Corporate Innovation

A 30 minute tour of best practices of Global & Silicon Valley Innovation Leaders

INTRODUCTION  

•  Fifth Era: Managing Partner

•  Angel: Keiretsu & Band of Angels

•  McKinsey, AT Kearney, Monitor, Booz

•  Gap, NatWest, Bankers Trust

•  Bay Area Council, BACEI

•  Oxford & Stanford

•  UK/US citizen living in California

www.fifthera.com mlemerle@fifthera.com

SOURCES  OF  THESE  PERSPECTIVES  

Building an External Innovation Capability

Matthew Le MerleJamie Campbell

Perspective

THIRTY  MINUTES  !  

29:59

HOW TO GOVERN CORPORATE INNOVATION?

INTERNAL VERSUS EXTERNAL INNOVATION?

WHAT IS INNOVATION AS A SHARED VALUE?

ISSUES  FOR  TODAY  

Questions

1 Do you have a clearly defined innovation strategy?

2 Is your business strategy fully aligned with your innovation strategy?

3 Does your corporate culture support your innovation strategy?

HOW  TO  GOVERN  INNOVATION?  

Innovation Strategy and Cultural Alignment Matrix

Alignment of Business Strategy to Innovation Strategy

Cul

tura

l Sup

port

for I

nnov

atio

n St

rate

gy

H

L

GLOBAL  INNOVATION  1000  >50%  OF  COMPANIES  ARE  NOT  HIGHLY  ALIGNED  

9%

20% 27%

44%

L H

36% 64%

53%

47%

Low alignment Moderate Alignment High alignment

HIGH  ALIGNMENT  =  SUPERIOR  RETURNS  

Gross Profit (5 year CAGR) Enterprise Value (5 year CAGR)

49

44

42

Low Alignment

High Alignment

45

Moderate Alignment

30

35

50

40

45

56

51

43

60

55

50

45

40

Low Alignment

30 Moderate Alignment

35

48

High Alignment

Mea

n of

nor

mal

ized

5 y

ear C

AG

R

Mean across all 1000 companies Mean across all

1000 companies

HIGH  ALIGNMENT  OF  “MOST  INNOVATIVE”  

Top Innovators – Alignment

Alignment of Business Strategy to Innovation Strategy

Cul

tura

l Sup

port

for I

nnov

atio

n St

rate

gy

H

L

4%

13% 10%

73%

L H

14% 86%

77%

23%

Compared  to  44%  in  

Global  1000  

Low alignment Moderate Alignment High alignment

SILICON  VALLEY  –  MUCH  HIGHER  ALIGNMENT  

4.9%   7.1%  

15.0%   7.1%  

28.7%  

10.7%  

32.3%  

28.6%  

19.2%  

46.4%  

0%  

20%  

40%  

60%  

80%  

100%  

Does not

Support

Strongly

Supports

3%  

14.3%  14.3%  

30.4%  

10.7%  

38.3%  

21.4%  

14.3%  

53.6%  

0%  

20%  

40%  

60%  

80%  

100%  

Overall   Bay  Area  Companies  

Not Aligned

Highly Aligned

Innovation Strategy Alignment with Business Strategy?

How well does your company culture support your innovation strategy?

Overall Bay Area

TAKE  AWAYS  ON  INNOVATION  GOVERNANCE  

Global Innovation 1000 •  Develop an innovation strategy •  Ensure it is aligned with the business strategy •  Ensure it is supported by the culture of the organization

Additional Frequent Observations (Interviews) •  Innovation reports to CEO and sits on executive team •  Innovation strategy reviewed by Board in annual cycle •  Innovation on agenda at executive and Board meetings •  Broad organization can describe innovation strategy and

the way it fits with business strategy

HOW TO GOVERN CORPORATE INNOVATION?

INTERNAL VERSUS EXTERNAL INNOVATION?

WHAT IS INNOVATION AS A SHARED VALUE?

ISSUES  FOR  TODAY  

Questions 4 Should all employees be able to innovate products and

services offered? 5 What X% of your employees do have a mandate to

innovate products and services?

6 What does innovation as a shared value mean to the rest of your people (Y = 100%-X)% ?

WHAT  IS  INNOVATION  AS  A  SHARED  VALUE?  

HIGH  ALIGNMENT  OF  “MOST  INNOVATIVE”  

Top Innovators – Alignment

Alignment of Business Strategy to Innovation Strategy

Cul

tura

l Sup

port

for I

nnov

atio

n St

rate

gy

H

L

4%

13% 10%

73%

L H

14% 86%

77%

23%

Compared  to  44%  in  

Global  1000  

Low alignment Moderate Alignment High alignment

X  versus  Y  

•  Even in the most Innovative companies, the population tasked with breakthrough innovation is small (X%)

•  But everyone needs to support innovation if it is to rise to be a shared value

•  How do Innovation Leaders solve this conundrum? – How do they make everyone want to support

innovation, when they simultaneously don’t allow most people to play?

KEY  CULTURAL  ATTRIBUTES  

Note: “Please force-rank the following cultural attributes in order of the relative level of importance to your company and the degree of prevalence. Rank the most important 1st , the next most important 2nd and so on.” -– Responses above reflect the recoded means, that is, responses of 1 or 2 = 1, all others = 0

Rank of Importance(A) of Cultural Attributes

0.62  

0.5  

0.25  

0.22  

0.2  

0.13  

0.09  

Strong  Iden\fica\on  with  the  customer  and  an  overall  orienta\on  towards  the  customer  experience  

Passion  for  and  pride  in  products  and  services  offered  

Reverence  and  respect  for  technical  talent  and  knowledge  

Open  to  new  ideas  from  customers,  suppliers,  compe\tors  and  other  industries  

Culture  of  collabora\on  across  func\ons  and  geographies  

Sense  of  personal  accountability  for  any  and  all  contribu\ons  to  the  innova\on  and  product  

Tolerance  for  failure  in  the  innova\on  process  

Cultural  Agribute  Ranking  -­‐  Support  to  Innova\on  

INNOVATION  AS  A  CORPORATE  SHARED  VALUE  

Customer  Needs    

(Met  and  unmet)  

Corporate  Innova<on  

X%  

Developing breakthrough solutions to better meet our

customer needs

Culture  to  Support  Corporate  Innova<on  

Y%  

Delivering customer experience with excellence and being truly

proud of our products and services

Better Solutions

Voice of the Customer

“Need Seekers” 100% = X+Y

HOW TO GOVERN CORPORATE INNOVATION?

INTERNAL VERSUS EXTERNAL INNOVATION?

WHAT IS INNOVATION AS A SHARED VALUE?

ISSUES  FOR  TODAY  

Questions 7 The most important innovations in industry will come from:

a.  Your company? b.  Your industry? c.  Outside your industry?

8 What % of your Innovation spend is internal vs external?

9 What % of your innovation spend focuses beyond your industry?

INTERNAL  VS  EXTERNAL  INNOVATION?  

SOURCES  OF  INNOVATION  vs.  WHERE  $  SPENT  

Disguised  Company  Responses  

 1  

 2  

 3  

 4  

 5  

 6  

 7  

 8  

Sources  of  Innova\on  

Industry   Industry   Beyond   Industry   Industry   Beyond   Industry   Beyond  

$  (excl.  major  M&A)  Internal  %   90   95   60   90   95   70   90   33  

External  %   10   5   40   10   5   30   10   67  

External  $  Trends  

Up   Up   Up   Flat   Up   Up   Up   Up  

Innovation 1000 Top 50 Companies

CORPORATE  INNOVATION  -­‐  MODEL  

Formal Informal

Corporate

Business Unit

Business Unit Innovation e.g. product development, traditional capital allocation (6-24 Months Time Horizon, Core Business)

Internal Innovation e.g. innovation pride movement, communities of practice

External Innovation e.g. developer relations, academic partnerships, thought leadership engagement

Innovation Coordination/Catalyst Groups

Corporate Innovation e.g. innovation group, venture fund, incubation unit (24-60 Months Time Horizon, Disruptive & Transformational)

8.  LP  posi<ons  

EXTERNAL  INNOVATION  TOOLKIT  

Explore Ideate Concept Test Refine Launch Expand

Cost to play

Risk (failure rate)

7.  Corporate  Venture  Funds  1.  Grants  &  Scholarships  

Research Develop Seed Early Stage Later Stage Expansion

6.  Incubators  2.  Innova<on  Networks   14.  In-­‐licensing  

Programs  

11.  Venture  Exchanges  

4.  External  Advisory  Boards  

5.  Cer<fied  Developer  Programs   13.  JV’s  &  Partnerships  

3.  Joint  R&D  Agreements  

9.  Related  Ecosystems  

10.  Collabora<ve  Innova<on  

External Innovation Toolkit

15.  Acquisi<on  Programs  

12.    Key  Opinion  Leader  Councils  

SUMMARY:  •  Innovation strategy must be aligned with business strategy and supported by corporate culture

–  Many don’t have an innovation strategy at all –  Most don’t have high alignment –  The most innovation companies do, as do most Silicon Valley companies –  High alignment correlates to superior profitability / enterprise value growth

•  Many companies chose to include Innovation as a corporate shared value –  But most employees don’t have a mandate to be innovative in a breakthrough way –  For most employees the shared value needs to be translated into continuous improvement

around customer experience standards and pride in products and services offered –  This provides the basis of the cultural support required for alignment

•  Most executives agree that future innovations in their industry will not be driven by their company –  However most of their innovation spend is internally focused –  Some companies have begun to develop external innovation efforts, but the sources and spend

are not close to being aligned –  As a result we expect massive reallocation of spending to focus on external innovation… –  …and a shift to Corporate Innovators Catalyzing Innovations rather than Generating them

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