Big companies do many things better than their smaller peers, but corporate innovation sure doesn’t seem to be one of them.
In case recent disruptions haven’t made that clear, consider what happened when Target tried to develop its “store of the future.” After assembling a team to prototype a small, showroom-style store that would have had robots grabbing items behind the scenes for customers, the bullseye brand unexpectedly shut down the project less than a year from its launch date. A marketplace project called Goldfish, where retailers other than Target might one day have listed products for sale, was axed at the same time.
Although Target’s senior vice president of communications quickly issued a statement that suggested the retail giant did so to “refocus [its] efforts on supporting [its] core business,” the truth is obvious: Innovations at a big scale don’t always go as planned. And that means they provide lots of food for thought for small businesses.
The Reality of R&D
Corporations and startups alike struggle to innovate. But the former’s scale provides the latter with lots of lessons. pexels.com
Target isn’t unique or even unusual in its inability to spend its way into innovation. Take a look at PwC’s latest “ Global Innovation 1000 ” list. Some of the top innovators, you might notice, spend far less on research and development than those lower on the list. Volkswagen ranks third while spending barely 5 percent of its revenue on R&D, for instance, while Celgene Corporation spends nearly half its revenue and ranks 24th.
How does PwC explain the disconnect? “For the entire 14 years we have conducted this annual study we have consistently found that there is no statistically significant relationship between how much you spend on R&D and how well you perform,” noted Barry Jaruzelski , partner at PwC’s strategy consulting business branch. “What does matter is the depth of your customer insight, the quality of the talent assembled, and rigor of the process you employ.”
Every enterprise likes to think it has a strong team, a solid understanding of its customers, and sensible processes. The reality, though, is that many have skated by on their size and industry connections. When it comes time to innovate, they learn they’ve become so large that they’ve lost the perspective they need on what their customers want and how they can deliver it.
To Innovate, Look Outward
But if corporations can’t buy innovation, how are they supposed to achieve it? The same way startups do: through market insight.
To a degree most corporations aren’t, startups are intensely focused on product-market fit. Whether due to investor pressures or limited personal capital, they tend to have just a single shot to find it. They also tend to be composed of young, mobile high performers, who bring insights from other companies, pop culture, and their entrepreneurial peers.
So how can enterprises get back their entrepreneurial streak? One option is to launch a corporate venture arm or accelerator. Jaguar Land Rover went this route with its InMotion subsidiary , which has helped to develop everything from data-through-audio transmission technology to in-dash smart home controls.
Jaguar Land Rover’s model does, however, have its drawbacks. For one, not every company can afford its own venture division. Second, corporate ventures are prone to poor scoping and undue influence by the parent company. “It’s taken a bit of time to draw a clear line around InMotion to understand what we’re doing and what we’re not doing,” admitted InMotion ’s managing director Sebastian Peck.
But corporations can get startup exposure in other ways. Acquisitions can work wonders when an enterprise is trying to innovate outside its wheelhouse. Amazon, for instance, recently acquired Eero, a mesh Wi-Fi startup based in San Francisco. Although the e-commerce giant’s engineers are no strangers to smart home devices, they’re not so experienced when it comes to wireless internet services.
Beware, though, that corporate acquisitions of startups rarely go as planned. Yahoo is famous for its acquisitions of Flickr, Delicious, MyBlogLog, and more. Google even managed to dampen the impact of Nest , which had two popular products on the market prior to its acquisition. Culture and product clashes are almost always more serious than executives expect them to be.
What’s left on the table? External partnerships. Although data doesn’t exist on the rate of internal innovation failures — which enterprises understandably want to keep private — almost three in four of them innovate successfully when working with external partners.
Generally speaking, an external partnership approach involves fewer risks than corporate venture or acquisition models, but be sure to vet partners carefully. The secretive nature of innovation work creates opportunities for charlatans to make claims they can’t support.
Innovation may not be enterprises’ strong suit, but that doesn’t mean they’re doomed. Instead of sinking money into internal initiatives, they need to get back to what made them successful to start with: an intimate sense of the market’s opportunities and a startup-style thirst to seize them.