Outside-In : A Innovation Strategy of Large Companies

An IBM 2016 IBM Institute for Business Value India Business Survey says that Despite India’s entrepreneurial strength, as many as 90 percent of startups fail within the first five years. IBM survey identified that one of the top road blocks for India’s startups after surveying 100 venture capitalist (64% of them believe) is that India’s startups struggle to succeed because their executives do not receive adequate mentoring from experienced leaders of established companies, incubators, investors and the like. Although numerous startup accelerators have been formed in India as part of public-private partnerships, mentoring typically remains informal and voluntary. Hence these startups

·      Lack pioneering innovation based on new technologies or unique business models.

·      Are unable to obtain employees with the right skills.

·      Are unable to source necessary funding.

·      Are not successful due to poor business ethics.

·      Are unable to provide leadership quality with ability to bounce back from failure.

Big companies can play a very critical role in Indian Startup Ecosystem wherein it attracts best quality startups due to its well established brand and get them off the ground by providing Access to Business, Financing and Infrastructure. Now these Big Companies can furthered its support by an incubator/accelerator, to mentor and coach these carefully selected startups by knowledge sharing, fostering innovation and hand-holding them thru their journey to build a sustainable and scalable business.

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Need For Innovation : Innovation is the key idea that is shaping corporate life, helping leaders conceive previously un-imagined strategic options. Innovation enables to see potential acquisitions through a different lens, looking at them not just from a cost perspective, but also as a means of accelerating profitable top-line revenue growth and enhancing capabilities. Innovation also provides an edge in being able to enter new markets faster and deeper. By putting innovation at the center of the business, from top to bottom, one can improve the numbers; at the same time, one will discover a much better way of doing things — more productive, more responsive, more inclusive, even more fun. People want to be part of growth, not endless cost cutting. All of this means that to thrive in today’s rapidly changing globally competitive environment, companies have no option but to be innovative.

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Problem : Causal Thinking  Studies show that efforts to stimulate intrapreneurship — entrepreneurship within an established company — more often than not fall flat. According to a current research at Harvard on innovation models in global companies across diverse sectors, these types of projects fail between 70% and 90% of the time. Internal innovation presents a number of challenges, including but not limited to the inherent risk of promoting new ideas; complacency and attachment to the status quo; and the actual amount of capable people with the time to effectively build new ideas into workable products. When innovation is at the center of a company’s way of doing things, it finds ways to innovate not just in products, but also in functions, logistics, business models, and processes. One of the reasons for lack of Innovation is the way managers in large organizations are trained to think and work. Saras D. Sarasvathy, Associate Professor, The Darden Graduate School of Business Administration, University of Virginia brilliantly defined this as “Casual Thinking” in modern management. She further explains the following: “Causal thinkers are like great generals seeking to conquer fertile lands (Genghis Khan conquering two thirds of the known world), she explains.  In general, in MBA programs across the world, students are taught causal or predictive reasoning – in every functional area of business. Although causal thinking and reasoning are among our most central cognitive competences: They enable one to make predictions, to diagnose the causes of observed events, and to choose the right actions to achieve our goals, causal thinking is not good at spotting potential surprises. Causal rationality begins with a per-determined goal and a given set of means, and seeks to identify the optimal – fastest, cheapest, most efficient, etc. – alternative to achieve the given goal. The make-vs.-buy decision in production, or choosing the target market with the highest potential return in marketing, or picking a portfolio with the lowest risk in finance, or even hiring the best person for the job in human resources management, are all examples of problems of causal reasoning.. In affect, the causal thinker tends to assume that all possible contingencies have been covered in the planning process and that no unforeseen events are possible. Causal thinkers are also not good at exploring all the possibilities for a company. They tend to focus on one or two of the more plausible outcomes and work toward them. All this leads to lack of innovation in a large organization.

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Solution : Effectual Thinking : Prof. Sara further explains “The word “effectual” is the inverse of “causal”. Effectual reasoning, unlike Casual, does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with. Effectual thinkers are like explorers setting out on voyages into uncharted waters (Columbus discovering the new world). While causal reasoning may or may not involve creative thinking, effectual reasoning is inherently creative. Effectual thinkers sometimes don't even know their goal when they start out. They focus on a company's assets, talents and abilities, and they find ways to use those in the marketplace. They are open to unexpected developments and stand ready to marshal all their resources in pursuit of a new opportunity they didn't see coming. This kind of thinking can make a company nimble and adaptable. As the marketplace shifts, effectual thinking can help you shift with it. Startup thrive on Effectual Thinking and hence they are more innovative then large organizations”.

While both causal and effectual reasoning call for domain-specific skills and training, effectual reasoning demands something more – imagination, spontaneity, risk-taking, and salesmanship, which most that often desired, is lacking in large organization, resulting in lack of innovation!

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An Outside in Approach : A Corporate Incubator/Accelerator

We internalized this entire process and in retrospect I must say that she has hit the nail on head. I could never understand the way Managers at large organization thought and why they were not able to believe that a startup can be a game changer. Hence, It makes sense for more and more large companies to outsource their entrepreneurial efforts. They are engaging knowledge firms like Padup Ventures that conduct in-depth need-finding, identify new opportunities, generate promising ideas, and develop ideas into working prototypes. “PadUp Venture is a Knowledge Incubator for "Disruptive & Innovative” Pure Play Technology & Tech-Differentiated Consumer Facing Start-ups”. Padup’s vision is be a key player in the start up Eco-system by actively supporting young technology companies at formative stages and significantly impact survival rates positively, thus creating huge impact in the entrepreneurial space. The client company then refines these concepts and prototypes and takes them to market. These knowledge firms tend to have a preferred customized methodology for working with their clients, such as user-centric approach , Lean Start-up, or data driven analytical models to build innovative solution to emerging or futuristic problems. Results from these business-to-business collaborations have at times been phenomenally successful as one can observe in case of many corporate incubators.

Develop methods to facilitate “open Innovation” thru a incubator/accelerator - This takes advantage of the fact that when companies which adapts “open innovation” can be better off since they cannot always out-think their smaller, nimbler competitors. Those small companies, however, do not have the resource might of the big-boys. Thus, large companies supporting small company’s innovations with desired resources like seed funding, teaching them how to manage the innovation process, market access being first customer and later the distribution channel and last bit not the least by helping the entrepreneurs to shift gears to Causal Thinking from effectual at the right time– or sometimes buying the entire small company – can often be a win-win scenario for both firms. It also means looking at true entrepreneurs, to give them the autonomy but still have them be connected to the corporation. The equitization and the autonomy are the biggest factors. Because the thing that actually unlocks human potential is when people feel they have control over their own destiny and they can make a killing if they really succeed on their wild bet.

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Benefits

·      Entrepreneurs remind big companies of their riches, and to take nothing for granted.  

·      Entrepreneurs can help big companies try on a bootstrapping mentality

·      The big companies commit long term to disruptive innovation.

·      Creates goodwill with entrepreneurs while accessing talent, ideas and potential solutions to problems of interest.

·      Having an incubator/accelerator associated is like an insurance policy

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Corporate Incubator/Accelerator & Indian Startups

A Corporate incubator/accelerator is also a good way to help the government plan to foster growth of India’s startup community. It can be completely in sync with Indian government’s program ‘Startup India’ that includes a series of initiatives designed to encourage accelerated startup concepts, development and execution. Large Companies can engaging with startup & entrepreneurs by providing physical or virtual environments or structures to make partnering more conducive. Currently most of the players in the startup ecosystem are either financial players like Seed Funds or VCs or Educational Institutes backed by Government. Some Corporate players are also in the startup space for captive innovation management needs. There is room for a large corporate player to participate across the value chain in the start-up ecosystem and build scale based on Brand and deeper understanding of doing business in the Indian context. We also believe that in this ecosystem, scale will lead to a virtuous cycle and bring global connectivity and funds at a rapid pace to the scaled platform

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Additionally a Corporate Incubator/Accelerator can help Avoid Failures by addressing all the issues identified by IBM by providing help to:

·      Learn to build and manage innovation

·      Build strong ecosystem connects for higher value creation & recognition

·      Receive deep mentoring with skin in the game.

·      Understand and nurture corporate governance.

·      Receive mentoring and Knowledge thru structured program.

Disclaimer: As a follow-up to Prof. Saras’s findings I conducted my own research on internet to create this co-relation between her findings and corporate innovation and hence more than one statement may have resemblance to some other published material which is not by intention but to do justice with the thoughts expressed by the writer(s).

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