Big Companies Should Do Start-Ups (Too…)

Did you know that according to Harvard Business Review Germany dominates the U.S. in innovation?

The U.S. has the world’s most sophisticated system of financing radical ideas, and the results have been impressive, from Google to Facebook to Twitter. (...) Germany is better at adapting inventions to industry and spreading them throughout the business sector. Much German innovation involves infusing old products and processes with new ideas and capabilities or recombining elements of old, stagnant sectors into new, vibrant ones.

To use a shipping analogy, Germans are great at rejuvenating big old tankers (the parent companies) and making them change course, while the Americans are great at launching new speedboats. Furthermore Inc. reported that big U.S. companies like Disney, Microsoft, Target, Coca-Cola, General Electric and Nike are launching so called accelerators to invest in start-ups. So the tankers are themselves launching speedboats directly from their bow.

Being a German neighbor in Northern Europe, I had an intense discussion with US neighbor Scott MacIntosh during our innovation trip in Atlantic Canada on the question: Should a big company innovate its portfolio 'the German way from within' or should it innovate 'the American way' by doing start-ups?

Our discussion started very black & white and got more shades of grey along the way. It seems that the perfect route to innovation for an existing big organization could look like this.

1. Start innovation in a structured way internally. Companies first should try to make 'the big tanker' more innovative themselves, by putting in place a systematic way to gather and process the best ideas from their internal teams. Ideally, they use a methodology closely connected to their customers like the FORTH innovation methodology which structures the entire front end process. In this way they will learn and stimulate their own people to innovate. This will result in innovative new products, services and business models for existing and/or new markets. The first successes of these new concepts on the market will strengthen their confidence that "innovation can make a real difference here".

2. Build a culture for innovation. Involving cross functional teams in implementing a systematic method for innovation helps build a culture of innovation. This cultural aspect is a very valuable 'by catch' from launching innovation internally first, where people are stimulated to free their minds, experiment to challenge the status quo and to bring their own ideas alive. In this way you focus as leaders on further empowering your own staff to be more innovative, and you build the confidence that – “Yes, we can do this here”.

3. Open up for open innovation and start-ups. Now during this process of making our own company more innovative it is of great value to connect to outside innovators by crowd sourcing insights and ideas, to co-create with others on new technologies and to found and fund external start-ups with awesome breakthroughs.

So as a European innovator I am not against start-ups. NO! I love start-ups because they are often the ones who break open old rusty markets and revolutionize them. Weren’t the huge companies of today once a start-up too? Europeans want to learn from the 'American Way' and further foster startups, as London, Paris and Berlin are all listed in the top 20 best places to launch a business. On the other hand, the U.S. is extremely interested in the German way of innovating ‘the tanker’ itself, the parent company. Harvard Business Review reports that U.S. states have encouraged the Fraunhofer Society, a German applied-science think tank, to set up no fewer than seven institutes in America to help them.

What does all of this mean? Big companies shouldn’t do start-ups unless they already do innovation in a structured way and are building an internal culture for innovation, otherwise funding hip start-ups will be considered as window-dressing to compensate for a lack of real innovation internally. And their employees will consider it 'play time’, and will feel that these investments are burning the money they earn with the core business. Employees in big companies with an innovation base established will embrace start-up initiatives readily, and will be able to lead their business forward in a more disruptive way.

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Picture: Marcin Bajer on Flickr, under creative commons. Thanks, Rrrodrigo!