WHY COMPANIES FAIL TO INNOVATE
It is essential to learn from our mistakes. But learning from other people's mistakes is much smarter and cheaper. What I've just said may seem obvious, but companies in general seem to have an institutional difficulty in watching competitors closely to learn from the mistakes they make.
Normally, we observe what our competitors do well, but we forget to evaluate their flaws to learn from them and prevent our companies from tearing up money. In my experience in Silicon Valley, I had the opportunity to provide innovation consulting to multinational companies. These consultancies went from cultural change to structuring a Corporate Venture Capital. I realized the high turnover of innovation executives and the lifetime of these projects in companies.
I also noticed some systemic flaws in the projects and the lack of data and structure that the corporate innovation segment has. All this led me to create the Innovation Intelligence platform, among other initiatives.
This first part of the book aims to point out the main flaws in established companies' innovation process. For this, I bring practical examples of what happens in the day-to-day and cite the main types of innovation projects and the main reasons that lead them to fail.
If you are the person responsible for innovation in your company, believe me: it will be much better to read these pages now than, in a year's time, experience an announced failure situation.
The open innovation process is flawed
Imagine the following situation. Greatly stimulated by the news on social media and the many successful cases that spread everywhere, your company decides to start the process of open innovation. It understands that alone it will not have the pace of innovation to remain competitive in the present and the future.
What could go wrong?
One of the first most common mistakes is having startup solutions with geographical ties. Many companies believe that they will only have access to their country's local ecosystem, failing to take advantage of solutions around the world that could be more suited to their needs.
Result: the options become restricted and expensive, the startup pipeline is insufficient, and the area of open innovation can be quickly extinguished without any realization. Following this path, innovation professionals quickly discover that Google won't find the startups they need. How to avoid such a common mistake? Utilizing innovation platforms that offer a portfolio of worldwide startups for the company to engage in. Innovation Intelligence is an example of this type of platform.
How to avoid such a common mistake? Utilizing innovation platforms that offer a portfolio of worldwide startups for the company to engage in. Innovation Intelligence is an example of this type of platform.
Sometimes, when they realize the difficulty of having organized information about startups, instead of resorting to innovation platforms, innovation professionals seek consultancies to perform the famous Startup Screenings, in which the consulting firm job is "hunting" startups, saving the time of the company's innovation manager and taking advantage of records that the consultancy built throughout their existence.
Main problem: this solution is costly and not always efficient. That's because, to save hours of work, consulting tends to present the same portfolio of solutions to you and your competitors. Yes, that happens, and it's not a few times.
Another issue is that the solution offers a reduced scope, which does not include global startups that could represent a more stable and less costly option for your problems.
Also, innovation consulting is usually interested in organizing a pitch day, which is the opportunity for investors to get to know other businesses. From what I've seen in pitch days, the process is frustrating for all sides. Starting with the selection of startups is based on the contracting company's briefings to the consultancy. But obviously, the consultancy will never understand as much of the company's business as it does. The contracting company pays dearly for a solution that can bring it closer to one – or none, which is very common – interesting startup.
The second most common mistake is to start this whole process without having an intelligence framework for innovation. Having this structure means evaluating trends in technologies for your industry, knowing where investments in startups are allocated, how is the maturity of these technologies for practical application, what your competitors are doing, which segments of your industry are the most relevant with startups, among many other fronts that must be explored and aligned with the company's strategic objectives. Those who do not do this homework spend resources in the wrong way and end up creating myopic initiatives that fail to deliver value to the company.
And this is how we get to the third most common mistake: lack of engagement and collaboration with other functional areas of the company, such as finance, marketing, legal, production, etc. I will return to this subject later, but I already say that when an innovation project is born without a structure of engagement and communication with the functional areas of the company, these areas do not value it and focus on its daily activities, which, in the end, is what pays the salary of all.
To have engagement, the innovation project needs to have the CEO as a promoter. You need innovation leaders with a clear mandate across the company's departments. Without this, the company has no structure to absorb the innovation created.
The last mistake I'm going to highlight here is related to the risk of decision-making. Seeking information about startups is a difficult task. The type of information taken to decision-makers is often shallow, lacks good clarity, and does not present a business case that justifies the company's investment in the project.
This is the mistake that kills many excellent ideas that could have been converted into opportunities by creating business cases, but end up discarded because the decision-maker does not have the minimum security to move forward.
And that's how the Open Innovation department also dies. Lack of information generates unnecessary spending and bad decisions in a structure with no processes to turn ideas into opportunities that could be implemented once tested.
The primary purpose of this book is to give structure for you to be able to navigate this "Valley of Death" of corporate innovation.
Main types of projects and why they fail
To reduce the effects of digital disruption while exploring new opportunities, companies often follow some combination of the strategies below.
Let's drill down into each one and understand why they fail.
Creation of independent business units
Creating independent business units without a structured process for innovation, collaboration, engagement, and implementation, as we commented above, is a recipe for failure.
At first, these units do not have the strategic context of the board's decisions and will spend efforts on initiatives that are not aligned with it, which will kill the idea for lack of support. This happens because as these units develop, test, and validate ideas, the decision makers will not actively participate in the process. Consequently, they will not be convinced of the feasibility of the opportunity presented and – of course – will have no interest in risking their careers with it.
The lack of support from the CEO in this type of situation, due to the lack of processes and structure, is also responsible for the lack of engagement.
Finally, the lack of synergy with other functional areas of the company makes the company work many ideas that it does not have the capacity to deliver or does not have a clear plan of partners to make the delivery.
An example of this is Telefonica. The Spanish company created Telefónica Digital, whose team, correct in its direction, proposed initiatives to combat the then-emerging WhatsApp, investing resources in software development and partnership with startups and making proofs of concept.
As expected, in 2011, these ideas seemed very new to the phone company. They were not well received by the headquarters in Spain, which was not convinced of its potential and did not even know if Telefonica had the capacity to deliver them to the market.
Thus, after three years of investment, Telefónica decided to deactivate its independent innovation unit because it was too "innovative" for the company, which could not absorb what was being produced in the digital division.
Creating independent innovation units without processes and structure is like pulling a transatlantic ship with a jet-ski. He's going to move the boat very little and spend a lot of gas.
In the digital experiments strategy, the company gives employees freedom to test initiatives, which makes a lot of sense in this environment of changes and updates in which we live. This journey typically begins with some Marketing experiments, where you can quickly test many productivity tools in social media, for example. The movement spreads throughout the company, and promptly everyone is taking advantage of digital initiatives in their departments and regions.
This strategy's big problem is to generate expenses in innovation processes that are not aligned with the company's major strategic objectives. This kind of initiative could not protect Blockbuster from the arrival of Netflix, for example.
Besides, the creation of several of these initiatives, separately, without any process, roadmap and innovation structure, will have as output several solutions that do not talk to each other and are not scalable to the company.
In addition to not generating any strategic or operational benefit, it causes frustration because, realizing that technology architectures are not compatible, the company will abort digital experiments with the impression that innovation does not really work and only brings some success in the short term. The Henkel company followed this path and even had 150 digital initiatives without being able to reap the fruit of virtually none due to lack of synergy and structure for Open Innovation.
Technologies to reduce costs and improve efficiency
In this strategy, processes are digitized and optimized to minimize overlap and increase efficiency. Many of the internal tasks are restructured, reducing labor costs.
All companies should have these goals. However, if that's your only focus, you imply that technology won't fundamentally change your business.
That is, you assume that banks, for example, will continue to operate in the same way they operated before the emergence of fintech. Usually, such initiatives act as a band-aid for much deeper problems.
Outposts at Innovation Hubs
This is an extremely expensive initiative for the company because it often involves expatriation of board executives to Silicon Valley (which, at this time I write, has the most expensive apartment rental in the United States and the most competitive salaries on the planet) so that they can engage with the innovation ecosystem and use their influence to implement projects.
Companies do this hoping that the entrepreneurial ecosystem, almost by osmosis, will enter the company and ignite a flame of digital transformation.
Not to be repetitive, I just say that everything I've talked about about the strategy of creating independent units is valid here, including the lack of engagement with the board.
In this strategy, the executive ends up partnering with accelerators in the region. What happens is that the most famous charge about 300 thousand dollars a year for corporate programs that, without the necessary structure and processes, have as the only real result the exposure of the corporate logo on the accelerator wall and the accelerator logo in the office of the corporation, as free advertisement for the accelerator.
If there is no good structure behind the trips of decision-makers to "Cultural Transformation" and "International Startups Pitch Day", with business class tickets, five-star hotels, and many restaurants involved, they can become just a technological tourism initiative and many unfounded promises. That is, a lot of money thrown away and little results in strategic innovation. The lifetime of these unsubstantiated projects in Silicon Valley is three years.
The purpose of this book is to help the reader not spend rivers of money on any of the above strategies (or in the combination of them), but to structure a process that takes innovation into the company's DNA, making it part of everyday decisions and not treated as an isolated exercise.
In this way, your company will start innovation processes with structure, awareness, support from decision-makers, and functional areas with measurable risks without wasting money.
It is unbelievable the amount of companies that spend money on "startup style" offices with video games, food, beer, etc... or even bring top executives to technological tourism without a real innovation implementation project. This type of investment should be made only when we know where and how we should make innovation.