Most companies today will not live beyond their 50th birthday.
It’s a sobering statistic, but 40% of today’s leading businesses will be dead in a decade, predicts John Chambers, ex-CEO of Cisco.
Unless you are one of just a handful of companies that have survived hundreds of years —Mitsui, DuPont, Beretta — a mix of competitive threats and difficulty grasping new opportunities may already be disrupting your business.
“Change has never moved this fast and will never be as slow again,” Jennifer Morgan, President, SAP North America, said at EY’s Strategic Growth Forum US.
The reality is that we are neither very good at seeing what’s around the corner nor at recognizing a monster transformation as it appears in front of us.
In 2010, America’s Federal Aviation Authority (FAA) estimated that there might be 15,000 civilian drones in use by 2020. Today, more than that are sold each day. Drones are already being used:
- in agriculture (to precision-target insecticide, irrigation and fertilizer, pollinate, monitor crop growth);
- in filmmaking (the most impressive footage in Avengers: Age of Utron was shot using drones);
- in logistics (Swiss Post has a pilot drone parcel delivery service);
- in mining (recent research by IDC reveals over one in four mining companies are researching the use of drones).
Most mature multinational enterprises recognize the need to plug into new trends, listen for weak signals in their ecosystems and bring the outside in. But the hard part is executing on innovation and figuring out how to overcome the risk-reward paradox. As Edward H. Bowman observed more than three decades ago, incumbent market leaders with the most to lose are the least likely to change. Having market leadership, stable profits and a dominant brand are some of the biggest obstacles to changing course.
Accessing the novel
The last decade has seen the explosion of corporate venture funds — now numbering about 1300 — as one way of getting out of the office. Last year, some $28 billion of corporate venture capital (CVC) flowed into more than 1300 deals across a multiplicity of sectors. Fortune 2000 companies are invested as never before in the uncertain game of monetizing ideas.
Everyone’s got a venture fund. American rock band Linkin Park has a venture fund; Sesame Street has a venture fund.
This tsunami of corporate venture investment is partly symptomatic of a corporate recognition that internal R&D units are not always the best incubators. Conditions that foster innovation — small team size, a relentless focus on solving consumer problems, a bias toward nonconformity, and a lean start-up approach that encourages experimentation — are not generally found to be flourishing in multi-billion dollar mature companies.
“When you have a very successful business model, there is a collective cognitive myopia,” says Gary Dushnitsky, Associate Professor of Strategy and Entrepreneurship at the London Business School. ”It’s hard to see beyond something that you’ve excelled at for the last 15 or 20 years. Look at digital streaming music. It’s less that you don’t want to be cannibalized but more that you truly believe in the business model you live by.”
Researchers calculated in the unprecedented boom of corporate venture in the late 1990s, that every dollar invested in venture capital was three or four times as potent in stimulating innovation as a dollar invested in internal R&D.
To help overcome collective myopia, many companies launch arms-length units that are both insulated from the parent culture and plugged into an ecosystem in which innovation is thriving. This is what distinguishes a corporate venturing model from internal R&D.
Apple may have been the first company to realize the market potential of personal computers (using a graphical user interface, GUI, back in 1984) but it wasn’t the first to pioneer GUI technology. That accolade belongs to Xerox’s Palo Alto Research Center (PARC).
The innovation lab, backed by its parent’s patient capital, invented some of the most transformative technologies of our time. In just seven years PARC developed the personal computer, the GUI, the mouse, the Ethernet, word processing software, Adobe and the laser printer. The great thing about Xerox PARC was that it was over in Palo Alto a long way from Mission Control on the East Coast. This was also its problem. It was a long way from its parent – and not just geographically.
Bringing the outside in
For a disruptive idea to take hold and grow into an economic force like a Google or Uber, it has to transition from an invention into an executed reality. That is the innovation paradox.
The skills and processes that can work against creativity are also necessary for its wide scale adoption. Today’s heresy will only become tomorrow’s orthodoxy when innovation gets plugged back into the mainstream.