What is the biggest impediment to innovation in large corporations?
“What holds back innovation inside a large company is not a lack of technology, but the lack of process, procedures and budgets that will allow innovation to exist. Usually, large corporations work by finance, procurement and human resources procedures. These procedures are necessary to get scale and they work well in a large company’s normal business model. The problem is that when corporations try to be innovative at speed, all these procedures strangle innovation in its crib. The very processes that make money in a large company, are the antithesis of what you need for innovation”.
How can it be overcome?
“Corporations need to build an innovation pipeline as a parallel organization, which will operate on completely different rules and regulations, and have greater operational freedom. It should be built as an end-to-end process: From incubation stage of innovative ideas to market scale-up”.
How does the innovation pipeline integrate with the corporation’s business activity?
“If the innovation pipeline is not hardwired into the existing corporation and does not tap into engineering, design, manufacturing and support - innovative ideas will end up as demos and will not be a part of the existing product-line of the company. Usually, innovators themselves are great at creating the first prototype, but they are the last people on earth you want to run an organization at scale. Therefore, the corporation needs a small group whose job is to integrate the innovative ideas into the product line. People should go back and forth between the innovation and execution groups, so that there are diverse sources of good ideas and innovators learn how to execute. In addition, the corporation should make sure financial resources for delivery of innovative ideas are always in place, and actually allocate 5-10 percent of its annual budget for this purpose.
Of course, all this applies to corporations that have time and resources for internal innovation processes. Other large corporations have the advantage of acquiring start-ups.”
What is the right way of integrating start-ups into corporations?
“There are four types of acquisitions. The first – you target only the IP (Intellectual Property). in this case there is no need to integrate the innovators into the corporation. The second - you acquire the team that is working on a viable high fidelity product but has not achieved a product market; leave it in place and give them resources as needed. The third – you acquire a start-up that has product/market fit but has not scaled yet. Again - leave them alone but give them the resources they explicitly need for scale, such as access to the existing sales channel. The last – the startup has product/market fit and their cash flow is positive. You can start thinking about fully integrating them, but be careful not to break the new shiny toy.
It is important that large corporations understand how fragile the process of start-up acquisition is: The most valuable thing that you actually acquire is not the technology but the culture that made it possible”.