Modern corporations suffer from an ancient curse: those who don’t innovate are condemned to die. The bad news is that there is no panacea to remove the curse, especially in free markets. Competition is the rule and there’s no such thing as perfection. Blackberry, Myspace, and Nokia are all good examples of formerly successful companies that almost disappeared because they took their eyes off the ball and didn’t remain innovative.
No matter how aware companies are of the importance of innovation, many suffer from myopia and fail to innovate. This inability to plan strategically and analyze the competitive environment leads to companies falling by the wayside, sometimes without even understanding what went wrong. Many think that the lack of an open mindset, a lack of rigor, or an inefficient innovation process are to blame. But often, the company fails to innovate because it stops thinking about innovation as something it must do.
Remember the infamous Kodak story? Many people believe that Kodak fell due to the myopic response of one of its executives, who refused to adopt the digital camera concept when Steve Sasson, the young engineer who invented it, presented the idea.
While this makes for a compelling story, is it really fair to blame the fall of an entire empire on a single event? What really happened to this company that for much of its entire existence not only developed cutting-edge film technologies but succeeded in fostering a worldwide recognition of its products and brand? A single bad decision cannot be the only factor at play!
The Innovation Triangle
So what drives innovation in mature corporations? Why did Kodak really fail?
Successful innovation happens where talent, capital, and a strong network of experts coexist. There is no shortcut, no easy route; this triumvirate of talent, capital, and experts’ network is essential for entrepreneurship, corporate innovation, and even institutional R&D.
The Innovation Triangle lies at the heart of Silicon Valley’s success. It’s the reason the valley gave birth to Google, Apple, HP, and Facebook. And it’s also the primary reason behind the success of the world’s most innovative research institutions, including Stanford, which is the beating heart of Silicon Valley, and Harvard.
Figure – Innovation Triangle
But the innovation triangle on its own is no guarantee of innovative success. Kodak certainly had the capital, it had the network and it had the talent. In fact, Steve Sasson still works there! In addition to the Innovation Triangle, a company must also adopt an archetypal framework of innovation to safeguard its continuing success, otherwise, it may not be able to adapt to a fast-changing market environment. In essence, if a company stops relentlessly innovating, then the disruptors will eat it for breakfast!
Archetypes of Corporate Innovation
While it’s difficult to precisely pinpoint the exact attributes that lead inexorably to innovative success, the following archetypal framework provides a useful way to think about corporate innovation culture.
Intrinsic Innovation
Intrinsic Innovation is an innovation model based on prioritizing core business and its adjacent verticals. Its objective is to optimize the existing business and sustain competitive advantages.
Both incremental and disruptive ideas may be generated through intrinsic innovation. Nonetheless, Incremental improvements, more than disruptive innovation, is common within this framework.
What this means from a practical perspective is that employees, partners, and even the public are encouraged to propose and implement incrementally innovative ideas. A company wishing to create an Intrinsic Innovation culture must put a relatively straightforward process in place, with acknowledged milestones and validation steps.
Companies that adopt this type of voluntary innovation improve employees’ motivation and boost competitiveness. In addition, the committees that approve projects are formed mainly by representatives of the existing business units, which are also the target customers.
However, a potential drawback of the Intrinsic Innovation model may be that more entrepreneurial talents or employees, those that dream of making significant impacts, may baulk at its relatively bureaucratic process. In addition, funding is generally limited, and ideas are “subtly” encouraged to be iterative and non-disruptive so those looking for the “big bang” may be discouraged.
Core Innovation
Core innovation plays a critical role in creating future capabilities for the company. It consists of Research and Development, transforming investment in talents and intellectual properties into new products and services that boost revenues. Core innovation is a must when products cycles are short or when revenues depend on intellectual property protection, such as in pharmaceutical, mobile, and software development industries.
This type of scientific innovation follows a rigorous process enhanced by internal and external peer review. The general model consists of 6 steps: Conception, Verification, Development, Validation, Testing, and Scale-up.
In general, core innovation groups are not exempted from routine corporate practices, such as spans of control, management hierarchy, required office hours, and even annual reviews. Incentives are also no different from the rest of the organization.
Two of the three sides of the innovation triangle are well established in core innovation: Capital and network: The budget is generally in line with the needs. R&D spending is tracked as a percentage of revenues or earnings and cash is rarely a bottleneck. The network of experts is both effective and extensive. The best professionals are attracted to work either in sponsored laboratories or directly incorporate R&D units.
R&D is a powerful tool when it comes to value-creation that is perfectly aligned with the company’s strategy. Its role as the innovation driver is to advance corporate priorities. It needs clarity and guidance and though could never handle a tight turn of the market if the company itself can’t see a technological shift and rapidly rearrange its agenda accordingly.
Intrapreneurship
Intrapreneurship or Corporate entrepreneurship is an in-house disruptive innovation model that mimics the startup creation process. The founders are employees of the company that is itself the primary investor.
Intrapreneurs benefit from the same power of action and “fun” that regular entrepreneurs experience without undergoing the same emotional and financial stress due to the high risk and the lack of a safety net.
Corporate entrepreneurship is more relevant and necessary today as companies experience shorter product life cycles and easier access to capital and know-how. These changes have lowered barriers to entry and made any breakthrough innovation of today, a vintage the day after.
Data confirms this trend. In the 21st Century, companies have less than a third of the lifespan of companies in the 20th Century. That shortening of company lifespans means that the traditional innovation models are no longer sufficient to ensure the sustainability of the businesses, regardless of how responsive the leadership is to the vagaries of the market. As a result, 88% of the companies that were listed in the Fortune 500 don’t exist today. They were acquired, merged, or went bankrupt.
The go-to-market strategy and execution doesn’t need to run through the challenging corporate planning process anymore. And pivoting is no longer a shame; it’s a must and proof of sharpness.
If the compensation and equity structure model can align to the market realities and if top corporate management could dare implement the cultural change that comes with inhouse, bottom-up corporate ventures building, Intrapreneurship is then the only choice for corporations that seek “Immortality.”
Conclusion
But why did Kodak and Blackberry collapse if they were spending $800 million and $1.4 billion, respectively, in R&D just before their decline? Could it be because, as incumbents, they no longer drove relentlessly towards innovation? While they may have had the talent and capital and network, as incumbents, they believed that innovation was something that just naturally happened in their companies rather than creating a framework to allow it to happen.
Modern companies need to incorporate entrepreneurship into their DNA if they want to survive. Companies must focus on the Innovation Triangle – and give an equal weighting to talent, capital, and network.
Companies must also decide on an Archetype of Corporate Innovation to foster a true entrepreneurial spirit. The chosen archetype should be a good corporate fit for the company and the approach should be employee / founder-centric. It’s no exaggeration to say that employees and founders know the customers better, share their dreams, and can champion challenging ideas that bubble to the surface to ensure that they have a broad impact. Intrapreneurship ensures that truly innovative companies continue to innovate for generations, even when challenged by disruptive challengers!
