11/12/2013 05:47 pm ET Updated Jan 23, 2014

Why Innovating in "Older" Industries Will Be Harder

Innovation and the Internet. Currently, these are the buzzwords that are driving economic growth and recovery. Innovation and the Internet seems to be today's panacea to cure all that ails every organization, whether it is reviving a stagnant culture or reinvigorating an old product line. The unfortunate reality is that the success that innovation and the Internet have achieved is in some respects due to a number of convergent factors, including:

(a) New Technologies: The Internet has revolutionized every aspect of business processes from creation to distribution. In many aspects, existing business processes have been completely upended and transformed due to the Internet.
(b) New Industries: New industries have practically sprung up overnight due to the Internet. From mobile advertising to social media, new industries have not only created thousands of new jobs but have also provided new avenues for individual self expression.
(c) Improved Workforce: Just as Gutenberg's press revolutionized and democratized the distribution of information, the Internet has brought about another round of information revolution and democratization. Employees are now better educated and more knowledgeable than ever before.
(d) New Culture: As a result of the end of the Cold War, and due to the growth of new avenues of collective and individual expression thanks to the Internet, a new culture of self reliance and responsibility has emerged in the workplace.
(e) Lack of Regulation: When the Internet first appeared during the 1980s, very few individuals believed it would become the tool that would revolutionize nearly every aspect of humanity. As such, governments paid little attention to the Internet and left it to form its own standards and frameworks. Today, governments are still attempting to catch up and continue to write laws to take into account the profound changes that the Internet has had on society.

The successes that the world has seen with the increasing growth of Internet-related industries have been in no small part due to the greenfield approach that they were able to exploit. Not only was the Internet capable of developing due to a common global technological base, Internet pioneers were also able to build their business visions with very little interference from government, multinational corporations and entrenched and vested interests. Innovating in a greenfield space is easy. Innovating in a shark tank is a lot harder, which is the case of "older" industries.

While innovation continues within Internet-related industries, progress has been slower in "older" industries. This is due to:

(a) Significant Regulatory Hurdles: Industries, from automotive to health care, where one would expect Internet technologies to make significant impact have been extremely slow to innovate. One of the key components is significant regulatory hurdles that exist in these industries. "Older" industries must contend with mountains of regulations that control every aspect of the business cycle from research and development to marketing and sales. The added regulatory complexity combined with the increase compliance costs make it very difficult to integrate new innovative methodologies into existing regulatory frameworks.
(b) Liability: One of the advantages of the Internet since its inception was that it grew and prospered without any expectations. There were no standards to adhere to from either a legal or regulatory perspective. Even though the Internet has become ubiquitous, it still retains the "trial and error" approach that defines tech culture. From the prevalence of the "Hacker Way" to the "Lean Startup", technology companies have been focused on "trial and error" rather than risk mitigation or liability. Unfortunately, risk mitigation and liability are the high priority concerns of "older" industries and rightly so. Too many corporations in "older" industries have been burned with lawsuits or negative press for risk mitigation not to be a top corporate priority.
(c) Existing Dominant Players: From health care to automotive, "older" industries have dominant players who not only have both the financial and non-financial resources to protect their interests and market share, but who can effectively set industry ground rules.
(d) Entrenched Vested Interests: From unions to non-governmental organizations, there are a number of interests that rely on the strength and stability of "older" industries and will do everything in their power to maintain the status quo.
(e) Competing Non-Business Interests: From environmental issues to equality issues, "older" industries have to deal with a significant number of non-business issues that not only significantly impact decision making, but increase costs as well as reduce the ability to move quickly.

Some people state that the lack of innovation in "older" industries isn't a significant concern, and that a combination of technology and socio-economic change will force "older" industries to adapt. This is a naïve comment not supported by history. Social inertia is a powerful force that has influenced human history. As many individuals know from the 1960s civil rights movement, the struggle to change social norms is a difficult and long struggle that continues over generations. Changing business processes in "older" industries is no different, and due to growing interconnectivity, even more difficult than before.

Interconnectivity is the new reality in today's dynamic economy. While those interconnected linkages may not overtly appear, they do exist. Technology companies would like to ignore the messiness of "older" industries, but they cannot, due to the interconnectivity they have helped foster.

Indeed, the technology industry is taking small steps to adapt to this interconnected reality. From the hiring of lobbyists to setting up political action committees (PACs), the technology industry is starting to use some of the tools that "older" industries have used for decades to promote their own agendas. A question arises whether or not technology companies can bring about positive change or will they be co-opted by the existing system? Will technology companies become the slow, risk adverse industries they currently abhor or will they be able to infuse new and innovative solutions into "older" industries? Only time will tell.