The word “innovation” is overused, and it might have already lost its true meaning. Everyone claims that they are innovating, but the information overflow makes it difficult to get a clear idea of how to innovate in your own company. Innovation is also too often associated only with startups. We have systematised some of the most typical approaches that a larger established company can take to introduce real innovation into its business. The advantages and examples of innovating in different ways will help you understand which one suits your business model best.
Whether you agree with this statement or not, it can certainly apply to introducing innovation to your company. According to a PwC survey, over 60 percent of innovation-driven acquisitions met or exceeded the initial expectations within 36 months. Some companies base their leading position on strategic acquisitions. Cisco, an IT and networking company, acquired over 180 entities in 14 years, which, in turn, contributed to between 1 to 2 percent of the company’s growth in net profits.
The benefits of acquisitions are straightforward: your company can enter new markets or extend the product range quickly. You avoid the risk of working on projects from scratch, which may not prove viable in the end. Acquisitions can accelerate innovation, especially in established companies. Big and established businesses are often held back by deeply ingrained approaches and struggle to maintain creativity in their rigid organisation.
That said, we are often inclined to downplay the potential dangers of acquisitions. Sometimes, instead of creating synergy, the culture of the larger organisation takes over during the merger, destroying everything that made the acquired entity innovative in the first place. After all, innovation is about people having a common goal and the motivation to reach it.
What are the success factors?
An acquisition relies heavily on a skilled team of analysts that can identify new solutions on the market with the biggest possible future potential and a good fit with the company’s current strategy.
Considering innovation from a systemic point of view leads to the idea of open innovation. Open innovation means that you cannot rely only on your organisation’s internal ideas and resources. Successful commercialisation requires complementary technologies and patents, which happen to be randomly distributed on the market.
Large organisations actively incorporate open innovation into their day-to-day work, as per the declaration of 78 percent of established companies in a study conducted by Fraunhofer Society. They do it mostly by inbound practices, i.e. practices that require inflows of external knowledge:
Main outbound practices, i.e. ones that involve the company sharing their own knowledge, include:
Although the advantages are numerous and can facilitate company’s innovative nature in the long run, open innovation requires proactiveness and sharing of insider knowledge. Large businesses are far more likely to take advantage of shared sensitive information than share some themselves – the ratio of inbound to outbound activities in projects carried out by large companies is 4 to 1.
Orange has been facilitating open innovation through Orange Fab, an accelerator for startups, which offers young companies mentorship, financial support as well as connections to Orange’s enterprise customers. As a result, Orange got 8 deals and pilots and 3 acquisitions.
Can I succeed as well?
You can actively participate in open innovation and share your resources, and it can be enormously beneficial. You must be patient, though, since the results of this approach are rarely immediate. You can also source knowledge from the market, which in turn makes your company dependent on the success of others.
Developing in-house innovations requires significant resources. Lately, it has often taken on the shape of an Innovation Lab. Innovation Labs are specialised innovation divisions of companies in many industries: banks, retail, education, etc. The business world knows many famous examples of developing new products in a matter of weeks (Staples Digital Wallet – 9 weeks; Zappos digital personal assistant – 12 weeks) or months (Walmart’s search engine – 9 months). Setting up a Lab does not guarantee success, which again can be exemplified by Zappos trying to launch an online fashion magazine, which was eventually shut down after a year of work. Statistics reflect the difficulty of having an Innovation Lab under a company’s roof – only 38 percent of top 200 companies are running their own Lab, and most projects of this kind fail to succeed.
Separate innovation units can bring about a number of new ideas, attract talent and engage employees. As fun and attractive as an Innovation Lab sounds, companies often forget what it should really bring, and this it is, first of all, a validated business model that can be further developed.
How to prepare for running an own Lab?
Remember to define the purpose of your Lab in alignment with your company’s strategy. Ensure that the Lab is one of the key areas of your company and has the full support of the management. Bear in mind that every experiment allows you to learn from mistakes, but at the same time think of how much resources you engage in this activity.
“How to retain the dynamic and creative culture when a company reaches a certain size?” It’s a very popular question. Becoming agile is often seen as a cure or a quick fix for a rigid hierarchy, but it is equally often avoided, because it is perceived as a methodology only suited for startups. The chief principles of the agile approach – transparency, continuous feedback, small teams or cross-functionalities – are the opposite of traditional processes in established companies. Large companies are usually afraid of changing their traditional processes, but if implemented properly, the agile approach can give great results. John Deere, a large manufacturer of farm equipment, managed to improve the team’s efficiency by 200 percent on average, reaching up to even 800 percent.
Beware of empty words – many companies state that they run their business in an agile way, but it is often a matter of a misconception.
How to overcome the barrier of change then?
External help is crucial if you want to implement an agile approach. There are agile consultancy agencies that are experts in transforming established companies. This is also what management of John Deere did – they hired an agile coach to train the R&D teams.
The changes introduced to a company can be prototype-driven – a new process or new software is developed as fast as possible and then tested. This helps to see a few possible solutions and choose the one that fits best without spending too many resources.
Such an approach helps overcome the reluctance of a traditional organisation. Hiring external help provides the deeply needed outside perspective and has the experience to drive organisational changes in a cost-effective way.
This is so complicated. What should I do?
There is no one-size-fits-all solution. Depending on your resources and expected results, different ways will fulfil the goal. It may be helpful to look at various ways of innovating from the perspective of time and costs. An agile consultancy can work in a very time-efficient way, saving you money, because it does not involve any additional resources. On the other hand, it focuses on redesigning the current processes. An own Innovation Lab is all about internal resources, and is a long-term commitment to creating a crucial division at a company. With enough budget, it is easier to acquire an innovative company and integrate it into your company. When there is no time pressure, sharing internal knowledge and facilitating knowledge exchange may put the company on an innovative track.
Remember the four key things about innovation:
Still unsure? At Netguru Labs, we are experts in transforming established companies and helping them innovate like startups do. Contact us and let’s see how we can make your company more innovative.