5 Lessons on Innovation: Not all roads lead to Rome (Episode #3)
Dear Innovators,
Wouldn't it be great if all roads would lead to Rome?
And respectively, if all digital labs, open innovation initiatives, accelerator programs, client venture accelerations and CVCs would lead to strategic returns, i.e. help their company to succeed in the future?
The title of the third episode already gives it away - unfortunately, they don’t.
You can watch it here:
Throughout my career, I’ve spent plenty of time trying out a variety of innovation vehicles and analysing their effects, both observing what happened internally, what the long term returns are and also in the wider sample of many benchmark companies that we've looked at. What I’ve found is that they all have one thing in common: There is little evidence that they actually work.
In today’s episode, I claim that making the right decision on how to go about diversification in the first place is crucial if you want to get to Rome. And honestly, it is relatively straight forward since there are only two roads to choose from that do not end in a dead end.
It comes down to one strategic decision every corporate needs to make to succeed in the long run and to achieve diversified revenue streams: "make" or "buy".
There is a common belief within corporates that pouring little money into businesses and venture ideas and just about any vehicle do the innovation trick as you "just need to explore". Also, we know from last week's newsletter that 89% of startups fail. Therefore, little funding will not get you anywhere close to Rome.
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So you have to choose the right path and then also have the stamina to not quite the journey as it is a long and bumpy one. But ultimately, it will get you there.
The two remaining episodes will outline the next steps once that strategic decision has been made: #4 Don’t put all your eggs in one basket: Spread your bets early on, and #5 Keep the new away from the old: Set up the governance correctly
I'm curious to hear about your perspective on innovation strategy. Are you team "buy" or team "build"?
Before you ask: Let me be a bit more specific with what I mean, when I claim that the other innovation instruments other than Buy (M&A) and Make (Venture Building) don't work: Of course they "work" in the sense that you'll meet inspiring people gathering, having loads of great conversations, big ideas are being thrown around, prototypes to play with pop up in every corner and super cool startups make impressive pitches. Throw in the occasional Silicon Valley trip and the corporate well-being package is complete. As far as the HR department (employee satisfaction up: check) and the PR department (media coverage up: check) are concerned, the job is done. As far as the CEO and the president are concerned: Job not done. Their agenda must include the creation of new lines of business, otherwise they didn't do their own job of securing their company's future. That is what I mean with a strategic return: Shareholder Value that is created for the owners of the company elsewhere than in the core business to secure its future.
And that is the point I am making: There is no empirical evidence that any of the initiatives I mentioned yield such strategic returns on Shareholder investment. In order to create strategic Shareholder Value, an investment must materialize as (substantial) new revenue and new profit streams in the P&L of the company, eventually becoming big enough to qualify as a line of business (see our study on corporate diversification ). If that is not achieved, the diversification job is not done.
I'll stay at the surface of the underlying problems of the dead-end roads / the other instruments in this piece → but please let me know: If you are interested in a deep dive into the problems of the different innovation vehicles and why it's almost impossible for them to lead to strategic returns, I'll happily cover this in a future episode.
Thanks for tuning in and bye for now,
Jan, Co-Founder of Stryber
P.S. What are other topics I should cover here on Decoding Corporate Innovation?
P.P.S.: IF you have the evidence for strategic returns of the above-mentioned innovation vehicles that I was overseeing all these years, please reach out to me; I'm seriously interested to see it.