Digital Innovation at Big Companies: How can giants remain nimble?

Large companies find it tough to manage incremental and radical innovation – are there strategies that facilitate both? Kodak, Blockbuster, Nokia are all examples of highly successful, large enterprises that failed to innovate their business models to compete with radical innovation in their field.

Having worked at two large corporations with different approaches to innovation, and attending the intriguing talk about innovating from within at HBS at #digHBS summit, I’m attempting to codify ways in which large organisations can best set themselves up for success for innovation in the digital age.

Setup corporate venture funds to keep pace with greenfield innovation

It is nearly impossible for a firm to innovate at the same rate and capture the value being created through venture-backed entrepreneurship. Setting up a strategic venture fund with team dedicated to investing resources (financial, strategic advice, mentorship, distribution, marketing etc.) in upcoming startups can be a great method to keep abreast with recent innovations. This becomes particularly important if  operating in a space that is undergoing massive structural changes.

For instance, Reuters successfully setup a corporate Venture fund in late 90s as it correctly recognized an incoming wave of digital innovation occurring in the publishing industry. More recently, Samsung has setup an Open Innovation Center where the company invests and incubates smaller startups with big potential for Samsung’s products down the road.

Stick to your guns

It is easy for firms to continue radical innovation in parallel with incremental innovation. The true test arises when the two collide – it is important for management to truly believe in long-term potential of radical innovation, and be willing to give up on short term gains and remain patient. The same needs to reinforced throughout the organization through communication, informal work culture, and decisions that clearly showcase a propensity to innovate.

An example of a firm not doing this well is how Samsung is partnering with Oculus (FB) to provide them HW resources in exchange of Oculus software. Instead of investing own resources in building a Samsung VR ecosystem, the management was unable to turn down the easy profits from selling their HW, and halted innovation by agreeing to use Oculus APIs and ecosystem.

Manage concerns of various stakeholders affected by innovation

At HBS, the digital HBX initiative was mostly kept under wraps from the student body until the pilot was announced. While the faculty were kept informed, they were not actively engaged during the development process, and separate team was setup to run the initiative from an off-campus location. This was a critical step to protect the new team from constant criticism. It is natural for students and faculty to advocate for a model that they are invested in and disregard innovation that challenges status quo.

Upper management (in this case, the Dean) need to realize that disruption and innovation will happen in ANY case, and the organization is much better off by doing it to themselves instead of waiting for an external party to do it to them. Strong support of the new team, and pacifying concerns of other constituents would be critical in this journey.

Tweak incentives to spur innovation

It is unfair to evaluate managers working on long-term radical innovation on same criteria as those working on incremental innovation with shorter horizons. Imposing financial targets can influence teams to go only for low-hanging fruits, and not try to swing for the fences.

When GE setup Imagination Breakthroughs initiatives under Jeff Immelt to find new billion dollar businesses, they continued to use 70-20-10 vitality curve evaluations instituted by Jack Welch. One can predict that the fear of being in bottom 10 will force teams to refrain from making big bets.

These are just some weapons in a manager’s arsenal to spur innovation at large organizations. It is refreshing to see large public companies like Deloitte and BMW being on the forefront of innovation, and hopefully it will percolate to other large organisations!