By Dave Hengartner, co-founder and CEO of ready, a SaaS startup supporting companies to unleash the biggest asset for innovation: their employees.
Innovation is key to ensuring every company’s long-term survival. While the term is still interpreted differently across the board, there is no doubt that it is crucial to secure the success and longevity of organizations.
At the core of innovation, particularly in the corporate context, lies the process of finding new ways to challenge the status quo and redefine what a company will look like in the future. There is no single approach to this. Instead, there are many different incremental or disruptive ways to approach innovation. This includes classic research and development, mergers and acquisitions, corporate venture capital, innovation ecosystems, startup collaborations and intrapreneurship. The question is, what is the best way to go about it for your company?
The Classic R&D Approach
Traditionally, most corporations have an individual business unit dedicated to R&D. Instead of a human-centered approach to innovation, R&D is usually technology-focused and product-driven. This approach can be cost-heavy as it potentially takes years to produce the next innovation.
Personally, the strong R&D role at pharmaceutical companies impresses me. Yet, despite the positive business impact that R&D projects might have, the staff working in other business units is often not actively involved in any innovation efforts. Hence, no upskilling takes place and no mindset change is triggered.
Mergers And Acquisitions
Instead of running an in-house innovation program, some organizations decide to purchase a startup or a young company and then integrate it into the existing business.
In my role as Innovation Manager at Swisscom, I was part of some M&A projects. The good: Financial upside and knowledge are acquired fast. The bad: Legally speaking, it takes a lot of (billed) hours from different legal teams to get the legal construct ready for signature. The ugly: This approach can pose obstacles along the way, since the corporate and startup cultures may clash.
Corporate Venture Capital
Increasingly, corporations establish a separate business unit—a venture arm, where promising startups are identified and directly invested in. This process, also called corporate venturing, is how a traditional venture capital firm works. Being backed by a CVC ourselves, I believe that the success of a corporate venture arm depends largely on how it is structured and who the LPs behind the capital are: Is it the corporation only?
In this case, the venture should offer a strategic benefit for the corporation. If third-party LPs are involved, the financial interest should be at the forefront (which could again lead to a conflict of interest with the parent company). Such a CVC can be helpful if spinouts are formed by the corporation.
When I originally joined Swisscom, the Swiss leading IT- and Telco-company, my role involved bringing in my own startup experience to scout ventures and run proofs-of-concept as a corporate with them. When corporations join hands with emerging startups, this can form a dynamic duo. Such collaborations can take different forms and exist either for shorter or longer periods. The goal is to maintain and foster the startup spirit—unlike in an M&A, where the startup culture transcends into the corporate culture.
Also, since startups tend to be attuned to the latest developments across the market, corporations can rely on their insight to stay up to date. A successful collaboration could later become a CVC deal or an acquisition deal. I have observed that founders often have elevated expectations when talking to big corporations. Since large organizations move at a slower pace and have more governance and politics than startups, it takes time to establish a pilot and even more time to turn this pilot into a company-wide collaboration.
An innovation ecosystem consists of a network of individuals who share experiences and help solve problems by ensuring a flow of information and resources within and between organizations, professionals, tertiary institutions, government bodies, etc.
I was involved when Swisscom co-founded the initiative Digital Switzerland, where +100 companies push activities for a digitalized country. Furthermore, I was part of the Impact Hub Switzerland collaboration—a global co-working community connecting students, startups, corporates, SMEs and agencies. Even today, Impact Hub continues to support sustainable initiatives.
This means a firm enables its employees to start innovating and supplies them with the necessary resources and time to develop their ideas. This decentralized approach enables each employee to go through a process of ideation, idea validation and idea execution while being dependent on the organization for resources. This allows the intrapreneur to confidently innovate and reinvent existing processes and systems to generate business impact, knowing that the organization carries the majority risk. Due to the bottom-up and cross-divisional nature, it drives forward cultural transformation within the organization.
I believe in bottom-up innovation due to its scalable nature—many employees can (cost-efficiently) engage with innovation and learn to push an idea forward. The team on the ground often spots inefficiencies first, and by upskilling them, you can invest in your most valuable resource: your employees.
However, intrapreneurship done wrong might degenerate into “innovation theater.” The company needs to sign up to grant certain resources and freedom to employees while getting ownership of projects in return. Disadvantage: It takes time. Although the transformation impact can be evident quite early on, it takes time to measure monetary impact due to the lengthy process of turning a raw idea into a new product or service.
While some forms of corporate innovation offer more promising results than others, it is key to identify the company’s main goals and be open to a mix that suits the individual organization and aligns with its corporate strategy. Do you aim to create a culture of innovation? Do you focus on short-term financial upsides? Do you want to upskill your existing workforce or keep to a small group of R&D managers? These are questions you must ask yourself before engaging in any innovation efforts.
And before I forget: No, there is no silver bullet for corporate innovation, but would it not be boring if it were that simple?