Enterprises utilize various strategies to create value and improve outcomes from innovation including –
- Venture Creation & Building
- Utilizing a Venture product / service
- Leveraging insights and connections from Innovation outposts
- Encouraging personnel to become intrapreneurs
- Accelerator programmes
- Corporate Venture Investing
Interestingly, with many options to move forward and numerous variables, unknowns, risks, etc. in the innovation journey, it’s also a challenge dealing with the long time to see what works best – since it can take years or decades for the full impact of a new initiative to occur ! Basically, the ultimate return on innovation investment is survival – whereby the enterprise is alive and prospering 10 or 20 years from now. In contrast, organizations that don’t “ Innovate for Impact “ are gone – as witnessed by the ~ 50 % of the companies not on the Fortune list today that were there in 2000 …. and the similar change expected between now and 2030 !
One strategy to make innovation more rewarding is how Fortune 500 / Forbes 2000 companies interact with startups and scaleups to leverage their respective capabilities to create and make good on opportunities as well as be more sophisticated in managing the changing nature of risk. This includes factors like whether they have a very knowledgeable team, use a wide range of tactics, learning fast and evolving their approach, can achieve important hard and soft results, etc. See this years’ group, see list of 50
This is a relatively new strategy with many enterprises creating and building their own startups. While 80 % of enterprises have a venture builder programme, only 30 % have had one in place for more than three years. With this, enterprises tend to allocate $5m – $10m a year and have a goal of building 3 to 5 projects each year.
With many enterprises have some kind of structured programme to scout startups that they might want to work with, the scale of these scouting operations has become significant. In this scenario, enterprises typically look at 1,000 – 5,000 startups annually and prune down the list to about 200. Of those, around 10 %- 20 % of the startups will go on to do a pilot project with the enterprise. From there, typically less than 50 % of the projects having a successful outcome (ie: a minority investment, an acquisition, a product deployment, etc.). While challenging, leading enterprises typically buy around $50m – $100m worth of goods or services from these startups each year. This is meaningful for a startup since it brings in much needed cash, validates the product has value, insights to improve product appeal, provides a Client reference, etc. This is also a win for the enterprise to improve the outcomes business with a faster and lower risk way to deliver new capabilities and evolve the organization, have access to talent and new domain expertise, etc.
Partnering is very important to fast track –
B. Expanding opportunities
C. Better managing risk
D. Developing new competencies
E. Access to talent
F. Having more ways to create value
This includes the enterprise partnering with other organizations having expertise in Business Innovation, new technology, identifying new markets, creating new digital services, monetizing value creation, etc.
Given the significant benefits of effectively collaborating, Partnering continues to be very appealing to meaningfully improve outcomes from innovation.
88% of leading companies doing enterprise innovation have a presence in one of the global tech hubs, like Silicon Valley and other important regions – so they can monitor emerging trends and connect with up-and-coming startups. In addition to the major innovation regions, some enterprises have outposts in upcoming tech centres like Dallas, Austin, Toronto, Singapore, London, Barcelona, Berlin, Munich, Dubai, etc. to expand their exposure to new opportunities.
These programmes are still popular with 60 % of leading enterprises having a programme that has been running for more than five years. In this scenario, they look at 500 – 1,000 potential projects each year and implement around 5 – 50 of them.
These have fallen out of favour because of a lack of results. As a result, enterprises are either shutting down or restructuring their accelerator programme. Today, only 50 % of enterprises still have their own accelerator programme. Many of the rest have transitioned to a hybrid model where a third party runs part or all of the programme. Examples of this are Airbus which has stopped its BizLab accelerator programme to focus on Venture Building. Telefonica’s Wayra programme has also changed from being a corporate accelerator to building ventures for enterprises.
While 85% of entrepreneurial enterprises have a corporate investment arm that takes minority stakes in promising startups, there are issues with the high mortality rate, inability to leverage respective competencies, cultural challenges, differences in risk tolerance, very poor financial returns, etc. This despite the average size of the fund being $200m – $500m (with 43% of the funds being + $500m) and investing $5m – $25m annually in startups ! It’s a sensitive subject that there are very few examples of enterprise investors having a significant ROI – even if the startup gets meaningful traction and the business is scaling ! To be better positioned for success and manage risk, there is a growing trend for Enterprise investment arms to be spun out to become more independent of their parent companies. Boeing, Orange, Eon, Santander, and others are the latest in a long line of companies to have done this. The idea with this strategy is for CVC to be more – independent, opportunistic, agile (able to act more quickly and boldly), flexible in engaging and building relationships with startup personnel and other investors, etc.
In closing, please contact CAIL if interested in discussing these and other strategies to increase the rewards from innovation.
March 10, 2022 By MTB / CAIL Innovation commentary email@example.com