This is the third in a series on the changing models of corporate innovation co-authored with Steve Blank. Steve and I are working on what we hope will become a book about the new model for corporate entrepreneurship. Read part one on the Evolution of Corporate R&D and part two on Innovation Outposts in Silicon Valley.
Corporate Leadership’s Innovation Outpost Decision Process
Today, large companies are creating Innovation Outposts in Innovation Clusters like Silicon Valley in order to tap into the clusters’ innovation ecosystems. These corporate Innovation Outposts monitor Silicon Valley for new innovative technologies and/or companies (as emerging threats or potential tools for disruption) and then take advantage of these innovations by creating new products or investing in startups.
This is the second in a series on the changing models of corporate innovation co-authored with Steve Blank. Steve and I are working on what we hope will become a book about the new model for corporate entrepreneurship. Read part one on the Evolution of Corporate R&D.
Innovation and R&D Outposts
For decades, large companies (see Figure 1 below) have set up R&D labs outside their corporate headquarters, often in foreign countries, in spite of having a large home market with lots local R&D talent. IBM’s research center in Zurich, GM’s research center in Israel, Toyota in the U.S are examples.
These remote R&D labs offered companies four benefits.
- They enabled companies to comply with local government laws – for example, to allow foreign subsidiaries to transfer manufacturing technology from the U.S. parent company while providing technical services for foreign customers
- They improved their penetration of local and regional markets by adapting their products to the country or region
- They helped to globalize their innovation cycle and tap foreign expertise and resources
- They let companies develop products to launch in world markets simultaneously
I first met Steve Blank when he started his enterprise software company Epiphany. Steve has spent 21 years as a Silicon Valley entrepreneur in eight startups and the last 13 years as an educator – currently teaching entrepreneurship at Stanford, Berkeley, Columbia and NYU. Steve and I are working on what we hope will become a book about the new model for corporate entrepreneurship. His insights about how corporations are adopting Lean Startup will be at the core of this series of four co-authored blog posts.
The last 40 years have seen an explosive adoption of new technologies (social media, telecom, life sciences, etc.) and the emergence of new industries, markets and customers. Not only are the number of new technologies and entrants growing, but also increasing is the rate at which technology is disrupting existing companies. As a result, while companies are facing continuous disruption, current corporate organizational strategies and structures have failed to keep pace with the rapid pace of innovation.
My previous post in the corporate venture capital (CVC) series provided a broad historical perspective on the sector. In this post I review important lessons learned by CVCs that have been operating for many years and several economic cycles and best practices being used by newer CVCs. The lessons in this post would be of value to CVCs looking for best practices and corporate leaders whose companies have already established venture organizations or are considering doing so as part of enabling innovation.
In a previous post I wrote about the disruptive innovations that have been introduced by Tesla Motors (Tesla) and Uber and presented the steps the automotive industry should be taking in order to address the startup-driven disruption. In this post I want to make three points:
- It is hard for startups to break into and succeed in the automotive industry. The industry requires high investment and ability to scale while maintaining low risk. The Car Use value chain has lower barriers to entry but they result in many competitors that have difficulty differentiating their solutions.
- Startups must realize that they cannot disrupt the entire automotive industry. Instead they must focus in the right areas, and collaborate with innovation-minded incumbents in order to become part of the appropriate supply and value chains as quickly as possible.
- The incumbents must structure their organizations, operations and culture in a way that enable startup-driven innovation to meaningfully impact their business.
Companies in the automotive value chain are faced with a challenging future. While reporting record quarterly sales, they are also witnessing two alarming trends. Because of problems such as pollution, climate change and loss of productivity due to long commute times, consumer attitudes towards car ownership and use are changing. In the medium and long term, i.e., the next 5-30 years, these changes have a high probability to negatively impact automakers, their suppliers and their dealers, along with insurance companies, finance companies, and many other industries that are part of the automotive value chain. In addition, there is a growing consumer interest in electric cars (to address the pollution and climate change problems) and in self-driving, or autonomous, cars (to address the productivity problem, as well as a slew of other issues such reduced accidents and mobility for the elderly and handicapped). The success of Tesla Motors, Zipcar and Uber, the growing consumer anticipation of Google’s self-driving cars entering broader service, as well as Apple’s anticipated entry in the car business are exerting additional pressure on the automotive value chain to change the way it innovates. In this blog I explore what the automotive industry has been doing to address the potential disruption, analyze the effects of these initial steps, and provide recommendations on what corporations could be doing better.
Culture defines every company regardless of whether it is an early stage startup or a global enterprise. It influences behavior, and for this reason, culture is a very important issue for corporate innovation. Many corporate innovation initiatives failed because the corporations driving them lacked innovation culture or innovation DNA.
Based on my experience from the startups I built as an entrepreneur and the ones I funded over the past 15 years as a VC, I always claim that a company’s culture is defined by the first 10 employees, starting with the startup’s founders. Corporate culture is driven by leadership (and here); is based on performance management; and can only be achieved if there exists a common vocabulary among the individuals that live it.