What is Corporate Innovation? And Why the Stakes are so High.
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 an Innovation Strategy? + Corporate Innovation Background
Corporate innovation is what allows companies to become corporations and retain a formidable presence within their markets long term. The tradition of corporate innovation was propelled by several factors including the implementation of research and development (R&D) departments at corporations like General Electric (GE), Kodak, AT&T and DuPont around the turn of the 20th century. R&D departments, typically made up of engineering and scientific teams, work to evaluate existing practices, discover solutions to emerging challenges, and design ways of putting these solutions into effect. The R&D field has grown significantly over the past decades 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.
Even earlier than the introduction of research and development practices, company mergers and acquisitions paved the way for corporate innovation to take place. After early trusts such as the Standard Oil Company were broken up due to legislation against monopolies, many offshoots of large trusts were purchased by larger companies in a more diversified manner.
Historically, mergers are less common than acquisitions and are defined as two separate companies, usually competitors, joining to form a new company. GE was formed in 1892 only due to the merger of the Edison Electric Company and Thomson-Houston Electric Company, one of the earliest recorded equal combinations of two massive competitors. 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. A recent example of an acquisition was Google’s purchase of the tech company Nest Labs for $3.2M in 2014.
As industrial practices and technology developed throughout the 20th century, an influx of companies began to identify and adjust to the rapidly evolving needs of consumers. Many companies would fail, while others would go on to be acquired by larger corporations, or sometimes, develop into corporations themselves. However, with the emergence of startups near the turn of the 21st century, companies began to develop with the intended goal of being acquired by larger corporations. Startups follow lean principles to focus intently on gaps in the marketplace, staying keenly aware of what consumers desire in real-time and aiming to become a leader within a specific niche. Most successful startups fulfill their exit strategy by becoming acquired into a larger structure while others evolve into larger companies.
Why Corporate Innovation is Important
R&D, as well as the acquisition of startups and other companies, are all still currently viable forms of corporate innovation, however, 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.
Open Innovation vs Closed Innovation
Corporate innovation is a necessary pursuit for any company looking to advance or remain at the top of its market well into the future, however, 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
Employee sourcing –The most basic form of corporate innovation comes from employees within the organization. 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.
Dedicated innovation teams – Many companies have reduced the need for traditional R&D departments and concentrated their innovation departments into what are known as 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, directly providing them with innovative possibilities.
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.
Innovation outposts – 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 satellites offer a high degree of networking potential with emerging companies in the area, as well as acting as a location where companies can 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 from a variety of sources. 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 innovation — Techstar’s Accelerator
Techstars is an independent accelerator that partners with corporate sponsors to provide startups with opportunities to match with companies that match a startup’s mission. A notable success story came out of the 2014 accelerator when robotics company, Orbotix (now called Sphero) joined Techstar’s 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, selling 2,000 units an hour on launch day.
Closed innovation – Amazon Lab 126
In 2003, Amazon founded its dedicated innovation lab, Lab 126, 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 15 more generations of Kindle products.
Open innovation – 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 $7.4B. Then, in 2009, the corporation made a move to purchase superhero franchise Marvel Entertainment for $4B. Capping things off in 2012, Disney purchased Lucasfilm and its “Star Wars” franchise for $4.05B. The trio of acquisitions led to unquestionable success — The Walt Disney Company’s market capitalization came in at $46.97B in 2003, one year prior to the Pixar acquisition, and has since ballooned to $343.15B as of 2021.
Open innovation – Carousell
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 that would simplify the process of selling off household clutter called Carousell. The idea ended up winning first place in the competition. Driven by the fact that an estimated 3.8 million people go online for the first time each month, with many of them coming from the Southeast Asian market, the startup has propelled its way to success — closing its Series C round of funding between $70M-$80M in 2017 and acquiring several companies since then.