Value Shifts. It’s How You Deal That Matters.

For whatever reason, corporate innovation has become synonymous with new business development. However, that isn’t the only way to sense for change and encourage the bold and aggressive innovation that today’s world needs from large corporations, idling on the sidelines of cash while the very real game of human happiness sputters.

Taking a step back, most agree with the notion that “shift happens” in the world and thus, dealing with it is a necessity to sustained corporate survival, much less profitable growth. The question is, how to best deal with shift?

Shift comes in many forms ranging from new technologies, consumer preferences and business models—in essence value shifts. Corporations must put in place systemic mechanisms to create, detect and respond to these fundamental changes in value which will dictate renewal—aka innovation—lest they miss the next big thing and join the ranks of the obsolete.

This requires a comprehensive approach to innovation, which can be separated into nine fundamental ways to listen and respond to value shifts, broken out in three main worthy endeavors: research, venturing, and yes, mergers and acquisitions.

RESEARCH
If a company can sense a value shift coming, relatively far, far way (say 2.5, 5, 10, 20+ years, depending on the industry), it should invest in organized research activities. Research can be further broken down into foresight, technology R&D and consumer insights.

Foresight: The art of foresight requires assessing various seminal trends in society, government, technology and business competition and how they affect one’s given industry. This often requires understanding of complex systems—complexity being the mother of uncertainty. No easy way to do this, but reading (good) science fiction doesn’t hurt! It’s important to remember that the future cannot be predicted, but it can be shaped—if you don’t, someone else will. If you are doing foresight right, you should come away with a point of view on the desired future state of your pertinent world and work towards it.

Technology R&D: First of all, I hope corporate R&D isn’t dead. It should be alive and well! R&D comes down to understanding one’s core technology S-Curve and using it to make informed decisions on future investment:

    • Is it time to double down on the same parameter of performance, but achieve it through a different ‘how’ (meaning a different technology mechanism)?
    • Is it time to change the game by combining multiple technologies into a new offering and thereby creating new parameters of performance. Note, not all of the technologies need to be ‘invented here.’
    • Is it time to disrupt oneself and go down the performance curve on a given parameter by offering a good-enough version of one’s technology to fight non-consumption?
    • Or of course, if you can’t continue to win in the same technology space, is it time to pack-up and move somewhere else?

Consumer Insights: Talking to consumers is highly recommended, especially face-to-face, in their physical domain, not the equivalent of a human fish-bowl. The consumer, usually a necessity for a healthy business, can be an invaluable source of inspiration for what comes next, venturing. Startup founders do this, although they don’t often realize it. The ones that jumped in the entrepreneurship pool before learning to swim, often go back return to the pool deck before attempting too many laps—they at least validate their ideas with consumers before scaling their businesses. Large companies can afford upfront research, with real money not sweat equity to best prepare for venturing. Unfortunately, it seems that only consumer brand companies get the importance of consumer insights. But there are visionaries out there, further upstream in the value chain, that understand they too must anticipate the needs of their customer’s customers.

VENTURING
If a company can sense a value shift relatively near (say today to two and a half years, depending on the industry), it should invest in organized venturing activities. Corporate venturing can be further broken down in three areas: internal ventures, startup partnering and corporate venture capital.

Internal Ventures: Internal venturing is simply the act of starting a new business from within an established corporation. This could be a new business within the core market, within logical adjacencies or within non-obvious white spaces. Depending on how related to the core and what needs to be leveraged a corporation may need to shield the new venturing activity within an internal incubator that abides by different rules (or spinning out new ventures with buy-back clauses). Internal venturing is often what people refer to as corporate innovation, but it’s only one of nine tools in the innovation shed, albeit crucial to drive an entrepreneurial culture and entice research projects out into the real world, while we’re still young!

Startup Partnering: Corporations often think they see a new business opportunity before anyone else. Well, maybe before some other slow moving leviathan down the road, but usually not before a swarm of startups is already on it (or at least on Kickstarter). Don’t get me wrong, it is possible to spot (or risk) things before startups from vantage points that only corporations have, especially if it has been nurturing a startup-like culture. But when looking to expand into new or undefined markets it is likely there is already a startup with a leg-up on some crucial part of the puzzle. In those cases, and if it’s still early in the game and there are obvious synergies, then startup partnering option is in order. A corporation can learn to innovate like a startup, but it should be equally adept at innovating with startups—not see them as competitors.

Corporate Venture Capital: The final venturing option is the back-in-vogue Corporate Venture Capital activity (CVC), which in theory should make a great complement, not substitute for internal venturing and startup partnering. CVC should be used for situations where startups of interest have reached a certain maturity of their own—when they mostly need capital, advice and freedom, not necessarily a co-development partner. CVC should be targeting non-strategic areas for the company—yes, non-strategic—that could be disruptive to the current business model and present a completely different way to make money or go after new customers. CVC funds should have investment discipline (or they won’t be invited to the financial VC party), but they must scout the next business for the corporation. There are other useful purposes for CVC, like fueling the complementary ecosystem needed for a budding internal venture (thus strategic), but the primary mission should be to get ahead of a value shift, not simply supporting what other units have already discovered.

MERGERS & ACQUISITIONS (M&A)
If a company can’t sense a value shift to save its life (say it’s just noticing something it should have noticed yesterday and as far back as two to three years), it may still not be too late and ironically could be a good thing if it’s inept at research or venturing activity. M&A is part of the innovation arsenal and it can be broken down in three activities: startup acquisitions, medium to large company acquisitions and large corporate mergers.

Startup Acquisitions: When a large company (usually the type sitting on a pile of cash with no clue what to do with it) looks at a successful startup and says, “We should have thought of that ourselves. They’re going to eat our lunch!”—well, maybe before that happens, it should think of buying the startup before it usurps them. Even worse, the successful startup gets picked up by a competitor who pumps money into it to usurp them even faster. If the post M&A integration is done smoothly startup acquisitions are a great way to renew oneself, and with time, create even greater value for society and investors through some inherent scale advantages (and better execution in the later growth stages that the startup management was unlikely to muster or want to muster, few exceptions aside).

Medium to Large Company Acquisitions: When a large, slumbering company (again, usually the conservative, cash rich type) awakens and decides to move into a pre-existing market where it thinks the grass is greener and it can derive significant synergies with its current assets, it can still capture value through a relatively significant corporate acquisition. This is certainly a better option than assuming that building to compete for the incumbent’s premium customers would be less costly than buying an incumbent outright. Hard to sustain this as the sole activity on the innovation agenda, but it’s a likely need when a company operates in a complex environment where a few value shifts will evade the earlier mentioned radars.

Large Corporate Mergers: Before death, there’s marriage (as romantic as that sounds…It’s birth, freedom, marriage, kids, death, for the record). When a company can admit that’s it has essentially missed a fundamental value shift, but it can bluff that it hasn’t, it should consider a merger with another large competitor before it calls it a day. It’s usually the strategy for the truly out-to-lunch types like the newspaper industry (and medieval kingdoms), but it can still be a worthwhile last resort of creating societal and shareholder value. Thus claiming the last, albeit dubious, slot on the Innovation tool shed. Filing for bankruptcy is definitely out of the expansive scope for innovation I posit in this piece, much less being bailed out by the government.

IN CONCLUSION
Corporations need a comprehensive set of activities to deal with the inevitable shifts in value that happen in technology, industry and society. This is in order to innovate, or renew themselves to provide value in a different, better way.

If we see innovation as a renewal process we must allow the definition to be more encompassing than just new business development, or venturing. It must also include research and M&A activities.

The newly created positions of Vice President of Innovation or Chief Innovation Officer shouldn’t be awarded to people merely running an internal venturing silo. It should be awarded to the person overseeing the entire corporate innovation system from research to venturing to M&A.

Innovation should be unified under one umbrella, not fragmented into the nine activities described above. There could be leaders under the Chief Innovation Officer with the responsibility for value shift themes and the ability to coordinate resources in research, venturing and M&A activities. What you don’t want is for the head of R&D to be competing with the heads of venturing and M&A for the CEO’s attention. Design it out and focus on delivering value, not agendas!

Ricardo dos Santos

Director

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