation is the fuel for growth and corporate longevity. Innovation is why challengers grow and incumbents decline. The problem is not that incumbents don’t understand the need to innovate, it’s how they incentivise and support innovation. We’ve been part of more flanker brands, innovation cells, and entrepreneur teams than we can count. Here’s what we’ve seen and learned about what works and what doesn’t.
Fundamentally, there’s an inherent conflict between an incumbent’s core business and the challenger brands they try to create. The core business is about sustaining the status quo, while the challenger brand is about evolving or reinventing it.
The challenger brand, by definition and if done right, is meant to put the core business out of business. Maybe not in any practical, realistic way, but in theory that’s what innovation groups are about – putting the core company out of business before somebody else does. Which is fine when it’s just an idea. Just done for perception, internal discussions or headlines (aka “innovation theater”).
But if or when any of those brands in the innovation group get traction, they get pulled back into the core machine. Because people start to want a piece of the success and because there’s already an established “a way to do things here”. And even if those innovation brands can survive as part of the machine, they still face an existential threat because they are, again by definition, in direct competition with the core business.
Many incumbents are also oriented towards the short-term, not the long-term. Quarterly results, annual bonuses, 3-5 year CEO tenures, IPOs. The core business always supports the short-term objectives, but successful challenger brands are usually oriented towards long-term objectives (i.e. changing how things are done).
We believe in the innovation group model. We believe one of the most important jobs of any leader (CEO, CMO, etc), especially in big, incumbent businesses, is to try to put their business out of business before someone else does. So, while the idea and the theory are right, the execution and follow-through are often wrong. When that inherent conflict of short- vs long-term comes to a head, most choose short-term. And in order to truly innovate you need to choose the long-term.