Building an innovation function within a corporate environment

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A culture of innovation doesn’t naturally develop in corporate environments that are designed to optimise efficiencies in their core business lines. Innovation involves risk, and well established companies are designed to mitigate risk. In order to foster innovative thinking and output a deliberate strategy is needed to ensure that innovation can thrive within a risk averse and large scale organisation.

Some corporates seem to naturally have a strong innovation function; examples like Amazon and Google are often cited. Yet even these companies have deliberate and well planned strategies - whether it’s Amazon’s secretive floor where experimental R+D takes place and only a select few are allowed, or Google’s legendary 20% time, where employees are encouraged to spend time on their own projects and ideas.

There are several approaches that can be taken to develop an innovation function within a large corporate - with some proving more successful than others.

The lab approach

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Pepsi's ideation zone. This innovation lab is still missing a 3D printer.

As the pace of technological change quickened towards the late 2000s many companies responded by creating “labs”. Often housed on floors in corporate headquarters - or separate beautiful & sleek office blocks in some cases - the archetypal lab would be kitted out with the latest tech like 3D printers and VR headsets and would be staffed by a bunch of young, cool tech people. The business case often used to create a lab is: we’ll destroy and then reinvent our current business model in 2-3 years, therefore making the investment worthwhile.

There are a few key problems with the concept of a lab. The first is that employees in the rest of the organisation often have no idea of the existence of the lab. If they do know about it, they’re often not thrilled about it. After all, the lab's remit is to completely shake up the way that the company works - for good or for bad as far as the staff are concerned.

Secondly, labs often over promise and then fail to deliver. Inventing a completely new way of doing business in a couple of years is a monumental challenge, and considering start up failure rates it’s unlikely that the lab will be able to produce the required results. Consequently, labs often get closed down and swept under the rug leading to the all too common scenario:

Person 1: Did you hear, we had a lab open in the US designed to help us innovate?
Person 2: Didn’t you hear, the lab closed down a month ago as they weren’t delivering any innovation.

Pros of the lab approach: Good PR value to show you’re investing in innovation.

Cons of the lab approach: Difficult to communicate and share with the internal team.

The investment approach

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Wayra, Telefónica's accelerator is one of the most well known corporate investment strategies

Many corporates are quick to admit that they will never be the fastest or most nimble. Instead of trying to create an internal function, why not outsource the need to innovate to an external partner? This partner is often an expert in running hack days or accelerators; events which are designed to bring in external startups to either invest in or offer partnerships to. Though this might seem beneficial from a financial point of view: your bet is hedged as you only invest in companies you think have a good idea, it often doesn’t work out exactly as planned.

Whilst the hope is that the start up way of working will ‘rub off’ on the staff within the large company, all too often the accelerator or hack day is run is isolation of the core business. External partners are used to manage the external companies, and whilst a small number of liaison staff may get to see and speak with the startups, in an organisation with many thousands of employees it’s unlikely that the impact will be particularly great.

Pros of the accelerator approach: A de-risked approach that might result in a return if you follow through on partnerships and investments.

Cons of the accelerator approach: The innovation is restricted to external companies and there’s little transformation internally.

The all hands approach

It could be argued that in the same way everyone in a business is responsible for driving growth, everyone is also responsible for driving innovation. Two of the most common barriers to people innovating internally is, first, a lack of digital skills and knowledge, and second, a stigma around innovating within the business. This stigma often leads to conversations like this:

Person 1: What are you up to?
Person 2: Oh, I’m just doing a bit of innovation.
Person 1: Can you please get back to work.

In addition to this, fear of failure within high pressure environments often leads to people being afraid to get involved in projects or ideas when there is a perceived high probability of failure. It’s often these projects which are the truly innovative and transformative ones.

Embracing the all hands approach is a big commitment. To solve the digital skills problem there will be a huge investment in training required. Overcoming the innovation stigma problem may require a change in company structure, and a change in employee reviews will almost certainly be needed (GE did exactly this) - making it a mandatory requirement to document something you’ve failed at or innovated in each year, forcing people to spend some of their time thinking about high risk, high reward projects.

The benefit of the all hands approach is that when done right it can be truly transformational, and the sort of innovation you get isn’t just “moonshot” type ideas. By empowering everyone to execute innovative ideas and supporting them to do so (not just saying it, actually putting metrics against it), there will be a huge amount of incremental innovation as a result.

Pros of the all hands approach: A business transformational approach to innovation that can result in innovation accross every business unit.

Cons of the all hands approach: Huge investment required, as well as a potential restructuring of the organisation. Also, does everyone want to or need to innovate?

The Innovation Champion approach

Innovation isn’t everyone’s bag. Would you want you pilot to be innovative? Or your taxi driver? Sometimes it’s important to stick to the letter of the law and do things as you’ve always done them. In the same way, there will be areas of any large organisation where innovation isn’t desirable. Of course a knowledge of whats needed to be an innovative company is important for people in areas like compliance and accounting, but this is a different mindset to those working in new product development or client relations.

By identifying core areas of the business where innovation might be beneficial, as well as - importantly - identifying people who would be keen to drive this change, large organisations can create multidisciplinary teams to work autonomously as mini start ups within the organisation. Importantly, these groups are embedded amongst the traditional business so their ways of working, thinking and training really will rub off on their colleagues.

In order for this approach to work the innovation champions have to be given additional training, but also be encouraged to share that training amongst the organisation as a whole. As well as this, they need to operate on much longer term metrics and be accountable for the results (Eric Ries talks about this extensively in his “innovation accounting” writing).

If executed correctly the innovation champions can spark a culture change in a large organisation, precipitating the drive towards a more innovative culture as a whole.

Pros of the innovation champion approach: A way to tactically accelerate innovation within identified areas of the business. Very targeted and precise.

Cons of the innovation champion approach: Relatively large investment required, needs to be accompanied by a culture shift.

Of course there isn’t a single right approach, but the methods outlined above hopefully give a flavour of the sort of strategies that large companies have employed in the past to try and drive innovation forward.

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