Corporate Innovation: the successful path
From 2016, Innovation became the number one priority in corporate businesses. What are the three areas that are covered by corporate innovation? Why is Intrapreneurship the only effective way to produce results? And what is the one thing that is missing in 90% of corporate innovation programs launched in enterprises?
The first thing corporates chose to do was in turning to CVC’s (Corporate Ventures capital). In other words allocating a small part of the companies revenue to directly invest in external startup companies. Corporates do this to embrace innovation and close the gaps with startups who are taking increasing market shares in each and every industry.
This phenomenon is as old as the world itself. J.P. Morgan invested in a small startup founded by Thomas Edison in 1860, which turned to be a mechanical and technological empire known today as… General Electric.
Other big brands recently established their own Venture Capital departments. Siemens Venture Capital has invested over 800 million euros in more than 150 startup companies. General Motors set up a $100m fund in June 2010, and Intel Capital that just acquired the Israeli startup Mobileye.
On the other hand, a lot of leading corporations acquired companies that they weren’t able to integrate properly.
Teva, the global Israeli pharmaceutical company, lost its leading position because of a net $30000K acquisition
(in Actavis Generics). Microsoft regularly acquires startups without succeeding in scaling them successfully
(Yammer) or intentionally killing its products (Sunrise Calendar).
Corporate Ventures sometimes work, but not as good as we might have expected. There are two main reasons:
1. An enterprise is – by definition – not an investment company.
2. The cultural gap between acquired ventures and corporates is too vast.
The second strategy used by corporates in the last few years is incubating and – sometimes – accelerating outside startups providing entrepreneurs with infrastructure and early-stage funding.
Walt Disney, Samsung, Volkswagen, Barclays and more recently Checkpoint, are among the 80 companies running such programs. Even though corporate accelerators are considered to be less effective as regular seed accelerators. This is because, as Danny Crichton explains, the startup may be too focused on solving the problems of the sponsoring firm rather than finding external customers. Yet, the goal of a startup is to build a scalable solution to a general problem facing an industry, not a fitted solution to one company’s challenges.
Furthermore, the core activities of these industrial companies do not pertain to accelerating startups. While meeting innovation managers within such organizations, I used to ask one simple question:“How many startups have concretely become business units that generate new streams of revenue in your organization?” Awkward silence …. Zero. Not even one. An unsurprising answer when people are used to thinking in terms of ROI, customers, revenues, market share, and all of these irrelevant corporate metrics for entrepreneurs in the first two years of their adventure.
Conversion and retention rates, revenue, lifetime value per customer, referrals, and channel adoption are the only metrics that matter in accelerated projects. In short, corporate incubators are great for branding, less for initial value exploiting and real large-scale execution.
The most efficient corporate innovation approach turns out to be Intrapreneurship. It’s about allocating dedicated innovation teams that will conduct their own projects from within the company. Such adventures have three tremendous benefits.First, a great ROI (return on investment). A highstandard intrapreneurship annual program costs +/- 250K $ for a $5000K creation of value in corporate ventures by the end of the year.
Second, acquiring new market shares. Indeed, a huge advantage Intrapreneurs have over Entrepreneurs is creating new family products for already existing clients. Third, manager’s empowerment. Given, that innovative projects with uncertain outcomes require extraordinary leadership, intrapreneurship is the key to ensure long-term commitment and plenty of motivation for those involved within the company.
At Google, employees can focus on one of their own projects up to 20% of their work time. Amazon has always been working in small teams called “Two Pizzas” in order to unleash the potential and creativity of its people. Airbnb recently launched “Samara” – an entire in-house innovation and creativity studio to constantly create and test new products. And the well-known pioneer of Intrapreneurship, Steve Jobs, has created the famous Macintosh model by forming a group of complementary people working towards visionary projects. Intrapreneurship or permanent beta testing seems to be the key to longevity.
On the other side of the coin, we have seen Kodak, Nokia, Yahoo, Chrysler, Blockbuster which were all industrial empires of +50,000 people that totally vanished because of tiny startups called Instagram, Netflix, Tesla, and others.
The lack of in-house innovation is currently the ultimate threat. Today, the challenge facing various industries remains the same. The energy companies are losing 8% of the market share annually. In transportation, it’s 14% a year. Gas companies are losing 20%. And mining and metals industries are losing 12% every year (PWC market
research). As Alexandre Bompard, one of the best European CEO’s puts it:
"In a situation where my company’s revenue is inevitably decreasing by 10%,
innovating new families of products is the single sustainable strategy."