What is a Corporate Innovation?

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The corporate innovation process is a strategic method of sourcing and embracing new ideas that allows a corporation to retain market share over an extended period. The process involves merging new, disruptive ideas into existing processes, with innovation coming from both inside the company and from external sources.

Innovation Strategy and Corporate Innovation Background

Without corporate innovation, companies would not become corporations and would quickly lose their footing in the market. The tradition of corporate innovation was propelled forward by several key factors in the early 1900s - namely, the establishment of research and development (R&D) departments within major corporations such as General Electric (GE), Kodak, AT&T, and DuPont. R&D departments, which are usually made up of engineering and scientific squads, work to appraise existing procedures, find responses to impending challenges, and devise methods of putting these responses into effect. The field of research and development has expanded greatly in recent years, with a greater input from marketing departments leading to a more comprehensive understanding of customer needs and how to best present new solutions.

Legislation against monopolies led to the break-up of early trusts such as the Standard Oil Company, which were then purchased by larger companies in a more diversified manner. The introduction of research and development practices, as well as company mergers and acquisitions, has paved the way for corporate innovation to take place.

Joining of two companies, usually competitors, to create a new company is known as a merger while acquisitions refer to one company taking over another. GE was formed in 1892 due to the merger of the Edison Electric Company and Thomson-Houston Electric Company. On the other hand, acquisitions take place when a company agrees to purchase a separate, smaller company to integrate within its existing corporate structure. Google for example purchased Nest Labs for 3.2 million dollars in 2014.

As industrial practices and technology progressed throughout the 20th century, more and more companies began identifying and accommodating the ever-changing needs of consumers. The development of startups near the turn of the 21st century has resulted in an increase of companies being acquired by larger corporations. By focusing intently on gaps in the marketplace and staying aware of consumer desires in real-time, startups can become leaders within a specific niche. Startups that are the most successful typically fulfill their exit strategy by being acquired into a larger company.

Why Corporate Innovation is Important

Corporate innovation can take many forms, including research and development, as well as the acquisition of startups and other companies. Incorporating a variety of methodologies into their corporate innovation strategy gives corporations access to a broad range of ideas that can help them extend their market longevity and find more success in staying ahead of the competition.

Open Innovation vs Closed Innovation

Corporate innovation is essential for any company wanting to improve or stay at the top of its market well into the future, yet there are various ways to establish an innovation strategy. Generally, corporate innovation can be divided into two categories: closed innovation and open innovation.

• "Closed innovation" is the term used to describe a company's reliance on internal resources to generate new ideas and products. Corporate innovation is commonly achieved by creating teams dedicated entirely to innovation, sourcing new ideas from existing employees, forming dedicated innovation teams, or launching internal corporate accelerator programs.
• The term open innovation refers to the sourcing of new products, ideas, or brands from parties outside of the corporation. Corporations achieve open innovation through investments and acquisitions, by establishing innovation outposts, working with external accelerators, or hosting competitions such as hackathons and pitches.

Corporate Innovation Models Closed Innovation

Employee sourcing:

Internal employees are more intimately aware of the company’s nuances, customers, market, and competition than any external party, giving them an advantageous perspective for finding solutions to existing challenges.

Dedicated innovation teams:

As companies move towards more innovative practices, innovation labs are becoming more prevalent. Innovation teams are generally made up of scientists and strategists who devote themselves to enhancing existing products, issuing groundbreaking new ideas, being attentive to customer requirements, and tracking down imaginative executions from competitors.

Internal corporate accelerator programs:

Corporate accelerators provide employees with funding and access to resources in exchange for their focus on solving existing challenges within the corporation, directly providing them with innovative possibilities.

Open Innovation

Investment and acquisition:

When it comes to innovation, cash flow is often the most important asset for corporations. If corporations stay apprised of startups and companies that are adjusting to customer requirements, they can elect to invest in or purchase these businesses — thereby circumventing their competition and preserving valuable innovation time.

Innovation outposts:

For a corporation to successfully invest in innovative startups, they must know where to find them. Many corporations accomplish this by establishing satellite offices in regional hotbeds known for specific industry innovation, such as Silicon Valley for tech or Detroit for the automotive industry. These satellites offer a great opportunity for networking and collaboration with other companies in the area, as well as being a place where companies can work on improving and expanding their innovative ideas.

External corporate accelerators:

External accelerators, as opposed to internal corporate accelerators, are established independently from corporate funding to enable startups to prioritize their own mission while innovating. By sponsoring accelerators, corporations can build connections with startups and acquire new product ideas within the program. Startups that participate in external accelerators often receive funding and reputation boosts that turn them into viable organizations.

Hackathons and pitch competitions:

Hackathons and pitch competitions are often used by forward-thinking corporations to enlist corporate innovation from a variety of sources. These events can be structured in several different ways, enlisting individuals, teams of amateurs, teams from startups and several other parties to solve challenges and provide ideas in a timely, structured manner. Winning teams are compensated in a variety of ways in exchange for their expertise and intellectual property.

SUCCESSFUL CORPORATE INNOVATION PROGRAMS

Open innovation — Techstar’s Accelerator

Techstars is an accelerator that partners with corporate sponsors to provide startups with opportunities to connect with companies that share a startup’s mission. A notable success story came out of the 2014 accelerator when robotics company, Orbotix (now called Sphero) joined Techstar’s Disney-sponsored program. In 2015, the sales from the BB-8 toy in a single month matched Sphero's sales for the entirety of 2014, selling 2,000 units an hour on launch day.

Closed innovation – Amazon Lab 126

In 2003, Amazon founded its dedicated innovation lab, Lab 126, with the goal of "reinventing the book." The team spent several years researching and testing prototypes before finally releasing the first Kindle in 2007. The original production of Kindles was sold out within six hours, and the laboratory has continued to produce other innovative products, such as the Amazon Fire line, the Amazon Echo, and over 15 additional Kindle products.

Open innovation – The Walt Disney Company Acquires Pixar, Marvel Entertainment & Lucasfilm

A corporate innovation strategy with a focus on open innovation can be essential to market success, as demonstrated by The Walt Disney Company's historic success in acquisitions. One of the earliest and largest acquisitions for the company was Pixar in 2004 for $7.4B. In 2012, Disney purchased Lucasfilm and its "Star Wars" franchise for $4.05 billion. The acquisition led to unquestionable success — The Walt Disney Company's market capitalization came in at $46.97 billion in 2003, one year prior to the Pixar acquisition, and has since ballooned to $343.15 billion as of 2021.

Open innovation – Carousell

In 2012, two graduates from the National University of Singapore - Lucas Ngoo and Quek Siu Rui - participated in a hackathon sponsored by Startup Weekend. It was during this event that they came up with the idea for Carousell, an app that would make it easier to sell household items. The plan was victorious in the competition. About 3.8 million people enter the internet for the first time each month. Many of them are southeast asian, the startup made its way to success, closing its series C round of funding between 70 and 80 million dollars in 2017. They acquired several companies since then.