Every day we hear about innovation and think of great organizations that have succeeded like Apple, Microsoft, Amazon, Alphabet (Google), Facebook. These companies are relatively recent startups with high market capitalization values and each with well-defined corporate innovation strategies and approaches.
Simply put, corporate innovation is a tool that corporations use to create value, obtain financial returns for their shareholders and have a long-term competitive advantage; that is, be relevant in the market.
The search for innovation can have an effect within companies that can be classified as incremental, disruptive or disruptive innovation.
- Incremental: Which allows the company to continue with its activities and business model in a traditional way, trying to add value through continuous improvements to existing products and / or services or processes, such as the launch of a new generation of cellphones, a new model of a car or computer etc.
- Disruptive: One where a company or industry displaces other previously existing. Some clear examples are Amazon in online commerce; WhatsApp in text messages; or the replacement of the use of fossil fuels by alternative energy sources such as solar and wind.
- Breakthrough: A type of innovation that generates a technological or scientific paradigm shift, such as the use of transistors or the internet.
When organizations think about types of innovation, they have in mind their products and / or services, business models and processes. Products and / or services are linked to the value proposition towards the client. The business model, on the other hand, considers the organization’s strategy and operations as a way of generating value for shareholders. The processes are those that allow them to develop their activities continuously according to their business strategy.
Thus, if we combine the effect of innovation with the type of innovation, we have the play area where corporate innovation occurs. This corporate innovation matrix was basically proposed by the BCG consultancy. Here we present the improved proposal where the following tools arise to carry out corporate innovation:
- Research and Development: R&D is the basic tool for any company that seeks to sustain incremental innovation in its products and / or services and processes. An example is the automobile manufacturers, dairy companies, televisions, etc.
- Associations and innovation laboratories: These are intended to generate incremental and sometimes disruptive innovation that permeates the products and / or services, business models and processes of the organizations. Some companies that use this tool are Kohl’s Innovation Center, Verizon 5G Labs, Google [X], among others.
- Accelerators: On occasion, some companies have acceleration programs such as Google for Startups, where by accelerating startups indirectly, benefits such as additional knowledge, positioning of their technology and services, etc. are received. Other programs are AT&T Aspire Accelerator, Citi Ventures Accelerator or Disney Accelerator.
- Mergers and Acquisitions (M&A): It is one of the traditional corporate innovation tools that seeks to leverage the technological advance, market positioning or geographic coverage of a company by acquiring it instead of making internal investment and growing organically. Facebook as a social network is a mature company, and to continue its growth and the generation of value to its investors, apply this strategy, which can be seen reflected in the acquisition of companies such as WhatsApp, Instagram or Oculus VR.
- Incubator, Company Builder or Intrapreneurship: Some companies develop startups internally. They generally identify a problem to solve, contribute resources and hire an entrepreneur to lead the initiative. The expected result will be a new company that is complementary to the current strategy or that generates a new business vertical for the corporate.
- Corporate Venture Capital (CVC): It is one of the latest corporate innovation tools. These entities seek to strengthen the corporate strategy and add value to the company’s organizational capacities by investing directly in startups, as does an independent venture capital fund (IVC). Multiple organizations have launched CVCs such as Google Ventures, Intel Capital, Salesforce Ventures, Qualcomm Ventures, GE Ventures, etc. Furthermore, this tool allows the administration to be exposed to new technologies, disruptive business models and an entrepreneurial way of thinking. In general, companies with CVCs enjoy a significant increase in their own innovation productivity and tend to have higher value.
To sum up, corporate innovation is an essential element for companies to generate value, financial returns to their shareholders and maintain a competitive advantage in the long term. Therefore, it is essential to adapt and implement these tools, as well as maintaining a high tolerance for failure.
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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