A Manual Towards Corporate Innovation
Best practices of how to architect innovation as a corporate
Every company needs to innovate in order to survive.
Nowadays, this is a no brainer for most companies. Prominent companies, that have failed at doing so, serve as good reminders that even big, and at the time, seemingly invincible companies like Nokia or Kodak cannot win in the long run, when new players and new technologies change the underlying playing field and these companies fail to innovate.
Much innovation research exists already on this, and the urgency for innovation is rather clear to most senior executives. This is perhaps why, over the last decade, we have seen a burst of different corporate innovation efforts come to life, from in-house innovation teams to outside accelerators/incubators and innovation consultancies.
As a company that is thinking to invest into or improve their innovation capabilities, there are many questions to answer.
Should you think about building up your own capabilities or should you partner or engage a Third Party innovation expert?
What kind of capabilities should you invest in anyways? Venture building? Venture Capital? Tech Scouting?
I’d like to break down corporate innovation, and share my experiences and observations, so it becomes easier to navigate through it.
I’d like to break down corporate innovation, and share my experiences and observations, so it becomes easier to navigate through it.
In this article I will speak about the WHAT, WHY. The HOW will be a separate post.
The WHAT
Innovation is about solving problems better.
Solving problems better either comes from applying a (new) technology to a problem (ie shift to digital camera from film camera for photo taking), from engaging with customers and capturing value differently (ie ridehailing providing a new win-win business model that is more flexible than taxis), or from nurturing new needs and capturing on latent needs of users (ie short-video platforms like TikTok nurturing a new form of self-expression).
Obviously, the three described innovations are not mutually exclusive and can come in various combinations and forms.
However, I believe that at least one of those “characteristics” need to be there to call it innovation. If an internal process is improved by configuring the steps differently, or if a new business transaction is struck with a partner or customer, in my view, this would not be innovation.
Observations
Reflecting over the past, it is fair to say that the biggest game changers and shifts in an industry stem from technology-enabled innovation. Cars, computers, the iPhone are only a few prominent examples of how industries and societies have been completely disrupted.
It is also fair to say that those big game changing innovations do take time to be created, as they involve a fair amount of R&D and take additional time to get adopted by a critical mass. But once it is adopted by a few early adopters, the acceleration of further adoption is exponential (S-curve shaped). Those technology-enabled innovations can also be considered as paradigm shifts, platforms or new standards.
The reason why I talk about these platform innovations is that while corporates may have the aspiration to create such game changers or platforms in their own respective industries, most often the type of corporate innovation realized are either “Me too's” of proven platform innovations (ie The Uber for X) or have a digital spin to solve a problem (ie build an app to consult doctors online).
One explanation for this is that while the appetite is big to innovate, most often those real game-changing innovations do not fit into the corporate agenda, or are considered too risky or too high in investment. Most often it is also easier to convince the CEOs with smaller innovation projects that improve current business and slowly gain the appetite for more commitment (ie. building own ventures etc.)
The WHY
Before deciding to invest, it is of utmost importance to know what the purpose of innovation is for one’s organization.
Should the company’s innovation efforts be about improving the core business?
Should it extend into adjacencies and improve core business revenue or traffic?
Should it entirely focus on laying the foundation of future new businesses and business units?
These questions are important to answer first before engaging in any kind of innovation effort or market service.
Each of these objectives require a different kind of innovation set-up and is therefore incredibly important to nail first.
Objective 1: Core improvement
Core improvement innovation efforts are the most commonly observed in the market. In the simplest form, many companies are starting to digitize their core processes and are going through some form of “digital transformation” of revamping their in-house IT and tools.
At its core, innovating here is about efficiency gains, reduction of costs and solving for core business problems with new technologies and business models or incrementally improving customer experience.
Objective 2: Core extension
The focus of core extension is on innovating on the edges of one’s core business. The purpose is to increase (core) revenue or bring in more traffic to the core business by engaging into adjacencies. For example, as an insurance company, one could provide a digital health value proposition to its users and hence drive the sales of health-related insurance products at one point in time. By definition, this innovation objective is more focused on topline rather than bottomline imrpovements.
Objective 3: New business
Finally, new business focused innovation is, as the name suggests, about finding new businesses and revenue streams for the company. Of the three objectives, this one takes most commitment and investment, but done correctly, also gives the biggest upside, such as diversifying risk of being too reliant on the core business and investing into the future sustainability of a company.
This “type” of innovation requires the most visionary and risk-seeking management team. It takes a leap of faith and patience, as investment returns may not be apparent in the first few years.
Observations
From my perspective, most of the corporates focus at least on the first or second objective. Most often the BUs have “innovation requests” to a centralized innovation unit which then interface with the outside world to find new innovation or to make them inhouse. At the same time, a lot of corporates do have their own VC arms to invest into early-stage start-ups in their respective field.
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