Innovation Leadership // Blog

What is Corporate Innovation?

Every large enterprise must undergo some degree of evolution to compete with modern monopolies in tech, and ultimately win. At Applico, this is what we think about every day.

So how do you form a corporate strategy to address these things and choose the most worthwhile initiatives? Which ones will pave the way for significantly-bigger market share, and which will amount to no more than a flash in the pan?

This leads us to a discussion of what corporate innovation really is. Broadly, the term refers to how traditional enterprises digitally empower their core business or spin out completely new ventures. And there are many approaches to both.

But not every approach will serve every traditional large business well. When embarking on your innovation journey, it’s useful to look at the whole landscape and see which paths make the most sense fiscally and culturally. Picking the right approach is key to getting digital transformation right, reinforcing the core business and assets that have taken many years or decades to build up, and ensuring your company continues to thrive.

The Two Buckets of Innovation: Incremental and Disruptive

Corporate innovation tends to fall into one of two big categories, each differing in purpose and potential impact.

First, there’s incremental innovation. This is a stepwise evolution towards new digital opportunities, a necessary move for all of today’s traditional businesses (or else they might find it hard to survive). The key to incremental innovation is that it does not change the core business model in a significant way, but it still consists of efforts to improve existing operations and add new digital capabilities to existing offerings.

Some examples would be streamlining the supply chain, managing and analyzing big data, automating customer service, or digitizing sales, marketing, or product development to boost efficiency and profit margins. Because this type of innovation often involves big investments and large-scale infrastructure changes, it’s essential to get the details right. A 1-3 year time window is reasonable here.

Then there’s disruptive innovation, the aim of which is to create an entirely new business entity or disrupt the business model of the core enterprise itself. This kind of initiative takes longer to fully realize: 3-5 years or even more is a typical time horizon. It involves looking at what your competitors are doing, who your new competitors might be tomorrow and what technologies are changing the way things are done in your industry.

To do disruptive innovation right, you’ll want to start by creating a small team and giving them a small amount of money to sprout and prove a viable new business model. That initial proof of concept is what any real disruption is built on. And giving that small group the room they need to fail fast, gather data and keep iterating until they hit on a business worth scaling is the key to success.

A Closer look at Disruption: “Open” vs. “Closed” Initiatives

In the world of disruptive innovation, there are two distinct roads to go down, more or less: closed and open initiatives. It makes sense to look at each of those avenues when considering disruptive shifts, as enterprises often end up drawing from both.

“Closed” disruption happens inside a company. It entails tapping into homegrown talent by setting up internal incubators and nurturing “intrepreneurs,” whom you would give space to come up with new, transformative directions for the business at large. Actually accomplishing this disruptive change might involve any mix of strategic investments, patents, and R&D.

Things get interesting with “open” disruptive initiatives. These involve looking outside of your organization and reaching out to startups and firms that will connect you to whole ecosystems of tech talent. Open initiatives can take many different forms and involve a variety of third parties, all of which can be mixed and matched to create the perfect solution.

Some of the entry points for open disruption are outlined below.

Accelerators

By connecting with accelerators, you can have your ear to the ground and survey an open field of nascent startups, some of which will be very promising M&A or partnership targets. Going this route can mean looking at the pool of budding ventures within an existing accelerator, or working with a firm that helps enterprises create their own internal “accelerator” of sorts.

By tuning in to accelerators, you can closely watch trends that are most relevant to where your business needs to go. A Head of Innovation, or similar role, will typically oversee outreach efforts and liaise with the right strategic parties.

Startup Networks

These startup networks are curated associations of startups that your innovation team can establish touch points with, often through speed-dating-like arrangements. Since this means you’re not limited to working with one accelerator at a time, you’re able to gain expose to a wider range of new technologies and talent.

A startup network also serves as a nexus for new collaborative opportunities, and it introduces you to an array of ventures ripe for early-stage investment and learning. Especially if you don’t have staff dedicated to innovation efforts just yet, this approach can be a great way to meet people that could eventually fill the gap.

Corporate Venture Capital (CVC)

Corporate venture capital, or CVC, is a type of venture capital effort that starts from within your company. Prominent examples of this are GV, Intel Capital, and Salesforce Ventures, with hundreds more large enterprises jumping on the trend each year.

The CVC arm of your corporation would direct capital investment into the right startups for an equity stake, or as a part of JV pursuits. The job of heading this venture arm within your organization calls for someone with deep investing experience, and a critical eye for what opportunities will be most accretive to your business.

Corporate Venture Studios

Going with a corporate venture studio entails more hands-on involvement than the CVC route. Corporate venture studios are specialized firms that your enterprise would partner with to build a new startup from the ground up.

Partnering with a corporate venture studio involves leveraging outside entrepreneurial talent and funneling enterprise assets such as capital, supply and demand networks, customer knowledge, and experienced personnel towards the development of a profitable new venture.

Building a Corporate Development Department

Sometimes, building a whole department that’s simply dedicated to figuring out the best growth strategies vis-à-vis innovation is the way to go. Such a division would consider all the promising acquisition, investment, and partnership options, and fully explore what mix of M&A or JV activity will most likely lead to long-term profitability and growth.

What Gaps Exist that Corporate Innovation Will Fill?

Ultimately, innovation will look very different for every enterprise. And before rushing to capitalize on a new trend or acquire new technologies without a sense of direction, it is key to determine your company’s needs. You’ll want to first be able to answer key questions like:

  • What kind of actions are your competitors taking?
  • Are there new competitors entering your industry, perhaps from other industries you didn’t previously view as competitive?
  • What needs to be added, streamlined, or automated?
  • What tech trends are invading your industry and setting the stage for permanent shifts in the way transactions and customer relationships are handled?

Because there is a plethora of ways to attack these questions, you must learn to say no to many attractive yet ultimately distracting approaches so you can say yes to the right thing. Then, and only then, can you execute properly on the most promising path.

Bear in mind that the right way forward might be to pursue a mix of both incremental and disruptive innovation, or both closed and open initiatives. It could look like, for example, partnering with a startup and leveraging its resources to digitize your business and make methodological improvements, while keeping the door open to harness the startup’s disruptive potential down the line.

If disruption is in your sights, getting that initial confidence to move on a new, future-ready business model goes back to starting simple — with a small team, a modest budget, and a time constraint on the order of just a few weeks or months. Gather the data and proof very early on with a modest set of resources, and you’ll learn a lot about whether the idea is worth pursuing further.

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