Is Innovation Really Just R&D?

R&D is not a foreign concept to Big Co's. P&G ($233B mkt cap) spent north of $2B/year on R&D in recent past and Google ($625B mkt cap) and Amazon ($438B mkt cap) each spent more than $50B/year on R&D in 2016. While the variance in spend is certainly striking, so is the disparity in the potential return on those dollars. Not all R&D dollars are equal. Disruptive companies leverage startup-like approaches to innovation and company-building to juice their R&D dollars.

P&G, like many established organizations, is really good at R&D in the more traditional sense. One of their core competencies is inventing new products, but think more along the lines of sustaining innovation. Great R&D, however, is very different than disruptive innovation. This shouldn’t be surprising; remember, disruptive innovation, as defined by Clayton Christensen in the mid 90’s is: an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products and alliances.

Established companies tend to have a much harder time understanding how to think about (and act on) 10x ideas because launching a new company with the potential to disrupt an industry is very different than launching a complimentary product within a market you already dominate. For example, product launches near a company’s core can often benefit from a relatively seamless integration within existing core business units. However, the same is often not true for new products with disruptive potential, that don’t align with an organization's traditional competencies because, by their very definition, they are meant to disrupt existing markets (that those company may already own).

As companies increasingly recognize this outage, they are actively seeking out new approaches to disruptive innovation. Politics aside, I loved reading the news earlier this year that the ACLU had been admitted to the newest class at Y Combinator (the most well-known accelerator program in the world). Y Combinator (YC) has made a habit of accepting non-profits into their program for years, but this was a great reminder of the power that technology and startup-like speed can have on any business, not just startups. Much like many large established companies, the ACLU found themselves in the fortunate position of having significant resources available, so kudos to their leadership for recognizing this and choosing a very non-traditional approach to better leverage their resources to improve their organization.

More recently, it was announced that P&G was partnering with outside experts to launch startups as spinoffs (outside their walls). While this approach is definitely not without its challenges, I applaud their efforts. Simply throwing more dollars at existing teams, with existing process and priorities, won't likely lead to meaningful new opportunities. Spinouts can provide opportunities for rapid growth and disruption by getting outside of the corporate walls (physically), hiring from the outside, and shedding policy and red tape that can unnaturally slow progress.

Believe it or not, seasoned corporate execs (even those with MBA’s who have done successful product launches) do not necessarily make great entrepreneurs. Acknowledging this, and embracing a completely different approach to bringing new innovation to market will allow the next wave of corporate disruptors to leverage both their massive resources and the benefits of operating at startup speed.