Navigating Corporate Innovation

As new business models hit more and more industries in an increasing pace, incumbents are challenged to respond. And they do respond. However, from an outsider’s point of view, this can often look a bit funny. Steve Blank, adjunct professor at Stanford, coined the phrase “innovation theater” referring to corporate innovation programs failed to achieve top or bottom line impact.

Before starting new innovation programs, it is worthwhile to calibrate the ambition level of your company’s innovation efforts. The Stryber Corporate Innovation Matrix is a tool to help you with just that. We believe this discussion early in the process is of utmost importance and it is important to have it thoroughly – if your innovation programs fail to achieve their goal, you typically will have lost two to three years to your competitors (old and new). In an increasingly dynamic environment this can mean trouble.

The Stryber Corporate Innovation Matrix structures your innovation program’s ambition level and what this means in terms of “time-to-impact” (If we start this initiative today, how long until it has an impact to any meaningful key performance indicator, e.g. top line growth?) and “strategic focus” (Does it concern our core business or is it less hurtful?). We will explain each of the nine innovation strategies by providing you with examples.

Core business

Fix – with a short-term horizon and within your core business, this can only mean to incrementally improve your position relative to your competitors. Depending on your specific situation and where you could add most value to your customers this could refer to a product feature or a much better process. Think of an artificial intelligence-supported call center, robotic process automation-supported operations or simply same-day delivery.
Examples: banks offering seamless online identification using video chat in the online sign-up process, e.g. German banks Postbank or Comdirect.

Innovate – with a more mid-term perspective we are coming closer to what we have typically understood as innovation: launching new products. These products can be more or less bold moves – anything in between a side product in order to hedge against a disruptive challenger (“we offer that too”) and a truly innovative leap forward, e.g. a new generation of your product line. Depending on the capabilities of your company, this can also be a short-term initiative. But in our experience, it is rather mid-term.
Example: Dutch bank ING offering a robo-adviser-based solution for personal finance management in Germany through a partnership with the fintech start-up Scalable Capital.

Disrupt – as ambitious as it gets referring to your core business model “disrupt” is to completely focus on a disruptive new business model, which will change your industry. Harvard Professor Clayton Christensen defined “disruptive innovation” in 1995 and reinforced its meaning in 2015 as it was often misunderstood. This move is probably the most difficult one in our matrix as most companies are not bold enough to pursue it until it is driven by an inevitable change in their industry. But then they have missed the chance to take a leading role.
Examples: different launches of WhatsApp-like offerings from incumbents coming way too late to the market, e.g. Swissom’s iO, Deutsche Telekom’s Immmr or Deutsche Post’s SIMSme. A positive example for a fast move is Match.com’s Tinder – probably one of the most successful corporate start-ups we can think of.

Adjacent business

Adjacent businesses provide additional opportunities directly and clearly connected to your core business’ value proposition and typically operating within existing structures.

Improve – enriching your user or customer experience with an adjacent proposition can be a short-term measure in order to increase customer lifetime value. For instance, broadening the product or service range by offering a bundle with a cooperation partner, which serves an immediate need in relation to your own proposition.
Example: German home appliances producer BSH took over cooking app Kitchen Stories in order to integrate its content with their smart home-enabled appliances.

Penetrate – the theory is simple: the more products or services a customer buys from the same provider, the more loyal she is. In an adjacent business this also means a higher share-of-wallet driven by non-core business purchases. Typical examples are forward integrations or completely horizontal business models serving a customer segment’s needs broadly.
Example: rather classic but very successful examples are telecom providers’ quadruple-play strategies (product bundles of mobile, TV, internet and telephony contracts), e.g. 43% of Swisscom’s telephony services net revenue is based on such bundles (nine months ended 3Q2017).

Build – the “moon shot” option of adjacent business-driven innovation is to build a respective side business with substantial contribution to the company’s performance. For instance, think of a core product line and then providing the infrastructure that empowers a whole ecosystem around that product line, too.
Example: Amazon Web Services, Amazon’s cloud computing business, provides 10% of Amazon’s revenue but over-compensates the operating losses of the company as a whole (3Q2017).

Diversification

Leaving core & adjacent innovation opportunities, the next level of strategic focus is diversification. On a side note: by diversification we do not mean new geographic markets in combination with new products as indicated in the classic Ansoff Matrix from 1957. On the contrary, we strongly believe that companies should use their assets and capabilities while going after new businesses. These could be their existing customer relationships, for instance. Hence, Prof. Ansoff would have disqualified this as diversification. However, we believe that the classic interpretation of diversification is completely out of reach in today’s context of international (if not global), often winner-take-all and platform economy-driven business models. The diversification happens rather on product and business model level connected to your assets and capabilities and best operating outside existing structures.

New Business – building new businesses takes time. But M&A moves into late/growth stage start-ups can have short-term impact. Respective assets can complement the portfolio or even serve as a kernel for more exploration and create even more value down the road. A company can grow its new businesses best with a “best owner” mindset leveraging assets and capabilities.
Example: automotive corporation Daimler’s subsidiary Moovel acquiring strategic assets, acqui-hiring start-up teams and building relevant mobility products.

Explore – by testing new business models for user or customer acceptance in a structured manner with limited risk, companies can tap their toe in completely new opportunities. We are explicitly not referring to early stage minority investments but to majority owned initiatives. Evidently, the impact does not unfold immediately, so you have to start as early as possible to place multiple bets on future revenue sources. Based on your customer needs, you can completely rethink how to get the job done (potentially, technology-enabled but not a must).
Example: In 2015, french insurance group AXA launched Kamet, a captive, with EUR 100 m backed startup studio that launches independent ventures.

Transform – going one step further new business models can help to transform your company. Transforming into a future vision of your company. We would argue that most companies have not reached this level and are not working on it currently. That is because in many cases it remains unclear what this future vision might be and when it will unfold. Even companies in industries that have been hit by disruptive business models first, i.e. telcos, media and travel, probably haven’t found their vision of the future. To be fair, it often remains unclear as the context can be highly dynamic. In 2012, research firm Innosight has predicted that by 2027 three-quarters of today’s S&P 500 will be replaced. It seems like most companies stick to “new business” or “explore” and see what works best for them.
Example: Google’s parent holding company and conglomerate Alphabet, where the latest annual report explains “we report all non-Google businesses collectively as Other Bets.”

 

There is no perfect answer on what your company should or should not do. The solution is a process, which needs to be based on valid hypotheses on how your business – and more so – on how your competitive environment will evolve. Sometimes threats are overstated and, more often than not, they are underestimated. In order to hedge against losing to your old and new competitors, a rule of thumb can be that you seriously should pursue at least three innovation tactics of the Stryber Corporate Innovation Matrix in parallel. Also keep in mind that this is not an one-time exercise, rather a continuous process – start with it, build some success and trust and be bolder in your next discussion.

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