Corporate innovation is critical for growth and competitiveness in big companies. Over the decades, we've witnessed waves of innovation philosophies—each promising better results. Schools of thought like Design Thinking, Horizons of Growth and Disruptive Innovation have all contributed to our understanding. Yet, despite their helpfulness, the actual yields from corporate innovation efforts have remained underwhelming. Companies keep trying to innovate, but success rates haven't meaningfully improved.
The Current State of Corporate Innovation
Today, corporate innovation is at a low point. Many innovation groups have seen their budgets slashed, their teams cut, or even shut down entirely. This trend is particularly alarming given the brutal market conditions many companies have faced in the last few years. In times of stress, long-term innovation is often deprioritized in favor of immediate survival strategies. As a result, many talented corporate innovators are leaving the field. Some are joining startups, others are taking safer roles, retiring early or becoming consultants. Meanwhile, those who remain are increasingly mired in bureaucratic struggles and re-orgs, leaving little room for actual innovation.
The Short-Term Focus: Getting Worse
As markets remain punishing, large companies are increasingly focused on short-term survival, often at the expense of long-term growth. This shift toward short-termism isn’t new, but it’s been getting worse. Ironically, the need for growth and innovation has never been greater. The paradox is clear: innovation is more needed than ever, yet it's struggling more than ever.
It's a destructive cycle when companies aren't growing enough, forcing them to focus on near-term survival at the expense of growth efforts. So they cut back innovation, which causes less growth, which causes even more cuts to innovation in the future, which slows growth even more, etc...
In the wise words of Clayton Christensen, "you can't shrink your way to greatness."
Unprecedented Market Complexity
Adding to these challenges, today’s markets are larger and more complex than ever before. Competition has increased across all industries, with new players entering the market at an accelerating pace. Markets are more globalized, digital, blurry and ferocious. This makes the job of corporate innovation more daunting than ever, often feeling like there's just too much noise to coherently separate from signal - especially with a wounded team and a slashed budget.
First Steps Towards Revitalizing Corporate Innovation
Addressing these challenges requires more than just hope and creativity; it demands a fundamentally new approach. Here are a few critical steps for large companies to consider:
Quantitative Understandings of What Works (and what doesn't): The era of treating innovation as an art rather than a science must come to an end. The industry has long relied on qualitative approaches that lead to funding lots of projects with the hope that one or two big wins might happen someday. This won't cut it anymore. It's no longer the case that innovation should be a mix of qual and quant, it must be a mix (and the quant portion is severely under-developed).
Companies need to develop statistical insights that allow them to better predict what inputs will lead to desired business outcomes. This includes identifying which organizational structures, decision-making processes, project characteristics and budgetary disciplines correlate with success. Innovation managers must acquire and deploy these new quantitative skill sets, transforming innovation from a risky gamble into a more repeatable process. This precision must also extend across all aspects of corporate innovation, including organic growth, M&A, and corporate venture capital. There isn't time, or luxury, anymore; corporate innovators must learn to behave more like casinos instead of gamblers.
Leveraging AI and Quantitative Tools: Given the size and complexity of today’s markets, relying on the horsepower of human brains alone isn't enough. Advanced AI tools, including generative AI, are essential for processing vast amounts of data and uncovering actionable insights that can guide innovation decisions. These tools help break the traditional reliance on inspiration or serendipity in finding ideas. While ideas are abundant, what companies lack is a systematic way to prioritize and implement them based on real-world data. AI can provide this structure, helping companies to better identify the most promising innovations and execute on them efficiently.
Moreover, AI enables small, highly skilled teams to accomplish what once required much larger teams over longer timeframes. To truly drive significant innovation, these teams must be granted powers traditionally reserved for top executives, including the authority to make autonomous decisions, create structures, and allocate capital. Historically, innovation managers have often been middle managers with limited authority, but the future of corporate innovation demands not just advanced insights, but also the power to aggressively act on them.
New Structural Foundations: For innovation to succeed, companies need to invest in the right legal, financial, governance, and organizational structures. It isn't enough to create an incubator, accelerator or venture studio.
Robust, compliant and flexible entity structures may be inconvenient, expensive, or significantly different from traditional modes of organic innovation, but they're essential. Most large companies lack the necessary skills in structuring, governance, portfolio management and elite asset management. Traditional corporate finance skills such as forecasting and cost management aren't enough.
A Path Forward
Like Peter Drucker said, "if you want something new, you have to stop doing something old."
The challenges of corporate innovation may be significant, but they aren't insurmountable. By adopting a more precise, data-driven approach to decision-making, harnessing advanced analytics and restructuring organizations to empower smaller, more autonomous new businesses, companies can transform their innovation efforts into powerful engines of growth rather than sources of frustration. We are officially in a new chapter in the history of corporate innovation.
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