Even in the Silicon Valley, land of unicorns and thinking 'different,' corporate innovation is hard. Certainly, corporations are fantastic at innovation. Look at the Most Innovative Companies of 2018 list, and only multi-billion dollar corporations take the top spots.
"Those are startups, not corporations," someone remarked after my keynote at an innovation event.
"At No. 5, Amazon is a $750 billon company with 566,000 employees. How is that not a corporation?" I asked.
“Amazon doesn’t count as a corporation. It acts like a startup,” they countered.
Ah-ha! We had just unearthed one reason why some corporations are great innovators, while others struggle to generate growth from their R&D, innovation and venturing activities. Of course, there’s much more to it. As cataloged in Clayton Christensen’s famous tome, large organizations don’t go far enough in the pursuit of non-core innovation, in part, because they always must keep an eye on the core business. Established companies struggle with finding the right balance of investing scarce resources in maintaining the core (the known) and investing in disruptive innovations (the new) – without disrupting short term financial results.
How do we overcome these challenges? Both startups and large corporations face innovation obstacles: funding, managing stakeholders, building a product, finding customers and scaling up. Having spent over a decade creating innovation programs and incubation centers for Fortune Global 500 companies, I’ve discovered secrets of success that have helped companies adopt risk-taking and innovative approaches or to 'act like a startup.'
Here are four secrets of success that will help innovation leaders fine tune their craft:
Secret 1: Clearing the way
Outside of my window in San Francisco, I watched the imposing 1,070-foot-tall Salesforce Tower rise over the skyline of the city over the past few years. Erecting the tallest skyscraper west of the Mississippi in earthquake territory is not a business-as-usual proposition. The fact that it would sit on land prone to soil liquefaction during earthquakes forced reevaluation of existing construction techniques, methods and materials. The builders ultimately arrived at a pioneering performance-based seismic design that elevates energy absorption over enhanced strength and includes 42 piles driven down nearly 300 feet to bedrock. Altogether, this risky endeavor required new technology, a visionary leader, a winning design, a solid team and a contingency plan.
However, it also required an additional step that is often overlooked: The act of clearing the way. Existing buildings had to be razed and new infrastructure that could support a skyscraper had to be built. Done right, this deconstruction step results in a big new skyscraper. Avoiding this step, the initiative will be built on inappropriate foundations and infrastructure and will crumble at first stress.
Deconstruction takes place between ideation and incubation, requiring critical evaluation that thoroughly dismantles and challenges internal structure. The exercise exposes what can be recovered, reused or recycled, as well as what must be jettisoned to bring the innovation to fruition. Building new opportunities can require internally destroying how business is typically done to create a truly solid foundation.
Companies can create these policies without impacting their core values or principles. As innovation leaders, we must help our core business and infrastructure partners see the distinction between policies and processes, versus core values and principles. The latter will survive forever. The former can be easily changed and adapted to changing business realities. If deconstruction is skipped, new ideas will not survive.
Secret 2: Organizational slack
A worthwhile vision requires a devoted team. Innovation leaders are hard pressed to find resources to work on their grand visions. The lack of resources with free time to pursue new opportunities is a critical problem. When companies like Google encourage employees to use 20 percent of working hours to be creative and experimental, they are intentionally addressing the resource problem. They are creating what academics call organizational slack.
New business requires staff. The creation of a dedicated team with the expertise necessary to support idea generators is essential. To use an American baseball metaphor, relief pitchers in the bullpen are organizational slack – talent that sits on the bench for a large portion of the game, only to play when called upon to help win the game. Access to resources is essential for molding an idea into an innovation, as well as ensuring that it will thrive and scale when 'launched.'
What does this look like in practice? Creating an accelerator is an internal function that has dedicated, expert resources who help idea generators turn their idea into a small business by leveraging expertise in design thinking, lean innovation, business model innovation, and open innovation. Moreover, the accelerator makes up its own rules about how to create the new venture.
It is bold to adopt an internal accelerator model where dedication to customer discovery, design thinking and fast prototyping help turn ideas into big new businesses. The main question that companies face is: How long does the accelerator manage the startup? Until it is ready to launch? Until it is profitable?
In one study, we learned that 75 percent of startups created centrally were killed by core business units within six months of transfer. After central teams spent a lot of resources to create an idea and a small business, core businesses killed them. What a waste! After learning this, the accelerator retained the business until it was too big and too profitable to be killed. The biggest business the accelerator ran was $300 million in revenue and profitable. It was too big to fail. This accelerator model was key to providing the resources, or organizational slack, to create and grow big new businesses.
Secret 3: ATM funding model
New ideas need to be funded quickly, but corporations usually have incompatibly rigid budget processes. Management rules that run legacy businesses do not work when applied to new businesses. Thus, a different funding delivery channel is required for innovation. Venture capital is highly sought after by startups because once the startup begins to experience success, they need quick access to large amounts of capital to pay suppliers, hire people and fund customer acquisition costs. Access to 'unlimited' capital enables speed and agility to meet growing demand for products or services.
Compare the venture capital model to the corporate budgeting process. Do the terms quick, unlimited, speed or agility come to mind? Likely not. Corporate budgeting processes are designed to minimize fluctuations in financial results by requiring robust and exact forecasts for budget proposals that are stack-ranked against each other to produce the best use of capital for the next period. There’s very little chance that bets on innovation will be funded, beyond the minimal fear of ruining next quarter’s results and incurring the wrath of shareholders.
In contrast, companies that are successful at innovation set aside specific access-as-needed accounts and flexible budgets because innovators often require fast access to funds to meet unforeseen development requirements, keep projects on track and move forward quickly.
Think of this as an ATM funding model, where intrapreneurs can quickly withdraw preset funding amounts when necessary. This ATM model is especially challenging for slow growth, no growth and declining companies because they often lack liquidity for incremental budget additions and because monolithic processes tend toward immutability. Such inflexibility is death to innovation. This doesn’t mean you give a teenager your credit card and simply hope for the best. But there needs to be a mechanism, even in declining companies, for funding viable new ideas. Corporate innovation requires breaking down, or at least bending, existing rigid financial processes.
Secret 4: Minimum viable synergy
Partnerships always begin with optimism, often believing they will change the world together. Take the recent Amazon, JPMorgan Chase, and Berkshire Hathaway plan to join forces and create a nonprofit healthcare improvement company. The partnership announcement prompted positive notice and an initial rush of major healthcare reform predictions. And then The New York Times pointed out that 'none of these players have expertise in health care.
With common cause and relevant expertise, cooperative partnerships cultivate brilliant innovation. However, I’ve learned the hard way it is highly likely that one partner will not be able to deliver on an important element during the co-development process. In one case, a collaboration between a corporation and a startup that looked perfect on paper failed to deliver the intended results because the corporation didn’t have access to the right customers. (Note, it was the corporation that was overly optimistic, not the startup.)
We all know the term minimum viable product from lean innovation. Similarly, cooperative partnerships must identify an early checkpoint for what I call minimum viable synergies. Minimum viable synergies,or MVS, are a few essential core requirements that ensure the partnership delivers on promises – materials expertise, brand, market insight, supply chain and customer access, to name a few. Each partner’s contribution is assessed and validated in the market at the earliest possible opportunity.
The MVS checkpoint validates alignment to goals early in the relationship to avoid wasted investment and effort. Quickly validating partnerships and identifying the right moment to transfer for scale up can shave months, years and millions off bringing innovation to market.