To change world for better we must rethink corporate innovation
Posted on November 6, 2020
By Felix Staeritz, founder & CEO, FoundersLane
There is no denying that we are collectively facing some of the biggest challenges the world has ever seen. Climate change is devastating our planet, healthcare systems are crumbling across the world and the global pandemic is wreaking havoc.
We are at an inflection point. If we don’t act now, it might be too late to solve these challenges – not just for future generations but also for ourselves, as most of us are set to experience the disastrous effects of climate change or the broken healthcare system first hand in old age. If we want to change the path we’ve set for ourselves, we need impactful, sustainable and meaningful innovations. And we need them now!
This will require us to rethink how we approach innovation, particularly in a corporate setting. Our assumptions about business and society and the complex systems that govern our trade and institutions are looking increasingly fragile. Corporations are part of these systems and have a duty to help renew and rebuild them from deep within to create long-lasting and meaningful change and help solve the pressing challenges of our times.
To bring about this much needed change, we need to look at the two main components of corporate innovation first, namely the type of innovation we’re after and the relevant assets needed to make this a reality. Only if we understand the shortcomings of traditional corporate innovation can we adjust our behaviour accordingly and make meaningful contributions in the fight against climate change and crumbling healthcare systems.
Different approaches to corporate innovation
There are three distinct approaches to corporate innovation. The first approach focuses on optimising and streamlining internal processes that are already in place. Machine learning, AI and advanced robotics may play a huge role in this in the years ahead. This optimisation is vitally important in order to stay competitive, but it typically leads to nothing more than incremental innovation, which isn’t enough to tackle today’s global challenges.
The second approach is to devise new products and services, which is what most people think of first when they talk about innovation. An auto manufacturer launches a new car, a watchmaker a new watch or a technology company a new device. These items create new value but are rarely truly transformative without a deeper transformation of the business model.
The real transformative power lies in moving beyond building new products and towards using existing assets to redefine how people interact with products, services, solutions and one another. This is not to undermine the first two types of innovation. Business model transformation cannot function without the other two elements. But if we don’t move beyond that, we won’t alter the way we operate. And we won’t be able to tackle the large health and climate issues.
The innovation process
Innovation comes in stages, and the buzzwords for each stage have entered the mainstream business vocabulary. In the beginning, there is the lightbulb moment. Innovation typically starts with ideation, including the production and initial testing of rough and ready low-fidelity prototypes.
Next comes the validation stage, with elements like scenario planning and the creation of minimum viable products. When this generates enough confidence to start ramping up sales, the scaling stage is reached, usually accompanied by a range of market simulations and forecasts.
The problem here is that these activities often happen in a chaotic way, in the wrong order or as unsystematic efforts within an organisation. What’s missing is a concerted, focused and systematic approach. This is where asset classes – a structured way of investing capital, time and other resources, like data and intellectual property, in order to create new value – come in.
Existing innovation vehicles and their shortcomings
Venture Capital (VC) is one commonly-known asset class. Its successes may make for striking headlines, but VC models are not generally good at sparking fundamental change in complex areas like climate and health. Venture capital is typically biased towards business models that have the potential for rapid exponential growth. And even then, the results don’t often live up to the hype.
Instead, large, long-established organizations may decide to try to mimic the VC approach in-house and back a portfolio of new start-up businesses of their own. Corporate Venture Capital (CVC) can provide an innovation radar of sorts, and it can make sense to seek financial returns through early investment in high-growth companies. But the journey is long, usually seven years or more. This is time we simply don’t have if we want to address today’s burning global challenges.
Given the obvious difficulties of making corporate venture capital projects work, many business leaders resort to Mergers and Acquisitions (M&A), hoping that all their problems can be solved by moving further downstream in the venture creation process. This is usually misguided. The big issue with M&A is that business leaders think acquisitions are less risky because the start-ups they buy have already proven themselves in the market. They hugely underestimate the risks that come with integrating a new company and forget that acquiring a digital business doesn’t automatically turn them into digital leaders.
A new kind of asset class is therefore needed that helps organisations transform their business model in a sustainable and impactful way.
Corporate Venture Building – a new type of innovation
In the face of the biggest global threats, we need to use all our assets differently, from new technologies and real-time data, to supplier relationships, distribution channels and everything else we have at our disposal.
Corporate Venture Building (CVB) is a new asset class – alongside M&A (as an approach to consolidating assets) and venture capital – that is designed to be better suited to tackle the problems that occur in complex, science-based, regulated and otherwise hard-to-handle markets. It helps organisations invest in their future and transform business models in a sustainable way, while potentially contributing to the resolution of society’s challenges. CVB can be compared to early stage Private Equity (PE). The ultimate goal is to use the existing assets and capabilities of a corporation to fundamentally transform its business model and create long-lasting, positive and impactful change.
In relation to issues like climate, disease pandemics, food security and waste management, we need to make sure our best ideas, technologies and expertise can be brought to bear at the precise points where they can make the most difference. Corporate Venture Building is our only bet if we want to tackle the profound problems that occur in complex, science-based, regulated and otherwise hard-to-handle areas like climate and health.