How Can Corporations Achieve Profitable Growth Through Innovation?

For many decades, established companies have been aware of the importance of managing innovation, usually associated with internal R&D units, in conjunction with other sources of opportunities. It is the concept of “open innovation” that Henry Chesbrough coined in the 2000’s to describe “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”

Witnessing today’s speed of innovation, this practice is more relevant than ever. The technological revolution – with the rise of promising new technology fields such as cloud computing, big data, artificial intelligence, the Internet of Things and blockchain technology – is enabling new kinds of business logic that are shaking up the status quo regardless of the industry. Certainly, the magnitude of change in industries such as traditional media, automobiles, insurance and banking is higher than in others, but we are also seeing innovative solutions that blur many other industry boundaries.

Many corporations have been confronting the threat of becoming obsolete by opening their innovation strategy to increased exchanges with the ecosystem. This has allowed them, in the worst cases, to be aware of the transformations and, in the best cases, to take advantage of disruptions to lead their markets. Opportunities for collaboration between large corporations and young innovative firms – so-called corporate venturing – have flourished in different ways. Clever executives must understand the scope and the impact of such opportunities to choose the appropriate one as a function of company objectives and capabilities.

Corporate Venturing

Today corporate venturing offers a wide range of tools for corporations to come up with disruptive innovations and adapt to different needs depending on their innovation strategies: accelerators, incubators, excubators, corporate venture capital, start-up acquisitions, hackathons, scouting missions, strategic partnerships, and venturing clients, among others. Each tool follows a different route to achieve different objectives – from purely direct or indirect financial investments to strategic alliances or support to develop products or services with or without equity investment, including tools such as challenge prizes. The question is not whether to capture innovation but how.

Corporate venturing offers a wide range of tools for corporations to come up with disruptive innovations and adapt to different needs depending on their innovation strategies

In the graph below, we show a selection of relevant venturing tools classified according to four parameters: the time expected to affect firm or unit results, the intensity of capital use, the most likely stage in the innovation phase in which the tool will be used, and the degree of integration into the established corporation. The classification is a stylized approach to represent a complex reality. Corporations may mix tools according to their goals. Moreover, each tool may show clear variations in how it is implemented. Nevertheless, there is valuein defining and describing the most common form for each tool. We set out the tools following the innovation phases – from discovery to deployment.

Certainly, we live in extraordinary times for entrepreneurship and corporate venturing, which are on the upsurge globally. Start-ups have seen opportunities arise and the entrepreneurial ecosystem has flourished in different countries. At the same time, some corporations have learned to build bridges with start-ups through corporate venturing as a route to become more innovative and overcome the challenges they face as they seek to achieve profitable growth. They did not want to let their inner inertia define them and have concluded that collaborating with start-ups is good practice.

Further reading:

Corporate Venturing: Achieving Profitable Growth Through Startups

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Julia Prats is Professor of Entrepreneurship at IESE Business School and member of the Scientific Council of Future for Work Institute

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