What Is Corporate Innovation and Why It Matters.
Corporate Innovation Definition
Corporate innovation is a strategic method of sourcing and embracing new ideas that allow a corporation to retain market share over an extended period. The process involves harmoniously merging new, disruptive ideas into existing processes, with innovation coming from both inside the company and from external sources.
What Is a Corporate Innovation Strategy?
Corporate innovation covers the strategic and thoughtful advancements that make corporations formidable long-term competitors in their markets. Research and development departments, made up of engineering and scientific teams, have long propelled corporate innovation. They discover solutions to emerging challenges, and design ways of putting these solutions into effect. The R&D field has grown significantly and now receives heavy input from marketing departments, creating a more holistic understanding of customer demands and how to best acquaint customers with new solutions.
Company mergers and acquisitions have also paved the way for corporate innovation. Mergers, which are historically less common than acquisitions, are when two separate companies — usually competitors — join to form a new company. Acquisitions, on the other hand, take place when a company agrees to purchase a separate, smaller company in its entirety to integrate within its existing corporate structure.
As industrial practices and technology developed throughout the 20th century, an influx of companies began to adjust to the rapidly evolving needs of consumers. The tactic of acquiring or merging with other organizations gives big corporations the means to take on innovation in leaps and bounds because they’re able to absorb the ideas that have already been taking shape at other, often more nimble, startups.
In more recent years, innovation has also taken the form of corporate incubator or accelerator programs. These initiatives can be designed to drive the development of ideas that originate from within an organization, or they can become collaborative workspaces where external startups are able to leverage an organization’s resources and expertise.
Why Corporate Innovation Is Important
Corporate innovation is a necessary pursuit for any company looking to advance or remain at the top of its market well into the future. It provides the forward momentum that keeps organizations on top of technology trends and helps them modernize their products and services, as well as internal business practices. Planbox’s 2022 State of Corporate Innovation Report showed organizations that take an enterprise-wide approach to innovation are more likely to see their ideas successfully implemented.
R&D, as well as the acquisition of startups and other companies, are viable forms of corporate innovation. But they are not the only strategies a corporation can embrace. By combining a variety of methodologies into their corporate innovation strategy, corporations can have access to a wide variety of ideas that allow them to extend their market longevity and find more success in staying ahead of the competition.
Types of Corporate Innovation: Open Innovation Vs. Closed Innovation
There are multiple ways to form an innovation strategy. Whether relying on internal teams or enlisting ideas from outside parties, corporate innovation typically falls into two buckets: closed innovation and open innovation.
Closed innovation refers to the utilization of internal means to create new ideas and build for the future. Common closed corporate innovation models include creating teams dedicated entirely to innovation, sourcing new ideas from existing employees, forming dedicated innovation teams and launching internal corporate accelerator programs.
Open innovation refers to the sourcing of new products, ideas, and often, new brands from parties outside of the corporate structure. Corporations go about open innovation through investments and acquisitions, establishing innovation outposts, working with external accelerators or hosting competitions like hackathons and pitches.
Corporate Innovation Models
These are some of the most common programs organizations implement to carry out open and closed corporate innovation strategies.
Closed Innovation Models
The most basic form of corporate innovation is capitalizing on the expertise and ingenuity of an organization’s employees. Existing employees are more intimately aware of the company’s nuances, customers, market and competition than any external party, giving them an ideal perspective for finding solutions to existing challenges or coming up with new product ideas.
Dedicated Innovation Teams
Many companies have moved away from traditional R&D departments to concentrate instead on innovation labs. Innovation teams are typically composed of scientists and strategists who focus intently on improving existing products, launching groundbreaking new ideas, keeping up with customer needs and staying aware of the innovative executions from competitors.
Internal Corporate Accelerator Programs
A common closed innovation strategy is to launch an internal corporate accelerator program. Corporate accelerators provide technologically driven employees with funding and access to resources in exchange for their focus on solving existing challenges within the corporation.
Open Innovation Models
Investment and Acquisition
For many corporations, cash on hand can be the most valuable asset when it comes to innovation. By staying aware of startups and innovative companies adapting to customer needs, corporations can choose to invest in or attempt to acquire these organizations — leapfrogging competition and saving valuable innovation time.
In order for a corporation to successfully invest in innovative startups, they have to know where to find them. Many corporations accomplish this by establishing satellite offices in regional hotbeds known for specific industry innovation, such as Silicon Valley for tech or Detroit for the automotive industry. These outposts offer a high degree of networking potential with emerging companies in the area, as well as acting as create space for companies to focus on refining existing innovative ideas.
External Corporate Accelerators
As opposed to internal corporate accelerators, external accelerators are established independently from corporate funding to enable startups to prioritize their own mission while innovating. Corporations can then sponsor these accelerators, build connections with startups and acquire new product ideas within the program. The top startups in external accelerators are often acquired by the sponsoring corporation or receive funding and reputation boosts that turn them into viable organizations.
Hackathons and Pitch Competitions
Forward-thinking corporations often utilize hackathons and pitch competitions to enlist corporate innovation. These events can be structured in several different ways, enlisting individuals, teams of amateurs, teams from startups and several other parties to solve challenges and provide ideas in a timely, structured manner. Winning teams are compensated in a variety of ways in exchange for their expertise and intellectual property.
Open Corporate Innovation Examples
Techstars is an independent accelerator that partners with corporate sponsors to provide startups with opportunities to match with companies that align with their mission. A notable success story came out of the 2014 accelerator when robotics company, Orbotix (now called Sphero) joined Techstars’ Disney-sponsored program. The company earned the opportunity to produce operational toy versions of BB-8 from the Star Wars franchise, coinciding with the franchise’s first film in 10 years. In 2015, sales from the BB-8 toy in a single month went on to match Sphero’s sales for the entirety of 2014.
The Walt Disney Company Acquires Pixar, Marvel Entertainment & Lucasfilm
The Walt Disney Company can provide multiple examples of how a corporate innovation strategy with a heavy focus on open innovation can be essential to market success, with one of the most prominent being its historic success in acquisitions. One of its earliest large-scale acquisitions came in 2004 when the company acquired film studio Pixar for $7.4 billion. Then, in 2009, the corporation made a move to purchase superhero franchise Marvel Entertainment for $4 billion. Capping things off in 2012, Disney purchased Lucasfilm and its Star Wars franchise for $4.05 billion. The trio of acquisitions led to unquestionable success — The Walt Disney Company’s market capitalization came in at $46.97 billion in 2003, one year prior to the Pixar acquisition, and has since ballooned to $164.20 billion as of November 2022.
Innovative graduates of the National University of Singapore, Lucas Ngoo and Quek Siu Rui, participated in a 2012 hackathon sponsored by Startup Weekend in Singapore. This hackathon is where the duo developed the idea for an application called Carousell that would simplify the process of selling off household clutter. The idea ended up winning first place in the competition. The startup has propelled its way to success — closing its Series C round of funding between $70 million - $80 million in 2017 and acquiring several companies since then.
Closed Corporate Innovation Examples
Amazon Lab 126
In 2003, Amazon founded its dedicated innovation lab, Amazon Lab126, with a single initiative to “reinvent the book.” The team spent several years researching and testing prototypes before finally releasing the first Kindle in 2007. The first run of Kindles sold out in under six hours, and the lab has continued to produce groundbreaking products like the Amazon Fire line, the Amazon Echo and over more than a dozen other generations of Kindle products.
SAP.iO Venture Studio
SAP is a software company focused on developing enterprise solutions for business operations and customer relations. In 2017, the company launched SAP.iO, described as its “strategic business unit to incubate startup innovation and drive new business models for the company.” The initiative provides support for external startups, but its Venture Studio program also facilitates incubation for internal startups conceived by SAP employees who have identified a business problem and potential solution. These employee-led ventures receive funding along with design, development and sales support to get off the ground and ultimately join a SAP business unit so that they can scale within the larger organization. The venture Paid Promptly by SAP, for example, automates receivable processes and is now available to customers through the SAP Store.