Sunday, April 27, 2014

Startup or Bellwether: Who are the Better innovators?

 The corporation is more resourceful, and startup is more creative.

Innovation is the light every business is pursuing, however, for most companies, innovation is more as serendipity, rather than a systematic business capability which can be built upon; in particular, startup business or industry bellwether, who are the better innovators?

Corporation is more resourceful, and startup is more ‘creative’: Corporate tends to be stronger at the very front end of innovation (problem-scoping); start-ups tend to be stronger at the ideation phase (idea-shaping) and getting to proof of concept; corporate tends to be stronger at the adoption and diffusion phases (mostly down to superior strategic resources enabling better quality execution). In other words, startups have the upper hand on the phases that depend on agility, creativity, and speed, whereas corporates win in the phases that would otherwise stall for lack of strategic resources. In such aspect, the big corporation is on voluntary disadvantage and this opens up opportunities for start-ups to introduce new technologies. The provocative question would be: How can big firms nurture radical innovations? Incubating new entrepreneurial projects and thus creating links with a different set of individual cultures.

The corporation is more incremental, and startup is more ‘disruptive”: There are three kinds of innovation here: incremental -Evolutionary (something in between) – radical or breakthrough. The gap between incremental and radical is huge both in terms of outcomes if successful and on how to approach it. Big companies are much better at incremental innovation than radical; the big companies have lots of potentials and also the better chances for success of the evolutionary innovations well. They rule on incremental innovation due to their history and incumbency whereas the startups lead on bringing out more radical innovation. As most of the radical innovations need a lot of time to launch into the market. Hence, big companies prefer to make only incremental innovations on their current technologies. The cost to shift to another technology (radical innovation) for a big firm is just too deep to make a gamble. Therefore, most of the organizational culture of big companies are not inclined to radical innovation. They are used to exploit an established and accepted technology and are very afraid of changing.

Besides size, the sector and ecosystem play a significant role in defining innovation scope and ‘flavor’: Besides the current labels (Corporates, SME, Startup etc) as the key determinants of innovation. Perhaps innovation ‘appetite’ has much more to do with sector (is it inherently receptive to radical innovation, does it attract funding etc); then you have team - innovation is driven by small determined teams, almost regardless of the structure within which they exist. From innovation talent perspective: the entrepreneurial (creativity, commercial skills, social skills, dynamism, and focus) competency is the key. In addition, the ecosystem of which they are part implies the notion of the "adjacent possible." If you looked at backward and ask "how would you design a brilliant innovation capability, and then, how would you support it, and then where would you put it? The idea of looking at this backward, although this is quite difficult to apply in the real world, can provide some different insights on how to structure the radical innovation.

The key differences between big and small companies when it comes to innovation are: 
• Speed of decision-making 
• Attitude toward risk 
• Allocation of resources 
• Altitude of innovation impact 
• Processes or lack thereof 
• Following rules versus breaking rules 
• Aptitude to manage innovation

Corporate has the more collective capability to innovate with better structure, but the startup has such collective urgency to innovate with speed and agility. Big companies talk a lot about becoming more entrepreneurial, but few manage to execute effectively on it - the ambidexterity required to support entrepreneurship and optimize operational efficiency at the same time creates too much internal conflict for most. Working with SMEs, either through collaborative value chains or through corporate venturing provides a great way of overcoming this internal conflict by leveraging the attributes of both big and small companies. Corporate environments, given they have the right set of tools, structure, and mentality, are better equipped to generate innovation within themselves, by allocating time and resource to the people in charge. Typically larger companies are at an advantage when it comes to innovation management, especially when it is in complex and resource intensive spheres of activity. Their research and development budgets are much higher and it is simply a matter of economics of scale that they can profit from. At the same time, it is observed that SME, lean managed and fitted with minimal processes, often with highly motivated young professionals, come up with disruptive innovations that even may turn traditional business models upside down.

There is no obvious winner or loser in the intensively competitive innovation game. The interplay between innovative culture and strategic agility is the key to a large organization’s ability to innovate. It is almost impossible to generalize into start-ups being better at innovation than corporate (or vice versa) - you will always find lots of exceptions to any chosen 'rule'. Generally speaking, disruptive innovation means high risk and, therefore, wise to develop within a 'startup' setting. Sustaining innovation, on the other hand, can be processed within existing structures/cultures. To optimize the innovation process (minimizing cost, time and risk whilst maximizing scalable solutions) requires much more effective collaboration between both start-ups and incumbents throughout the innovation pipeline. Further, due to the digital nature of hyper-connectivity and cross-functional collaboration, big companies begin to better understand and embrace open innovation and business model innovation. Once this kicks in over the next 5-10 years, they will become much better at bringing more radical and breakthrough innovation to market and do so faster. 


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