Reflections on Corporate Innovation - A perspective

We have seen companies such as Nokia, Kodak and Polaroid, to name a few, that are now regarded as brands who went down. They were once the best in their respective industries they once dominated but that has now changed. We would think that they, being large and successful companies of their time, would certainly have had access to the best resources namely R&D, hired the top minds and had great knowledge of the markets they operated in.

Quoting The New Yorker on Nokia’s experience: “What happened to Nokia is no secret: Apple and Android crushed it. But the reasons for that failure are a bit more mysterious. Historically, after all, Nokia had been a surprisingly adaptive company, moving in and out of many different businesses—paper, electricity, rubber galoshes. Recently, it successfully reinvented itself again. For years, the company had been a conglomerate, with a number of disparate businesses operating under the Nokia umbrella; in the early nineteen-nineties, anticipating the rise of cell phones, executives got rid of everything but the telecom business. Even more strikingly, Nokia was hardly a technological laggard—on the contrary, it came up with its first smartphone back in 1996, and built a prototype of a touch-screen, Internet-enabled phone at the end of the nineties. It also spent enormous amounts of money on research and development. What it was unable to do, though, was translate all that R. & D. spending into products that people actually wanted to buy.”

-https://www.newyorker.com/business/currency/where-nokia-went-wrong

What does “Innovation” entail?

Does it always entail that a business enterprise must come out with an idea no one has suggested before? Are innovation breakthroughs always based on fascinating technologies? Not really.  If we recall the story of Apple it did not invent the MP3, IBM did not invent the personal computer, nor was Amazon the first company to create an online bookstore.


Successful innovators learned to recombine.  Apple certainly learned what other people did and recombined to produce the MP3 player.  

What Corporates Should Do to Innovate And How They Should Innovate

Set innovation strategy.

  1. Exploring how the forces of change impact the enterprise and industry, while identifying new areas of the chaotic landscape is important.
  2. Setting an innovation goal and diagnosing and addressing the internal breakdowns help too.
  3. The corporate leaders should be responsible for championing innovation throughout.


Design, build and launch innovations.

  1. Convert opportunities and ideas into new businesses using startup research methods.
  2. Producing new insights about consumers and creating business concepts that include innovation types discussed above helps.
  3. Prototyping and testing to refine new offers and to accelerate, launch and scale products or new businesses.
  4. Create implementation teams, strategies, innovative marketing methods, and analytics.
  5. Continuously refining, piloting, and launching new businesses that will change the face of the existing industry.

Become better innovators.

  1. Sustainable innovation requires discipline, talent, and strong structure.
  2. Develop signature innovation capabilities and processes that are tailor made for specific organisations.
  3. Implementation of learning programs to spread knowledge of innovation practices
  4. Integration of knowledge above across business units
  5. Development of innovation governance, long-term incentives and metrics.

Successful Innovations

Innovations that are successful also seeks to generate new revenue. Does it start with knowing who is the target market involved? (In Apple’s case, they wanted to create a new class of customers) What would you offer to them? How do we create value/experience to the customer? Bluntly, how do we make money from these innovations?

So it boils down to “Who”, “What”, “Value”, and “How to monetise”.

-https://www.campus.sg/you-wont-believe-what-kodak-and-fujifilm-are-doing-now/

A perspective on how to begin the journey of innovation


One way will be to look at your current business model. We could ask the questions like who are our customers? What value do we give to them? What other things would our customers want or value? What other markets do we want to target? How would we generate revenue? That would form the first steps of “Foundation”.

Moving on, in startup parlance, would be “Ideation”. At this stage, one could look and review/identify existing business models being adopted in other industries. W. Chan Kim and Renee Mauborgne espoused in their celebrated book “Blue Ocean Strategy” that one should look (amongst others) at business models across complementary products and service offerings, and even across the chain of buyers. A combination may emerge after learning of their respective business models and how it may fit into this Ideation stage. Basic assumptions of the current model will be challenged when we use and combine analogies from other industries.

The integration, as the next stage, would seek to check the consistency of the business model and organisational fit.  The culture of the organisation and propensity to accept these changed business model will need to be considered before considering implementation.  The cycle of Foundation -> Ideation -> Integration -> Implementation -> Test would be a continuous one.

We can check if ideas may take off or not via a simple framework. We use our “Startup Fundamentals” framework to quickly assess companies:

  1. PROBLEM – STARTUP FUNDAMENTALS
    Basically, the problem has to be so painful that people want to throw money at it and hopefully the pain goes away. For example, a pain level of 10/10 may come from hunger and basically, everyone will pay for food. Another example is that there is no way most people would pay for an advanced Physics Calculator app on a smartphone, as most people probably don’t need one (pain level 1/10). For the problem that you are solving, what is the level of pain? Will people throw money to fix it?
  2. SOLUTION – STARTUP FUNDAMENTALS
    Solutions can be changed anytime so we always look to see if the potential of your product can be 10X better than the best current alternative. For example, back in the early 1990s, everyone was probably using email accounts by their internet provider. Soon came Hotmail, a web-based email that was offered for free and 12m out of 70m internet users switched over within 1.5 years after launch (just before it was sold to Microsoft for $400m). Today, the leader is iPhones’ default email client at 29% market share.
  3. MARKET – STARTUP FUNDAMENTALS
    The product above may have someone that really needs the product (the inventor), thus making it a market size of one person. That’s US$9.95 * 1 person as the market size. This business is probably not a good investment in my opinion. It is important that the target market for the product actually exists and is large enough. A good note is that family & friends are the wrong people to ask if they would buy the product/service you are trying to sell, as the answer always seems to be a resounding YES.
  4. MONETISATION- STARTUP FUNDAMENTALS
    Monetisation is probably going to be really tough on most Startups. It is a defining moment for Startups to see if they can monetise or not. Do or die. Most Startups learn if the business works or not at this point when they either realise that they can cover their expenses, or fail to do so (long term and short term alike). Amazon may have taken  5 years to get to profitability, but that was planned very carefully. As a high-growth Startup, producing a profit only slows growth. The trick is to ideally have a net profit of 0 or less to maximise growth. Of course, as you move below zero, you need to ensure you can get back to zero if needed AND continue to raise the funds to support temporary losses.

Organizational Readiness

Buy in and sponsorship from the Top Management is very important otherwise the innovation journey will fizzle out. Short term KPIs of those organisational team members cannot be over-emphasized as innovation takes time. The mindset of the organisation of “not invented here syndrome” must be overcome.

Funding

Funding must come from the top, ideally via the CFO directly. Business units funding corporate innovation projects can be a quick way to kill projects. The reason is simple. Business units simply do not have long-term goals that help to foster and nurture high growth companies in their early stages. Chasing after profits too soon will always kill off Startups as the chances of that happening in the early stages is simply close to zero.

Air Cover Support

Usually, there needs to be strong sponsors in order to see innovation projects through. The CEO, shareholders, or business owners should be very clear that without their support, this will have too slim a chance of working out.

Education levels for internal corporate innovation

For internal corporate innovation efforts like building up innovation capabilities, processes, and structure, the innovation team must be able to get strong support from business units. Without these benefits, they would not be able to give unfair advantages to their new businesses or revenue models - and that defeats the purpose of corporate innovation.

External corporate innovation - e.g. Venture Building

For external joint efforts in corporate innovation, resources like an entrepreneurial team is needed. Keep in mind you can’t just pick anyone for the job! They need to be self-driven by passion and not mostly the money in it. Let them have a large chunk of equity from the start and buy it up over time to support their growing performance. Give them with clients, revenues, market access, and any other advantages to help boost their growth.

Pilot Programs

Relevant departments must be extremely supportive of external Startups for this to work. Education levels need to be in place to prevent rejection via “innovation antibodies”. A good analogy is like blood types not matching - causing donated organs to be rejected and body system failure. Good entrepreneurs eventually produce results and value for corporates once they understand how to work with corporates. Good corporates also tend to give and get a lot of value with Startups keeping an open mind.

Summary

To stay competitive, businesses need to innovate. It not necessarily needs to be new technologies being created, nor always excessive R&D or completely new innovation. Most likely it is about learning and combining, and reinventing the way we do our business. Look around other industries to gain new insights and ideas. One example:  I was involved in the office automation industry where the hardware (copiers) were sold at a relatively low cost but the consumables were the main revenue earners. That model was gained from the razor and blade business model perhaps pioneered by Gillette in the past. So perhaps we can seek to “copy” some other industry business models to improve our current business model?

For more information about corporate innovation, feel free to contact us with your corporate innovation needs.

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Written by Peter Wee

Peter started his career with PwC and served for 19 years, his last position that of Executive Director. He then joined Ricoh Malaysia for 7 years where he was the Managing Director. During his tenure he was responsible for leading the corporate transformation and acquisition. He then moved to two further positions in a local chemical manufacturer and international distributor as their Group CEO, and then also as Group CEO of an international bakery products company.

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