Nowadays, innovation in business is vital. Facebook is launching the metaverse, Google with Waymo is going to give people autonomy in their transportation and SpaceX wants to reach Mars.
However, 90% of businesses in the United States have less than 500 employees and 78% have sales of less than USD$500k. As such, innovation, like many other elements of business, must be tailored to the size and needs of the organization in order to have the right impact. (NAICS)
Organizations, regardless of size, should consider that innovation can occur in products and services, processes, and new business models. In addition, innovation can be incremental, disruptive and breakthrough (Tools for Corporate Innovation).
The tools that are available to organizations are:
- R&D — Research and development has been a feature of large organizations for many years. Small and medium-sized companies could conduct small experiments with minimal capital investments that are in a controlled environment and that allow them to define elements of value for the business.
- Partnerships & Innovation labs — There are Microsoft, Google, and Amazon’s AWS programs for startups, which aim to support entrepreneurs in developing their business. Startups are always looking for customers to grow their business or need to improve the features of their product or service; this presents a good opportunity for medium and small companies to seek partnerships and collaboration with technology-based startups, allowing them to acquire tools or have a transfer of knowledge or culture, generating value to the business.
- Incubator, company builder or intrapreneurship: Companies such as Schneider Electric seek innovation through its incubator that seeks to detect problems and propose solutions that could generate an incremental or new business for the organization. Medium-sized companies could hold hackathons or internal workshops to stimulate the innovative spirit of employees and launch a startup hand in hand with the organization. Small companies could focus on intrapreneurship by devising new business models that are complementary or completely different from their core business.
- Accelerator: Companies such as Facebook have a startup accelerator program that gives access to entrepreneurs to devise a business model that could later be partnered or even acquired by the company. Small and medium-sized companies can review the startups that graduate from the demo days of the multiple global acceleration programs (YC, TechStars, Masschallenge, 500) to seek partnerships or develop something on their own.
- M&A: Goldman Sachs, PayPal, Kroger, perform hundreds of mergers and acquisitions a year which give them access to new businesses and to new technologies. Small and medium-sized companies could acquire a company that generates a lot of synergies and provides them with a unique opportunity for value creation. However, they could also position themselves as a target to be acquired by an organization larger than themselves.
- CVC: CVCs are a source of opportunities for the corporate where they explore technologies that they can use internally. CVCs are usually funds between USD$50mm and USD$100mm interested in investing in startups that are in Pre-Series A or Series A, building a portfolio of at least 20 investments. The CVC is probably one of the most complicated tools due to its dependence on a corporation. The company must have a long-term vision, understand its need to invest in order to have access to innovation, and have a solid financial balance that allows it to develop this activity in the long term. Therefore, a CVC is not something that any organization can use, but a tool reserved for large corporations, probably with a global presence, that have a high interest in an investment vehicle as a growth and innovation development strategy.
Leadership within companies is the determining factor to look beyond the current situation and think about those disruptive elements that add value to the organization in the short, medium, and long term. Innovation, beyond being a necessity for leadership, must be a conviction, which is demonstrated by adapting the organizational culture to promote diversity and discussion of ideas, empowerment, tolerance for risk-taking, and acceptance and resilience in the face of change and failure.
Next, innovation objectives must be defined for the entire organization and structures must be adapted so that the innovative culture permeates the entire business and really adds value. Afterwards, metrics must be defined to measure the impact of the innovative process, seeking feedback to the business processes in each phase. It is important to recognize that the goal is to have an organization that lives innovation and not to have it become just another department of the company.
Consider telecommunications companies that have gone from offering connectivity services and infrastructure to being players with a diverse product portfolio for different audiences, such as production and streaming of series and movies on their own channels, cloud services, and even technology manufacturing.
The banking sector has perhaps been one of the most disruptive sectors. There is a myriad of startups that offer solutions for payments, transfers, asset management, insurance, and loans, among others that compete with traditional banking. This has led banks and other industry institutions to consider the use of blockchain and cryptocurrencies within their operations and portfolio.
Even in sectors that seemed to have no evolution, such as agriculture, innovation has made it possible to have crops audited by drones, automated tools in irrigation and production processes, and even verticalized crops in urban areas.
Just as internal combustion machines revolutionized industrial activity in the 20th century, today the internet and technological development have brought us into the digital era. Innovation is becoming faster and faster and has a greater impact on the daily activities of individuals and companies. All organizations, large or small, can have access to these innovations, probably the tools vary a little according to the size of the organization; however, the most important thing is that the conviction of the leader and the culture of innovation permeate the entire organization.
Hector Shibata Salazar, adjunct Professor at EGADE Business School and Director of Investments and Portfolio at AC Ventures Fund
Ana Maury Aguilar, VC Investor at AC Ventures
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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