Start-ups typically dream of growing to the scale where they have offices around the world. At the same time, corporations lust after the innovation they see abundant in entrepreneurial ventures. But is there a way to bring the two sides closer together?
One of the few things we can be sure of is “the way we have been doing business in the past 10 years, is not the way we will be doing business in the next 10 years”, according to Gary Dushnitsky, Associate Professor of Strategy and Entrepreneurship at London Business School, speaking at a roundtable event in Paris.
Launching new platforms and controlling ecosystems are strategic enablers of innovation, he says. Amazon’s move into the home with Alexa is a case in point. Creating a platform around voice recognition allowed Amazon to sidestep – even leapfrog – the competition.
The behemoths of home technology like Apple, Microsoft and Google might have seen off a challenge around a new type of smartphone or PC. This would have been a fight on their terms. Instead, Amazon chose to open a new front – one where the incumbents didn’t enjoy an entrenched advantage. The result: Amazon rapidly embedded itself in the home tech ecosystem as a peer alongside more established rivals.
“We all talk about platforms. Everybody wants to orchestrate the ecosystem,” observes Dushnitsky. “This all sounds very nice, but how do you actually do it?”
It comes as no surprise that the financial support underpinning innovative projects is key. A decade ago, it may have been difficult to secure funding in the first instance, but nowadays this is less of an issue. However, research identifies areas later in the funding lifecycle where problems occur.
Innovations can expect to experience a classic ‘J curve’, where significant investment is required before returns start to materialise. As such, losing money is to be expected over two or more corporate budgetary cycles. While this is anticipated in theory, senior managers can find it difficult to hold their nerve in practice - and potentially rewarding projects are terminated prematurely.
These mid-life crises can be avoided if the loss-making phase of innovation is fully understood and factored in. In particular, successful innovation has to transcend ‘pet project’ status, with Dushnitsky stating: “I know an innovation unit is robust once it has survived a transition in CEOs.”
Further down the track other issues crop up. One common scenario sees an innovation project finding itself adrift following a shift in the company’s strategic vision. It made perfect sense to initiate it five years ago, but now it’s an awkward fit. What’s to be done?
"The way we have been doing business in the past 10 years, is not the way we will be doing business in the next 10 years"
One option is to divest the unit. This was the course of action taken by one multinational energy company represented at the event in Paris. In this case it was a successful software applications venture, which was not core to their hardware-orientated business. The decision was made to sell it to a software company, which was better placed to help realise the unit’s full potential.
“Our software arm lacked the critical mass to make it sustainable,” noted their business development leader. “The key was to make everyone believe it is worth the separation.”
Throwing problems open to a wider community can be an effective route to unlocking innovative solutions.
NASA did just that to improve their model for predicting solar flares. Telecommunications satellites are taken offline to protect them from oncoming blasts of solar wind generated by these flares. The issue NASA faced was that their model was accurate only two-thirds of the time. This meant valuable satellites were frequently taken offline because of false alarms. Improving the model stumped scientists working for the space agency, so the decision was taken to throw the source data open to the wider community.
“Instead of getting astrophysicists to work on it, they released it to computer scientists who used algorithms from a different domain,” says Dushnitsky. The result: the accuracy of the model leapt right up, to the point it was almost always correct. Satellites could stay online more of the time, more safely.
However, realising the need to expand the search is just the start. The R&D people who are often tasked to lead the external search experience a mindset conflict. Traditionally they have thought of themselves as problem solvers. Now they are being asked to be solution seekers.
Corporations can undoubtedly also learn from entrepreneurs, who are adept at creating strong narratives that connect what they are doing to the wider impact it’s having on the world at large. Constructing such narratives – enabling employees to see themselves as part of something financially impactful as well as socially meaningful – is becoming increasingly important.
The managing director of a leading banking group says: “Fifteen years ago it was about the money. The new generation, the ones I’m hiring now, are concerned about the environment, diversity,” adding that these cultural shifts are “very powerful drivers of innovation”.
Ultimately, corporations must create narratives that extend beyond enthusing the young, to capture the young at heart across the age spectrum. While startups undoubtedly enjoy some advantages when it comes to innovation, the traffic is not one way.
“If a start-up fails there's nobody around to learn from what happened,” says Dushnitsky. “If a corporate startup fails, there will be people left who can learn and internalise the value. So, how can we put structures in place to help us? If we are going on a journey, it makes sense to wear a seat belt.”
Hear Jessica Spungin in conversation with Gary Duchnitsky on why the bigger the corporate, the tougher innovation seem to be.
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