The Challenges of Corporate Innovation

Corporate innovation manifests in many ways, and the challenges reflects the breadth of its scope. It can exist as part of culture, company structure, internal departments and even external subsidiaries. In this section, we’ll look at some of the key problems around innovation management, risk aversion, rigid structures and the specific challenges for different approaches. 

Short vs long term thinking 

Venture backed and publicly listed companies have enormous pressure to deliver on quarterly results. There may be a strategic vision in place, but the executive team is primarily focused on securing growth for the next quarter. This short term thinking places constraints on innovation as it does not provide the time horizon and flexibility that innovation requires. The ideas and solutions that a company will come up with will typically have a short term view for instance. Significant innovations that can reshape an industry but take longer to deliver are given less priority. This is part of the reason why larger companies typically don’t innovate as well as smaller ones.

When the priority is achieving the next quarterly result, less resources will flow into innovative projects which are unproven and higher risk. Executives at publicly listed companies are also in self-preservation mode – taking too many risks that don’t pay off can cause shareholders to revolt. In all, the dynamics that govern the decisions of larger companies orient more towards the short term than the long term.

A lack of vision impedes innovation

A company vision designates a destination or state of being that the organization is working towards. Combined with purpose, it gives the people in your company a sense of the bigger picture and helps to contextualize the meaning in their work. This vision is also an important tool to help guide decision making – particularly when it comes to innovation. You can innovate in a million ways. But what matters is creating the solutions that are relevant to your customers. If you aren’t building what the market wants, your innovation attempts will fail. 

Part of the reason for innovation failure can be attributed to lacking a strong vision. Vision helps you and your team see the forest from the trees. A strong vision acts as an illuminating eye that shines light on all the problems, roadblocks and opportunities in your space – the very aspects that will inform your innovation. Without this clear overview of the big picture and where you need to head, your team's creativity and focus will go to waste.

Limited budgets demand precise allocation

An idea can change the world – but only when it is successful implemented. If you take an integrated approach to corporate innovation, you will find that you have an abundance of ideas to pursue. And it won’t only be your ideas. Your employees will likely have much to contribute from their experience on the ground. If you leverage crowdsourcing, you could garner thousands of insights, many of which may sound promising. But allocating the budgets to experiment and launch these new projects is difficult for a few reasons. 

• Investor mindset – Picking which innovative ideas to work on is essentially playing the role of the investor. You may be an entrepreneur, but being an investor comes with its own set of skills such as evaluating opportunity costs. You may lack these skills which can result in inaction or costly mistakes.
• Betting on the wrong horse – The majority of startup projects fail – including venture backed companies. The chances are that you will make some bad decisions when it comes to which projects get the go ahead. If not handled correctly, this can be costly both financially and reputation wise. 

There is also the problem of not being able to show clear deliverables or quantify the results of the innovation process. As the finance department needs to de-risk the business and maintain a healthy financial state, there will always be a need to demonstrate the return on investment of a project. With unproven innovation projects, this can be difficult for intrapreneurs within the organization unless there is a culture and structure that enables this. 

The wrong culture disincentivizes innovation

As your culture likely hasn’t been built around innovation, there will be constraints in how your team perceives and implements this change.

Fear – Your team isn’t sharing in the risks associated with traditional entrepreneurship, but fear can still inhibit attempts at innovation. Always present in innovation endeavors is the fear of failure. People with good ideas may be reluctant to execute it – even if backed by the organization. They may not want to risk failing as it is often seen as a black mark against their reputation which can lead to less responsibilities, internal capital and promotions. This is especially true for those with the most expertise and experience – senior executives or individual contributors in the organization. This can be really damaging as the people with the best ideas are usually the most risk averse. 

There is also the fear of going against the grain and challenging existing assumptions. Great ideas are often counterintuitive and represent a deviation from the status quo. Their very existence is a threat and can be met with hostility – particularly from stakeholders whose process or ideas need to be challenged. This creates friction as innovators have to question the  foundations that the organization is built on – the same foundations that are touted as its strengths and selling points.

Lack of client focus – For product or service innovation, the organizational culture needs to be customer centric. This means that all levels of seniority should have a solid understanding of who you are serving. Ideally, there should be regular interactions with your customer and strong customer profiles. A lack of client focus means that your team will inevitably end up building the wrong solution as they lack a visceral and data-driven sense of what the customer needs. In the worst case, the customer isn’t consulted during the innovation process at all, making it impossible to tell if they will gain value from what is being built.

Cross collaboration – Insights from each of your departments can help refine the innovation process, leading to a higher quality product. But collaborating across the organization can be tricky. There are issues that arise from too many conflicting opinions which can lead to deadlock and fatigue. Each department and team may also think of themselves as silos and focus on optimizing for their specific function as opposed to the whole. This could lead them to prioritize initiatives that benefit them primarily – something that is logical depending on how your company is structured. It is also difficult to attribute credit to broad innovation efforts. If there are financial incentives involved, deciding how best to distribute the rewards could become contentious.

Lack of engagement – Innovation requires a certain type of thinking and focus. As the creative process is ongoing, it requires a high level of engagement with the problems that need to be solved. The most creative people in history are often described as obsessive in their focus – it becomes an all-consuming lifestyle. This needs not to be the case for your employees, but they need to care to an extent about the problem they are solving. Without this engagement, they won’t have the creative focus or motivation to find the right solutions. The ideal type of engagement would be a level of focus where even if they aren’t at work they’re still thinking about the problem. Not because they have to, but because they internalized it. 

Lack of learning – Part of what constitutes a culture of learning is when the data and information within your organization is utilized for learning opportunities. Think about all the useful information that your organization has, such as customer service chat logs, user data and client interviews. Combined with lifelong learning practices and company incentivized learning, you have a powerful force that can be harnessed for innovation. Without this learning culture, your team may miss out on the key insights needed to build a better product or even have the initiative to run experiments to actively discover insights.

Not having the right people on board

Our education system doesn’t produce creative problem solvers. The people in your organization are educated and skilled, but haven’t yet developed their capacity for innovation – unless they have undergone training or personal study. They will likely approach the process incorrectly, become ineffective, and fail in their attempts. This can lead to fatigue and the belief that they simply aren’t creative individuals. If you want to truly maximize innovation in your organization, you will need to first harness the power of your people. One of your first challenges will be to get them to buy into the change and provide them the tools and training to become innovators. 

Diversity

As innovation requires a diversity of perspectives and skills, lacking a diverse workforce can become a constraint. Having a group of similarly minded people means that there will likely be less challenging of common assumptions, less ideas and less perspectives that can be combined to produce solutions. For instance, people who have different educational backgrounds may have developed different types of approaches to learning and problem solving. A variety of cultural backgrounds also ensures that marketing messages more effectively reach different groups. 

Diversity is one prerequisite to innovation, but also comes with it’s own set of challenges which include:

• Hiring diverse candidates - There are pipeline problems in the sense that not all groups have equal access to education and resources. There are also problems in the hiring process such as unconscious biases and not knowing how to target certain groups.
• Creating an inclusive company - Most people aren’t aware of the biases they carry around which can result in a negative experience for minority groups. This requires training and the embracing of diversity from your team.
• Managing different types of people - If you are working in a diverse environment, you have the unique challenge of managing different sets of people. 

Corporate constraints 

As innovation can come from anywhere within the organization, each department will need managers that recognize and promote innovative efforts. The current problem is that managers exist to fulfill a specific role related to operational performance. Their focus is on preserving and optimizing the status quo, as opposed to building a new one. Managing and enabling innovation is a completely different way of thinking which won’t come easy, particularly to experienced managers. There is also the issue of managers being the gatekeepers to more senior staff. This is an issue as lower level employees don’t have the capacity to execute ideas without higher level approval. This can lead to bottlenecks where ideas that can solve problems on the ground aren’t communicated to the senior team. 

Structure

Aside from management, bureaucratic and rigid structures in the organization can also delay and even kill innovation. Legal and finance departments may deem innovative projects as too risky to be signed off for instance. They are protecting the organization, but at the same time inhibiting any potential for new growth – a theme you will find across the entire organization. Even with a conscious attempt to implement innovation, the organization as a whole can end up suffering from analysis paralysis. This is one of the reasons why smaller startups are able to run around bigger companies and get products to market faster. 

How your teams are structured and how flexible their job roles are affects innovation, too. There may be an insightful individual in the sales team who needs to work with a product or design person to test a new customer concept. Do they have the freedom and encouragement to do so? Without some level of fluidity, autonomy and self-organization, innovative collaborations may seem like too much effort. In a similar way, if your employees don’t have the time or authorization to work on projects or ideas, don’t expect any innovation to come from them. They need to feel that it is within their job function to innovate, otherwise they will continue doing the basic duties they have been assigned. 

Innovation management

All aspects of your business, including innovation need to be managed. But unlike something like sales which can be represented as a number, the growth and outcomes of innovation can’t easily be quantified. This leads to further problems such as managing incentives, compensations and perhaps most importantly, expectations. 

Quantifying results 

Innovation is a messy process that represents a zig zag as opposed to a straight line. Although there are tools such as design thinking that streamline the process, there is no predictable route to innovation. Due to this, it becomes hard to forecast and measure the results of innovation – but that is needed for any corporate effort. The challenge for leaders is to quantify the results and progress of innovation. This is necessary to measure its effectiveness, but without caution can also become a double edged sword. Too much focus on results can put pressure on people leading to safer but less impactful ideas, hindering true innovation. 

Managing incentives

Managing the distribution of rewards and incentives of innovation can be tricky. Even in structured agreements such as corporate accelerators or internal startups, offering the right compensation structure is key to ensure that founders are motivated to do their best for the project’s success. With internal innovation it can be more difficult. If your company owns all the intellectual property your employees create, they may lack the motivation to innovate. Without an employee compensation structure that rewards intrapreneurs, your people will share the risks but not the rewards – ultimately preventing action.

Managing expectations

As it is difficult to quantify the progress of innovation, there can be a disconnect in the reality and expectations of the project. Often, it takes teams many iterations and learning experiences to discover the right solution. And by operating in the unknown, it can be hard to determine how close you are to a breakthrough. This can lead to frustration coming from all sides, including the team themselves, management and other employees who may feel that the startup projects aren’t ‘real work’. This can cause projects to lose momentum or become micromanaged by the larger organization. The challenge is to balance corporate pragmatism with the freedom and patience that innovation requires so that projects can flourish but also be cut loose when necessary.

Approach challenges 

Each approach to corporate innovation comes with its own set of challenges, highlighting the need for an integrated approach. 

Internal startups – Startups operate in conditions of uncertainty. This means that there is always experimentation and risk involved in the process of launching a new venture or product. Due to this, there is always an element of failure. The problem arises when corporate expectations and predictability is mapped over and transferred to startup performance. On the one hand, the internal startup may be pivoting through different products, trying to find out what the market wants. To untrained executives, this can be perceived as wasted resources which can result in the project being sunsetted too early.

Accelerators – Corporate accelerators may not always attract the game changing entrepreneurs. Some teams would rather stay under the radar of a bigger company to prevent them from copying their idea. Other entrepreneurs may not want to work as part of a bigger entity and refuse to be acquired.  

Intrapreneurship – For intrapreneurship to be successful, there has to be a culture, process and organizational structure that allows it to flourish. This involves making significant changes to your business which may take a while. Intrapreneurship requires a long term perspective to truly realize its potential.

Acquisitions – You may acquire a company for their assets including intellectual property or customer base. But it is the team and their shared culture that allowed the company to be successful in the first place. The problem that can come with acquisitions is that the culture that once built the company may become diluted and ineffective as part of a larger organization. This is particularly true if they have to conform to new cultural norms and structure.

Innovation departments – R&D departments have faced the challenge of being too far away from the customer. Forward thinking innovation teams are adapting, but typically, these teams operate in silos and try to predict what the market wants based on inhouse research. Without collaborating with different departments and customers, R&D departments miss out on crucial information and may miss the mark more often than not.

The complex and uncertain market environment has made corporate innovation an essential, which means finding ways to overcome these challenges should be part of your plan. You will likely encounter many other challenges which go beyond what we have listed here, but hopefully you should take away some insights from what we’ve learned about innovation over the years. In the next section, we will outline how you can start thinking and strategizing to enhance innovation within your organization.