The Case for Internal Innovation
Why do you need internal innovation if you can buy or partner with external (startup) technologies?
Internal innovation in corporations used to be the queen of growth (especially in the form of R&D), but it increasingly seems like the companies that embrace the partnership mentality by investing in, partnering with and even buying external technologies seem to be less inclined to develop internal innovation and simply use their current business as a vehicle for current and not future growth. Or — which happens quite a bit — keep internal and external efforts separate, with structural and personal implications. However, these two worlds are one and the same world — they should complement each other.
Let’s take this common scenario: innovation manager seeks support from a business unit manager in implementing a pilot relevant for this BU’s work. The BU does not feel the urgency or necessity to collaborate. They are busy doing their own thing and treat an incoming pilot offer as yet another corporate nuisance. The BU manager claims that she does not have the time or the manpower to support it. The project — even if implemented — will not go smoothly. Too many odds are against it.
Corporations do not see their “innovation maturity” as a combination of internal capacity to enable (internal and external) innovation activities and open innovation with external partners. These days, one can’t really exist without the other. This is because we can’t impose external innovation on employees who are not connected to the innovation-related goals. And we can’t expect people inside the organization to support such goals if they are not themselves involved in creating and understanding innovation.
Why Do We Need Internal Innovation?
Internal innovation leads to cultural changes inside the organization AND has a potential to create incremental (or even disruptive) products and solutions. The main goals of Internal Innovation include:
- Fostering innovation culture and creativity
- Providing systematic tools to create new services and products
- Creating business sustainability by making improvements to existing business lines and listening more closely to customers.
Internal innovation is not an alternative to collaborating with startups and other companies. In itself, it can bring a great deal of new ideas, relevant improvements and technological advancements. Moreover, it is an important step in building the innovative capacity necessary to collaborate with external organizations. Without internal innovation it is very difficult to succeed at open innovation.
In the Corporate Innovation Maturity study (see the Corporate Innovation Maturity Graph below), we understood that in most organizations the internal innovation activities (first ad-hoc, then a bit more systematic) come first, before corporates start their venture capital activities or open innovation programs. And this is indeed the right approach.
Internal innovation activities — if done right — may lead to cultural change which is essential for the company to stay on course. Indira Nooyi said about her internal innovation work at Pepsico: “These days, the world changes so fast that we need to act like a startup. In fact, we are a bunch of little startups. The change needs to come from us.”
Why Do We Need External Innovation?
Open (external) innovation activities are pursued by corporations for many reasons:
- To achieve PR and visibility in the wider innovation ecosystem
- To tap into relevant technologies and products to adopt and/or bring them to market
- To become a platform for customers to reach new technologies and products.
Open innovation activities are usually started by those organizations that have already understood the urgency of change, devoted a certain time and effort to creating “workshops” for employees and put innovation strategy on the company’s agenda. Then, they start developing various ways to interact with the external startup ecosystem. At first, it’s more rigid, with time it becomes more embracing and collaborative towards startups and other partners (See the Corporate Innovation Maturity Graph above).
In some cases, this is when the internal innovation becomes undervalued. At this point, the company would establish the innovation department and delegate the majority of the innovation-driven work to them (alongside the R&D). In such scenario, the link between BUs and innovation activities seems to get lost. But there’s a problem: if the talented employees are not included (or rewarded for their support) in the innovation projects (internal and/or external) they start resenting “pilots”, “startups” and other external innovation activities, because they only add to their work. They feel alienated from such a strategic part of the company’s work or worse — feel threatened by it.
Internal and External Innovation Complement Each Other
External innovation is inevitable to corporate success. If you’re not changing and growing through partnerships as an organization, you’re losing. In our Corporate Innovation Report (click HERE for more) we asked 100 corporate innovators from Fortune 500 companies if they think their companies will be disrupted in the near future and — if yes — how quickly. The staggering 64% they said that surely it will happen (if no significant changes are introduced) within the next 5–10 years.
Thus, we know that corporations need to co-create and collaborate with others in order to grow and change quicker (of course on top of their internal R&D or other innovative activities). But if they do not achieve internal innovation culture and forget to train corporate champions to be prepared to embrace open innovation, external work will not be enough. This is because the internal innovation capabilities are not needed only to create innovation inside the organization. They are needed to support ANY type of innovation, internal and external. Without internal force inside the company willing to participate, nothing will get done, even with the most professional innovation department.
Moreover, systematic touchpoints between internal and external work need to be created. These two worlds are in fact two sides of one and the same world: Internal innovators should participate as experts in open innovation activities. Challenge creation workshops to understand and get the buy-in of relevant BUs should be created to make sure external innovation efforts are in line with internal needs. Innovation should become an interdisciplinary activity, not only developed by the innovation department. If this symbiosis is achieved, employees will start innovating in what they do, and not “do innovation for the sake of innovation”, as many teams see it.