The Paradox of Corporate Innovation

By June 8, 2016 blog, Innovation No Comments

When it comes to innovating within the structure of a larger corporation, a number of readily identified issues come to light:

  • Innovation always seems to fail
  • Corporations, with good reason, are designed not to be innovative.

Innovations always see to fail

The Pessimist vs The Optimist

A cursory Google search of the phrases, “why innovation succeeds” and “why innovation fails” reveals a startling discovery, articles about innovation failure outnumber articles about innovation success by 80 to 1, but like almost everything else in life, failure and success is all about how you define them and the whole failure/success argument can be view through either an optimistic or pessimistic point of view.

Why innovation succeeds Why innovation fails

A pessimist might say that innovation, in and of itself, is not a predictable process and most of the time, you start the process being unconsciously incompetent, you do not know what you do not know. So if you don’t know where you are going, how do you know when you get there?

A more optimistic way to view the innovation failure/success argument is to rehash the Thomas Edison quote “I have not failed. I’ve just found 10,000 ways that won’t work” and accept the fact that failure and success are not mutually exclusive. Most organizations do not “get it right” the first time, but the point of the innovation exercise is to take measured risks and iterate through various states of failure until you have a product that meets a market need. Viewed in isolation, most individual attempts are not successful, but hopefully you learn from your mistakes. Looking to other endeavors for parallels, most successful poker players lose way more hands than they win, they just know what to do with their winners.

Our position is that Edison had it right and laid some clear direction on how you should be structuring an innovation process. Viewed in more abstract terms, Edison laid the foundation for the approach to venture capital as it is practiced today. We will cover this in more depth when we look at how venture capitalist deal with the challenge of managing innovation.

Corporate cultures are designed to be repeatable, consistent, predictable and profitable.  You do not want your front line employees improvising or your marketing department changing it up simply for the sake of it.

Or do you?

Corporations are not designed to innovate.

Corporations have begun to see the value of internal innovation but there is an inherent obstacle for large architecture-22039_500businesses aiming to capture the inventive, entrepreneurial spirit. Imagine if you owned a piece of manufacturing equipment designed to make pens, only it randomly made different types of pens or sometimes, it even made pencils. That would be a pretty bad piece of equipment and a terrible waste of your money. Now imagine this wasn’t a piece of equipment, but an entire company, how successful do you think it would be?

There are those who argue that innovation is not a set of defined activities but rather an attitude, a culture, supported by a set of loose processes and even less-defined outcomes.1) If that is your company’s approach to innovation, your company might be having trouble with the whole concept of innovation. While a specific group of people within the company might require that sort of environment to foster innovation, it is no way to introduce an innovation to the rest of the company and its customers, and it flies in the face of any reasonable approach to management.

Startups want to become corporate as fast as possible.

Another observation is that while many executives and pundits point out that established companies need to become more like startups, the reality is that the startups are attempting to make their mindset more corporate. The whole purpose of a startup is to invest money in finding a product market fit, and once that product market fit is found, growing as fast as possible. This is partly why startup founders are often supported or replaced by a cast of experienced corporate operators whose strength is building scale.

Corporate Innovation is not dead.

With the tenure of companies in the S&P 500 index falling to 18 years, and the projection that by 2027, 75% of the S&P 500 is due to be replaced, you might think all companies are doomed.2) The reality is that there is nothing to say that innovation can’t take place within a large organization if the environment is structured properly. 3M, the company that invented scotch tape and post-it notes, receives up to 30% of its revenue from products released in the past 5 years.3) Using a strategic approach to innovation, Procter & Gamble’s Tide revenues have nearly doubled in the last 12 years, helping push annual division revenues from $12 billion to almost $24 billion.4)

The takeaway from the corporate innovation paradox is that the innovation multifactorial process must be managed appropriately, not with a broad imperative. Executives need to manage a number of factors when setting up a comprehensive innovation strategy:

1. Alignment of innovation investment resources

Within many organizations, different groups compete for the same funds, which leads to inefficient duplication of resources. The challenge isn’t a lack of innovation resources but rather, how to use them in the most efficient manner.

2. Under-utilized and disengaged creative resources

As an organization grows and its products achieve greater adoption rates, the internal pace of change slows as many people within the company are focused on delivery and execution. This creates economic disincentives to innovate, as those with more creative skill are not necessarily compensated adequately to take what are seen as career-ending risks in a deliverables environment.

3. Promises of ubiquitous delivery capabilities

The needs to be instantly available anywhere has become standard in many industries in order to meet the needs of a large and segmented customer base, despite the fact that it dilutes focus on emerging disruptive opportunities. A typical company has gone from a handful of delivery channels to 15-20 channels (mail, internet, etc.) while expanding its product offerings tenfold. This often evolves into a mentality that if a product can’t be rolled out everywhere, don’t roll it out anywhere.

4. Organizational history

Every organization has organizational memory which can create complacency and prevent progress. When memory becomes the standard, it holds back creativity and unorthodox solution development.

In the next post, we will explore the differences between internal and external innovation and which is more effective for a large corporation.

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