Everyone loves an exciting startup idea but, before jumping into the deep end, your organization must know exactly what corporate innovation model is right for you. We often see corporations exercising “silicon valley tourism”, going to conferences to “see what is out there”, and generally showing a lack of cohesion when it comes to practical ways that startups might eventually bolster your bottom line.
All successful corporate innovation models start in the same place: building a strategy around what your company wants to achieve in the future. This can range from improving customer service to building new product lines. Often, this is a directive from the CEO or board of directors and can be incredibly helpful in understanding what will eventually be signed off by your C-Suite.
It’s important to remember that corporate innovation is not something that comes “out of the box”; it varies for every business. However, there are archetypal corporate innovation models that can guide you in the right direction.
Open vs. Closed Innovation and the Spectrum of Corporate Innovation Models
To start, it is worth familiarizing yourself with the spectrum of corporate innovation models – from closed innovation to open innovation.
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For decades, we saw industry titans build huge research and development labs to find the “next big thing” from within their own company. In simple terms, this is the epitome of closed innovation. In some cases, it will result in huge success: the Volkswagen Beetle, the iPhone, and some of the most popular pharmaceuticals on the market today. It can often result in monumental failure too: the Ford Edsel, the Facebook phone, and Apple’s Newton Messagepad.
On the other end of the spectrum, we find the likes of corporate acquisition strategy and a corporate innovation accelerator. The barrier to entry is often much lower here because there is no need for a massive R&D facility staffed with cream of the crop scientists and innovation specialists.
Closed Innovation: Intrapreneurship Program / Research & Development
As mentioned previously, research and development is a very common approach to modernizing your company. By keeping innovation strictly internal, “intrapreneurs” are provided resources to improve existing products and even launch startups within the company. Unlike most open innovation models, this requires a great deal of capital to even start.
Immediately, this increases the risk level of the internal ventures because they are being built from scratch, have no guarantee of product-market fit, and could be a very public way to fail. For a corporation trading publicly, this can be potentially devastating to the market cap and very unpopular with the board of directors.
Nonetheless, some of the brightest minds in the world might not have taken the entrepreneurial path, but the corporate one instead. An intrapreneurship program will help to identify these great minds and give them the tools they need to make their big ideas a reality. This can be a great way to create a huge competitive advantage and create new products.
Closed Innovation: Corporate Accelerator Program
Part of our process when we roll out one of our programs into a new location is to find a corporate partner to do it with (e.g., Startup Autobahn, Retailtech Hub, BNP Paribas-Plug and Play). However, our mission is to always allow for a multi-corporate accelerator program to ensure that the startups in each batch are not beholden to just one single corporation’s goals and objectives. This creates fairness for the startup and lowers the risk of them having one, single client.
That said, corporate accelerators are commonplace. Corporations like Disney, Barclays, and even Google have launched their own accelerators that focus directly on their own business challenges and objectives. The benefit for these corporations is that they can almost assure that they will find and work with startups that tie directly what they need.
The downside is potentially very damaging to a startup’s lifespan: if a startup lands a pilot or POC with the corporation running the accelerator, they have very little bartering power or time to find other partners to test their solution with. If, eventually, the product does not work for that one corporation, they might have “put all their eggs in one basket”. This can be crushing for the startup company – financially and psychologically – and often lead to its closure.
So, whilst ensuring some high level of control of the startups that are accelerated, the ethical responsibility to ensure that startup does not get hamstrung by your demands is one that could leave your corporation in very poor standing in the innovation community. This might pass Warren Buffet’s “newspaper test” but it might not get you into any parties in Silicon Valley anytime soon.
Open Innovation: A dedicated “innovation team”
We have seen monumental shifts in the financial services industry through our Fintech and Insurtech platforms – where startups are creating technology that is totally shifting the mindsets of customers. When a company, a bank, an insurer, decides – or fears – that startups are gaining market share, a team should be assembled internally to work on how their institution can futureproof themselves from quicker, more nimble startups encroaching their territory.
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Common strategies that arise after an innovation team and its change agents have dug into the future needs of their business are: increase efficiencies, create new product lines, improve customer service, and improve existing products through new technological advancements. The next step is to work out exactly how the company will transform from having no external innovation connections to a robust, consistent, and patient approach of finding the right set of startup partners to fuel their digital transformation.
This is where other corporate innovation models come in like an innovation outpost in Silicon Valley, external accelerator programs, or even a pipeline of startup pitch events. For the innovation team to do their job effectively, they will need to be the boots on the ground: scouting startups, watching them pitch their product, doing the due diligence, and brokering a pilot program to see if it does indeed make a valuable difference.
Open Innovation: An innovation outpost
Different industries focus on different regions across the world. The automotive industry of America was centered in Detroit, London is Europe’s financial axis, and Silicon Valley seemingly has an absolute advantage on future high-tech. An innovation outpost should be positioned in the cities or regions that will give you the highest likelihood of finding advancements in your market.
Once your innovation team has been assembled, they can be dispersed across these different regions in outposts, or can be centralized in the main one. For example, we host innovation outposts for many of our large corporate partners in order to help them keep an ear to the ground, react quickly to new connections, and roll out partnerships with great startups.
The process for building a successful innovation outpost goes from identifying the location, leveraging the networking opportunities, accelerating, piloting, and eventually rolling out company-wide. Setting up the outpost alone should not be considered a success, it is merely the start of the process. An outpost must be tied to other corporate innovation models to really benefit.
Open Innovation: External accelerator / open innovation platform
A low-risk and potentially very high reward corporate innovation model to leverage is the external accelerator (or, as we like to call it, open innovation platform approach).
You are not fronting the full cost of a program, you are picking a level of engagement that works for your company and reaping the rewards of a vast network already assembled.
Firstly, you are not fronting the full cost of a program, you are picking a level of engagement that works for your company and reaping the rewards of a vast network already assembled. Secondly, you can choose to have “voting rights” on the program – i.e. an active say in which types of startups are sourced, which startups are accelerated, and which startups to meet – which gives you a level of control on the program that can drastically improve the outcome for you.
At Plug and Play, one of the things we strive for with our multi-corporate partner, industry-specific accelerator programs is to ensure that:
- We aggregate the technology interests and challenges of a lot of different major corporations in a given market. This allows us a significant advantage in understanding the core trends facing that industry and relaying that back to our partners and startups.
- Ensuring that our startups have the opportunity to meet with the decision-makers at the world’s largest companies (we do this primarily through “private dealflow sessions”), which means that, if your solution is good, you will find a lot of clients and will not be tied to one single partner.
- One major underlying advantage that our corporate partners are increasingly taking advantage of is the ability to network with other corporate partners – in the same industry as themselves or not – and collaboratively working on innovation best practises.
The overriding benefit of a truly open innovation approach is that there is an unbridled amount of opportunity for entrepreneurs, corporates, and venture capitalists to meet, brainstorm, and build lasting relationships.
Open Innovation: Investment and acquisition
Corporate Venture Capital (CVC) can play a pivotal role in the innovation roadmap of a corporation. In the last year, we’ve seen an explosion in the amount of corporate venture capital (CVC) firms. According to CBInsights, there were 186 newly active CVC arms in 2017 and global corporate venture activity reached historic highs with $31.2B of funding over 1791 companies. Corporate venture titans such as Intel Capital, GV, and Bloomberg Beta have paved the way to define the modern CVC: returns-oriented, strategic relevance, autonomous team, and evergreen funds.
In this open innovation model, the innovation assets begin outside the corporation and remain outside the corporation. CVC arms often take only a minority stake in the startups they fund, but the initial investment often leads to a substantial ongoing relationship.
Picking the Right Corporate Innovation Model for you
We love to help corporations find the right model because, after all, we want startups to succeed and a corporation with a well-oiled innovation strategy makes that much more likely. If you are interested in talking to one of our experts – even if it is just to join an event –, you can get in touch.