Academic journal article Research-Technology Management

Accelerating Corporate Innovation: Lessons from the Venture Capital Model: What Can Corporate Innovators Learn from the Innovation Practices of Agile Start-Ups?

Academic journal article Research-Technology Management

Accelerating Corporate Innovation: Lessons from the Venture Capital Model: What Can Corporate Innovators Learn from the Innovation Practices of Agile Start-Ups?

Article excerpt

As we enter this century's second decade, the rate of business innovation is accelerating, challenging all incumbents' ability to maintain their competitive edge. The model of the industrial enterprise that excels through internal innovation has been shattered by the reality of new ventures that achieve true scale and competitive advantage through rapid cycles of innovation, experimentation, and distribution. These patterns are most evident in Internet-related disruptions, such as Google, Facebook, and Groupon. The current cycle of disruptive innovation is shaking every industry to its core, be it energy, manufacturing, transportation, health care, hospitality, media, consumer products, fashion, or natural resources. Managing innovation for an enterprise is no longer a simple matter of new-product development, something for those fellows in R&D to do, nor is it simply adapting to the new information technology realities. Instead, innovation has become a strategic ongoing process that embraces all resources available to the enterprise. New-product development is now only one component of a broader program that must embrace learning from and partnering with ventures outside the enterprise.

Since the 1970s, a major source of business innovation has been new ventures, often funded by venture capital. Indeed, many of today's major corporations were themselves venture capital-funded start-ups (Freeman and Engel 2007). These examples of innovation and business creation have much to teach today's incumbents about agile, strategic innovation. Their processes and mechanisms for managing uncertainty, mitigating risk, and empowering commitment represent a powerful model for innovation that the corporate Chief Technology Officer (CTO) can put to work for the large enterprise. In this article, we will explore how the venture capital model of innovation can be applied to the internal management of innovation. What can corporate innovators learn from the practices of venture-funded organizations?

Disruptive Innovation: Beyond Product Development

New technologies have the potential to create disruptive innovation. For the mature corporation, this can be comforting, as it can play to their advantage. Although certain technical innovations can disrupt incumbents, they more often represent incremental evolutions. Even if they are protected by patents or other intellectual property mechanisms, technical innovations may not create significant disruption because they often give advance warning of their arrival.

More disruptive is when these technical innovations are coupled with business model innovations. New ways of extracting value from tactical technical advantage has led to major disruptions of incumbent enterprises. Examples abound: Google's Adwords, Netflix's streaming subscriptions, and YouTube's user-generated video entertainment disintermediated traditional players--ad agencies and television broadcasters; Dell's mass customization approach to PC retailing made buying off the shelf seem second best; and the Spanish retailer Zara, with its ultrafast product development cycles and weekly inventory turnovers, changed the very idea of a fashion season, from something that happens four times a year to a weekly event. Software vendors have become solutions providers, using software-as-a-service (SaaS) business models to convert old-line direct-sales businesses into service enterprises. New intermediaries such as EnerNOC, exploiting technical innovations such as smart meters, have arisen to help electrical utilities convert their customers from mere consumers of power to partners in energy management.

Some of the most disruptive innovations do not rely on significant technical breakthroughs at all, but rather on the creation of applications for emerging platforms (such as software solutions distributed via the SaaS business model over the Internet or entertainment applications, games, and utilities for the iPhone or the iPad distributed via the iTunes App Store) or the recombination of existing capabilities (for instance, Netflix's metamorphosis from CD rental outlet to streaming media content provider). …

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