The innovator’s dilemma is ever true for legacy companies — some are so entrenched in the things they’re already good at that they fail to change and adapt. These companies, that have established themselves as a market leader over decades of a solid track record, can allow themselves to get caught in this scenario in which they are so profitable in what they’ve always known that they neglect to stay inventive. In other words, they get comfortable and leave innovation to emerging startups.
Because they have found profitability in their typical products and offerings, some legacy companies have a difficult time allowing new ideas past the brainstorming phase, often with the argument that a new project won’t be as profitable to the business initially. It’s time to curb this thinking. Older companies need to be committed to creating disruption within their organization, with a growth mentality that extends beyond next year’s revenue.
Creating disruption within your organization
Startups and young companies love to use the rhetoric that legacy companies are too bureaucratic and rigid to provide anything new and fresh or to adapt to the needs of the current, modern customer. This argument can be true, if legacy companies don’t continually respond to new trends and anticipate and accept change.
My company, O.C. Tanner, was one of the first in the employee recognition industry in the 1930s, but has had to change the way it’s done business numerous times to remain successful. Without adapting HR technology, the company may have become obsolete in the very sector it created. O.C. Tanner has systematically pushed itself to create new technologies. With every decade, it has had to roll out new products, like automated employee recognition in the 1980s, online presentations for awards when the internet began in the 1990s, and on into apps in the 2000s. These changes were in response to changing customer needs and market demands in spite of investment levels that did not immediately contribute to the bottom line. If legacy companies don’t continually push themselves to be agile, often accompanied by growing pains and setbacks, they run the risk of going out of business.
Bringing the three areas of business together
Seeking innovation isn’t to say that legacy companies should abandon the parts of the business that are profitable. Often these core competencies are the reason why they have such a strong customer base in the first place. We would never want Apple to stop rolling out Mac computers for the sake of pursuing autonomous vehicles or Google to stop its search engine to go after virtual reality technologies. The balance comes in continuing to maximize what a legacy company is continually doing and improving that current offering with continuous new innovation.
Linda A. Hill, professor of business administration at Harvard University, names three teams as essential to a large, seasoned company. The teams: 1. a group focused on continually upgrading quality of present products and services, 2. a group focused on the leading-edge development of forward-thinking products and services and 3. a department tasked with connecting the present and future work to ensure a smooth transition and support of new methods within the current system.
This third group often goes overlooked, leaving many companies to have miscommunication between groups one and two. The third group, however, is vital to integrating new developments into the mother ship and making them cohesive to the company’s overall brand and purpose. The lasting success of a legacy company lies in its ability to connect what it’s already good at with potential innovations.
Innovation shouldn’t ignore wisdom
There is still a real advantage to having deep industry knowledge, which only comes with time. Legacy companies have the edge in that they understand the patterns of the market and the fundamental principles surrounding it. This notion of wisdom shouldn’t be forgotten in the simple pursuit of something hot or fresh, with the idea that new is in and of itself better.
A study by Statistic Brain, Startup Business Failure Rate by Industry, found that the third top reason why startups fail was because they have too much pride and as a result, have an unwillingness to listen to mentors, see what the industry wants or internalize what legacy companies know to be true. With that, CB Insights looked at the post-mortems of 101 startups to compile a list of the Top 20 Reasons Startups Fail and found that the number one reason for startup failure was no market need. Some startups enter their industries calling what legacy companies do as out of touch and not meeting the desires of the current customer. As these studies find, startups often soon discover, however, that perhaps they didn’t know everything and needed to learn from what others who have successfully led the market already know. As a result, 75 percent of venture-backed startups fail.
Even though there are advances in how companies deliver products or how they go to market, there are some principles that are evergreen that legacy companies know, better than anyone else. Legacy companies who have kept a track record of understanding the constants of the industry shouldn’t discount the experience they’ve gained from years of consistent good work.
Marrying wisdom and innovation
A legacy company shouldn’t radically change its purpose or ignore the wisdom its garnered for the sake of innovation. Rather, it’s about finding innovative ways to deliver your company’s lasting purpose to the market. Legacy companies are still around for a reason — because their purpose resonates with their target community. The goal is to preserve this purpose while maintaining the profitable and consistent good of the company and pushing for a strong vision of the future.