The Role of Big Businesses in The Innovation Ecosystem

“It is not the strongest of the species that survives, nor the most intelligent. It is the one that is the most adaptable to change” – Darwin

Innovation has always been a core element of corporate strategy, however, for big organisations innovation initiatives tend to be more financially driven and they have very low tolerance for risk. Their primary focus is on identifying new ways to operate more efficiently and retain existing customers. Traditionally, corporates would access new innovations through in-house research and development teams or large merger and acquisition activity which is both costly and resource-intensive.  Additionally, most big corporates are publicly listed, and the leadership teams face enormous pressures to produce short-term results and maximise shareholder returns.     

Disruption by Startups

The innovation space across the globe has changed massively in the recent years, startups and small businesses are popping up left, right and centre and this is impacting how corporates innovate. Startups are constantly looking to create the next big thing across all industries, they have smart, highly engaged teams and offer low cost alternatives to the products that corporates have delivered to the market for years. Startups are lean and are not afraid to fail, they focus on on-boarding the low-end customers as early adopters, learn fast & adapt the product, and then gradually acquire the higher-end customers.

 

 

The illustration on the right is from big bang disruption, a book by 2 Accenture researchers, Larry Downes and Paul Nunes that tries to illustrate how the big bang disruption model has collapsed the traditional innovation model. The big bang disruption model is not just different to the traditional model in terms of speed but also in kind, they are unplanned and do not follow conventional strategic paths or patterns of market adoption.

 

According to a recent study conducted by Innosight, the growth strategy consulting firm about 50 percent of the S&P 500 will be replaced over the next 10 years losing market share to competition being the primary reason for this.

Innovation has become a necessity in today’s world and customers demand it. Corporates no longer underestimate the disruptive risks of agile startups, they understand the need to innovate quickly and produce better products to consumers before others do.

  

Given all the above challenges, how can a corporate successfully innovate? What can corporates offer to the rest of the ecosystem and leverage from the other ecosystem participants?

Corporates need to embrace open innovation and strengthen their connections with the ecosystem to avoid disruption

  • Corporates & Startups

Startups may be all over the new innovation techniques and lean frameworks, but 90% of them fail. The top reasons for this are they are not solving for problems with enough market appeal and there is a lack of capital. Corporates importantly offer startups capital, resources, customers and industry expertise and it is important they connect to maximise innovation outcomes.

  • Corporates & Incubators/Accelerators

Startup accelerator and incubators have gained a lot of popularity in recent years and they are very strongly wired into the startup ecosystem worldwide. Their methods have been tried and tested for scouting and curating talented, entrepreneurs and startups. Partnering with external, independent incubators/accelerators could be a great way for corporates to engage with the startup community and bring about the culture that is necessary for disruptive innovation.

The number of accelerators and incubators operating has grown rapidly in recent years, and these organisations are looking for ways to operate more efficiently and differentiate themselves. Partnering with corporate leaders could provide them a competitive edge and also unlock key resources such as capital, customers and subject matter expertise. 

  • Corporates & Academia

Academia produces excellent research outputs and publications, but they struggle to commercialise the research and collaborate with corporates in accelerating the development of new solutions from the findings. Some of the barriers to collaboration between Academia and Corporates include a lack of trust over issues such as intellectual property, communication issues and a lack of understanding on the potential incentives of working together.

Although corporate-academia collaboration may seem challenging, combining the academic thinking and R&D infrastructure that Universities hold, and the product/service development expertise of corporates could accelerate the development of really powerful innovations.

Some of Australia’s big corporates are starting to implement measures to avoid disruption by strengthening their connections with the ecosystem. These innovation initiatives include:

  • Innovation labs & Incubators

Innovation labs bring senior stakeholders, employees and customers of an organisation together with innovation professionals, design thinkers and technology companies in order to create innovative solutions to problems that affect their market.

Incubators are hubs within corporates that are focused on growing new and early-stage startups. They offer expert advice, office space, legal counsel, and in some cases seed money in exchange for a small amount of equity in the companies.

       List of corporate Innovation labs & Incubators:

-  Commbank’s innovation Lab 

-  Telstra Labs

-  Origin’s O hub

-  REALABS

-  KPMG

-  IAG’s Firemark Labs

  • Corporate accelerators

Accelerators are very similar to incubators; the main difference is that accelerators run specific programs targeting different growth stages of a startup. They are also delivered to a cohort of startups over a discreet period of time between 3-12 months. The corporate will often take equity in the startups or it is a way for corporates to have visibility to a group of startups within a particular sector that is of interest to them.

List of corporate accelerators:

-  Caltex Spark

-  HCF Catalyst

-  Seek & Hudson

-  Testra's MuruD

-  COCA-COLA AMATIL XCELERATE

-  Qantas

-  Lion Unleashed

 

  • Corporate VC

Corporate VC’s invest corporate funds directly in external startup companies. These tend to invest in later-stage startups.

List of corporate VC's:

-  AusPost Venture Fund

-  Telstra Ventures

-  Coca-Cola Amatil

-  Westpac's Reinventure

-  Fairfax Digital

-  IAG Ventures

-  NRMA’s Jumpstart

-  HCF Catalyst

Australian corporate innovation initiatives

Australian corporates are starting to embrace open innovation, but they still have a long way to go.  There needs to be a reliable and up-to-date source of truth on the innovation ecosystem that corporates could use to track the best entrepreneurs and startups across their industry. They also need to identify the key players in the ecosystem and cross-collaborate to drive transformative innovation and stay relevant in the market.

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