Technology empowers today’s companies to innovate quicker than ever, yet few enterprises have the freedom and agility to create and scale new ventures at the speed of their market. While startups enjoy the freedom to quickly test new product concepts and fail fast, large companies are often handcuffed by the weight of legacy infrastructure, red tape, compliance requirements and aversion to risk. We find that innovation failure rates at large companies are often far too low, because only incremental innovation is being pursued and not enough moonshot concepts are being tested.
This happens because of the natural growth pattern of an enterprise. As an organization matures, inertia often overtakes innovation. The process of maintaining current business lines and reducing risk becomes more important than taking chances in new areas.
Unfortunately, this isn’t sustainable in today’s marketplace. Across all industries, large companies face disruption from nimble startups with the flexibility to quickly deploy new products, test new business models, try new marketing approaches, and force their way into the marketplace. Operating without corporate red tape (and often without a fear of failure), startups can move with a speed and agility that most enterprises cannot match.
In the face of this rising tide of disruption, enterprises have two real choices: they can spin up internal innovation labs or teams, or find an external innovation partner that can rapidly build new ventures outside of the enterprise, with the objective of integrating successful ventures back into the enterprise once market traction is achieved.
The Challenge of Being Innovative
This struggle is nothing new, of course. While most startup founders would kill for the resources of an enterprise, the organizational complexity and depth of responsibility of those resources can weigh enterprises down when it counts the most. For example, startups can leverage emerging open-source platforms and embrace low-cost cloud options, while enterprises normally have to go through extensive efforts and audits to get such options approved for internal use. Despite recognizing the need for agility, most large companies struggle to achieve it.
In 2015, Gartner coined the term “bimodal IT” to describe the two very different types of responsibilities that modern IT groups have to juggle, often unsuccessfully. IT groups need traditional “Mode 1” teams that focus on maintaining and securing existing products and systems, while agile “Mode 2” teams focus on the exploration and rapid development of new innovations and product concepts. But while a bimodal IT model can help enterprises respond more quickly to the needs of the business, it’s doesn’t provide a full solution for disruptive innovation.
IT teams rarely have the right internal mix of talent to successfully launch new ventures. Even progressive IT teams face the burden of compliance, bureaucracy and stakeholder misalignment. Therefore, increasingly, enterprises are moving innovation away from its core business by setting up innovation labs, but these labs often fail to fulfill their mission.
The Limits of the Corporate Innovation Lab
To really move the needle, innovation labs need dedicated, cross-functional teams, with the freedom and failure rate tolerance to focus on disruptive innovation. Yet too often, labs are clogged up with incremental innovation projects or internal needs, and don’t have enough executive leadership involvement or runway to effectively pursue big ideas.
We find that corporate innovation labs also often lack the resources needed for successful innovation. To be effective, innovation teams need a seasoned mix of strategists, researchers, designers, technologists and marketers. The need for this type of team is often why partnering with an external innovation firm is a preferable approach for most enterprises. A firm that has all of these resources working together as a dedicated team, free from the enterprise’s internal red tape and fear of failure, has the best chance of creating successful new innovations.
Here’s a stark reality that all enterprises face: their teams that are great at product management, business management and incremental innovation are not the best teams for concepting new moonshot ideas, finding product-market fit and building initial traction. Very different skillsets are required for each phase of the new product lifecycle.
Our firm, Three Five Two, was founded on the belief that enterprises need an external partner to find, build and grow new innovations and revenue streams while the enterprise focuses on its existing business.
Innovation In Action
We recently built a highly successful new venture for Fortune 500 company Cox Automotive. The Cox Automotive team had a good kernel of an idea, and they knew hiring an external innovation firm would ensure the right mix of resources and momentum to bring the idea to life.
We dedicated a 5-person team to rapidly research, design and test the idea. Since we operated outside the enterprise, we had the ability to move with tremendous speed and quickly scale. Within a few years, the product became Cox Automotive’s quickest growing new venture and supported a 70-person team. The venture likely would not have been nearly as successful without an external team building and scaling the product.
We know most new ventures we create for our clients will need to be absorbed back into the core business once they find success. To make this transition easier, we identify “minimum viable enterprise requirements” early in the project, covering basic needs such as data security, compliance and risk management. By building new ventures with eventual enterprise alignment in mind, we are able to seamlessly integrate the venture back into the core business when market traction is achieved.
Teams Geared for Growth
When I talk to corporate intrapreneurs, I hear a common thread. Many corporate leaders recognize the need for innovation and the threats posed by nimble startup competitors, yet their companies only look internally for the solution.
I strongly believe that corporate innovators should look externally for agile innovation partners to co-create with. Using external teams as an idea incubator and proving ground is the most effective way for companies to achieve long-term sustainable growth. We have seen this model work time and time again, as we have structured our entire firm to help enterprises push innovation forward by stepping outside their own walls.