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THINK Contributor

Corporate innovation is the new R&D; How companies are acting like startups to compete for the future

By , March 13, 2017
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I live in Silicon Valley in one of the many Peninsula cities that are home to more startups and big technology companies than big brands or retail or restaurant chains. Above my local Starbucks is Kahuna Software, run by good friend. And, it’s not just any old Starbucks, it’s one of the new Reserve experiences. Across the street used to be an incredible Asian-fusion restaurant, but it’s now home to yet another startup. I miss that place. Across from that is Philz Coffee, regarded as a startup church attended by entrepreneurs all around the Bay Area. Instead of mainstream retailers, we have startups with retail spaces. From San Jose to San Francisco, on both sides of the Bay, this is Silicon Valley. But, Silicon Valley is not alone. There are “Silicon Valleys” across the U.S. and throughout the world. Innovation is the new global Gold Rush and automation the next industrial revolution.

Every day, millions and millions are poured into investment funds with each seeking to invest in the next big thing at various stages of development. At the same time, corporations in every part of the world are awaiting or already greeted by disruption from startups or the evolving generation of digital users they breed or both. Even though many organizations already invest in costly and expansive R&D programs, an increasing number of companies are also investing in formal innovation teams or dedicated innovation centers in tech hot spots around the world.

As a resident of what’s for the moment, the tech capital of the world, it was more than intriguing to follow the trend of big companies moving in on little companies. But what at first you don’t understand, study and study again. And that’s exactly what I did. A couple of years ago, I partnered with Jerome Buvat of CapGemini, a strategic partner of Altimeter, to meet with and study those driving corporate innovation. The result is a three-part series (and counting) that documents the evolution of corporate innovation (they’re free to download).

Part 1: The Innovation Game: Why Businesses Are Investing in Innovation Centers 

Part 2: Digital Dynasties: The Rise of Innovation Empires Worldwide

Part 3 (The newest): The Spread of Innovation Around the World: How Asia Now Rivals Silicon Valley as New Home to Global Innovation Centers

So what does corporate innovation have to do with you?

The answer is, well, everything.

In every facet of research I’m working on today, digital transformation, innovation, brand, digital, marketing, culture, disruptive technology, the evolution of people, behavior, and values are shaping and reshaping investments and roadmaps across the board. Customer experience (and employee experience) are at the heart of some of the most meaningful digital transformation efforts studied today. Customer experience (CX) is a top priority for innovation centers.

What you work on right now affects directly or indirectly a customer’s experience. And what your customers experience outside of your customer journey is setting the standard for tomorrow’s trends. This is why you have to look outside your efforts to see how new technologies are reshaping customer expectations, preferences, and behaviors.

What is it really that Uber users love about the service?

Why do people love Postmates?

How are TaskRabbits changing work?

Why do apps like Filld help people switch from traditional service models to those of convenience? 

The list of questions can go on and on because the list of apps changing customer experiences can go on and on. Each, in the own way, but more so, collectively, are raising the bar for how technology, brand, and product experiences align with norms, expectations, and preferences. More so, how do contemporary brands compete with innovative startups that affect what their customers want and love?

The answer is that they can’t unless they act like the very startups that are disrupting their markets.    

What Is Innovation, and What Are Corporate Innovation Centers?

Every aspect of work, from productization to sales to marketing to service to operations, is overdue for innovation. But let’s go down the rabbit hole one more level. What is innovation?

Innovation is yet another term that is open to interpretation. So many companies today are investing in new technology operating under the guise of innovation, but often their work isn’t innovative. It’s something else. I call it iteration. Even though on the surface they seem the same, there’s a stark difference.

Iteration is doing the same things with new technology better.

Innovation is doing new things with new technology to introduce new value.

And disruption is doing new things that make the old things obsolete.

While iteration and innovation are important, innovation centers are supposed to focus on…innovation.

In our research, Mr. Buvat and I set out to also define innovation centers. As you can imagine, the intent vs. the work were often different and even at times, odds. But innovation centers seek to innovate on fronts where impact is not only measurable, but also progressive. Competitiveness is a natural byproduct.

We defined innovation centers this way…

Innovation centers represent enterprise investments in understanding new market dynamics, acquiring new expertise and resources, and also aligning with entrepreneurs, startups, investors, academic institutions, and related ecosystems driving new trends. Innovation centers assume many shapes. But, at their core, they are comprised of special teams of intrapreneurs in-house or moved into dedicated sites within relevant global tech hubs. They function outside the traditional operational landscape with the goal of accelerating digital innovation, rethinking customer experience, improving operational efficiency, and testing new business models.

Number of Innovation Centers

Since we started our research in 2015, innovation centers continue their rapid ascent. In our first report, we documented a total of 301 bona fide corporate innovation centers around the world in July 2015. By February 2016, that number grew to 368. As of October 2016, the number of innovation centers swelled to 456.

Technology Focus

Over time, the focus of innovation centers shifted to align with technology trends. From March to October 2016, big data and analytics topped the list at 28% with IoT and cloud following at 26% and 23%, respectively. In order of priority, other technologies were also among the top areas of investment including robotics, fintech, biotech/digital healthcare, AI, and cybersecurity. This list changes with the times and trends.

Types of Innovation Centers

When companies decide to explore innovation, they do so through common approaches. And, with further experimentation and successful pilots, these methods evolve and expand over time. Most commonly (55%), companies partner with established technology accelerators in key tech hot spots. Accelerators tend to do the work of qualifying, recruiting, and nurturing top companies based on technology focus. Companies, in turn, partner with startups to develop pilots. The second most common way companies tackle innovation is through in-house innovation teams (33%). These usually start small and often happen in parallel, without coordination, throughout the enterprise. Over time, they organize and develop into something unified and focused. So far, only 2% of companies open dedicated innovation centers in Silicon Valley or in the “Silicon Valley of…” to plug into local ecosystems.

Objectives of Innovation Centers

Companies tend to have a concentrated set of goals for innovation efforts. First and foremost, they aim to partner with the local ecosystem of technology expertise; companies developing complementary technology solutions; as well as VCs, recruiters, and educators. 

Now, we also start to see why innovation centers should be in the purview of your strategy.

Among the top reasons why corporate innovation centers are gaining traction is that many pilots with startups are aimed at enhancing customer experiences 13%. While 13% may seem low in comparison, CX is time and time again the number-one catalyst for accelerating unified enterprisewide digital transformation. And investing in CX is becoming a key differentiator for companies seeking a competitive advantage against Digital Darwinism.

If you’re waiting for someone to tell you what to do, you’re on the wrong side of innovation. Innovation has to start somewhere. Why not with you? 

Brian Solis is principal analyst at Altimeter, a Prophet company. He is also a world-renowned keynote speaker and best-selling author. Please follow him on Twitter, Linkedin, and Facebook.

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