Why Large Corporates Can’t Innovate Like Startups.

Tendayi Viki is an academic, author, entrepreneur and consultant. He is the author of the forthcoming book The Corporate Startup. He is currently Senior Consultant Product Lifecycle at publishing house Pearson and he will share his thoughts on innovation in corporates on November 4th. This is the sneak peek!

We don't see as many innovative products and services from larger corporates as we do from startups? 

Most important to understand is that large companies cannot operate the same as startups. By definition large companies are facing different challenges. The main difference is that larger companies work with known sustainable and profitable business models, this how they became successful. Therefore, excellence in executing on those business models is important. They don’t want to kill the cash-cow. In contrast, startups are still searching for their business model, through experimentation, iterations and pivots. It is a completely different way of working and startups are starting to do that very well. That's why innovation often mostly comes from the smaller startups. They are nimble enough to be responsive to changes in the environment. 

So how can large companies innovate like startups? How can they overcome their challenges? 

If larger companies would like to innovate like startups, they should become aware that they are fighting a war on two fronts. On the one hand they have to keep the main business going. On the other hand, they have to develop new products and services. These two activities require different management principles, human resources and KPIs. Large corporates need to become ambidextrous. They should operate on two tracks: they execute on their current business models in one track and  look for new business models in the other. In order to succeed they have to do both equally well. 

The  KPI's and management principles for the two parts of the business have to be different. While existing products work with the existing KPI's, the team that is working on a stream of innovative products are still looking for product-market fit and work with a different set of KPIs.  There should be a cultural separation between the execution business units and the searching business units to the extent that this is practical. To balance these demands and ensure the company stays on strategy, the two tracks can then meet each other at board level and compensate for each others needs.  

How can this separation be practically implemented? 
There are different ways of organising the innovation track, depending on the culture of the company. You could have an innovation sandbox where people can experiment. Or work like Google does: allowing employees to work 20% of their time on their own projects. You could also setup skunkworks, internal accelerators or an innovation colony where the company invests in independent startups. 

It is important to make the structure explicit and make the whole organisation understand how it works. 

For the innovation track: should corporates work like VC's and accept that few successful projects will have to make up for a large number of failures?
That particular VC model is broken. In fact research shows that most VC firms underperform in relation to the S&P500. They focus on making huge bets and hoping one hit pays the costs. This is where accelerators like Rockstart, 500 Startups and Tech Stars can be used as an alternative model.  It is still a gamble of course, but the bets are much lower. Remember that methodologies such as The Lean Startup and Lean Analytics gave startups a fitting structural approach which turned out to be very successful. Before this, startups tried to imitate large organisations, and that didn't work. 

Now, larger companies trying to innovate are failing like startups were failing before (i.e. by applying their large company traditional KPIs to innovation). In order to innovate like startups, large companies need to learn from startups, and still keep a balanced focus on their core business. They need a structure, a model to help them succeed. 

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