Large companies typically excel at incremental improvement of their products: step-by-step innovation, with limited risk. Many startups, on the other hand, push huge innovation leaps, with tremendous risk.

Large companies are efficiently organized to run their core business, while avoiding distractions and large risk. So how can they become innovative at the same time? As most have found out, it is very difficult to have within one organization and set of processes both steady, reliable business execution and at the same time churn out innovation leaps. The first typically requires to stay „within the box“, to work like a clock-work. The second requires to „jump out of the box“, to try unproven things that may – and often will – fail. Let’s look at Silicon Valley and one of the most innovative companies in the world: Google. Being far from a typical corporation, and being built from scratch around innovation and bold moves, even Google recently separated its core cash generating business from its big bets, by forming Alphabet Inc. Alphabet is now the umbrella that owns Google Inc., as well as Calico, Nest Labs, X, Google Fiber, Google Capital und Google Ventures. Even innovation leaders separate their core business from risky big bets, for a variety of good reasons.

Corporate Innovation Rule # 1

Separate (bold) in-house innovation from the core business (different organization, different processes, different KPIs).

The good news for large corporation is that they can watch the creation and destruction of bold innovation and remain ready to take advantage of winning ideas once the end game becomes clear. As an indication how strongly this approach has been adapted over the last view years, consider that the number of active corporate venture capital arms has almost tripled from 2010 to 2015.

Corporate Innovation Rule # 2

Engage adequately with the startup community to benefit from it rather than compete with or ignore it („outside-in innovation“).

Outside-in Innovation

Instead of competing with dozens or hundreds of startups in your sector, for most companies the best approach is to leverage their own strengths (e.g. brand, distribution) by adequately engaging with startups.

There are 3 approaches for established enterprises to go about outside-in innovation:

  • build awareness
    know about the startup activities related to your business. How can you possibly think about your 5 year plan without knowing which potentially disruptive activities are currently in the works? The solutions and business models you see may also provide ideas for your own in-house innovation labs.
  • get involved
    cooperate with or invest in startups related to your business, either for having a stake in the ground (strategic bet) or for leveraging your own assets (mutually beneficial business building)
  • acquire
    the last step once you are convinced that a startup has a „must have“ solution that will help you grow your business significantly and that can be effectively integrated or utilized by your organization

We help companies to do this in Silicon Valley.