4 Frameworks for Corporate Innovation
Blending academic models with practical experience
Scott Lenet and I taught Corporate Entrepreneurship & Innovation at the UCLA Anderson School of Management this spring. While Scott has been teaching venture capital and entrepreneurship for more than two decades, this was my first foray into teaching. Doing so as a recent Anderson alum was particularly fun.
Our goal for the class was to provide practical, real-world exposure to corporate entrepreneurship practices at some of the largest companies in the world. With a focus on how to employ internal and external innovation, we taught R&D, business development, corporate venture capital, and M&A to our MBA students, many of whom land business development, corporate development, or corporate strategy roles after finishing school.
Our curriculum used four innovation frameworks. The first three, Horizons of Growth, Four Models of Corporate Entrepreneurship, and Innovation Radar, were described in the course text Grow From Within by Wolcott & Lippitz. Horizons of Growth is a practical methodology often referenced in the real world, while the others are academic constructs providing insights about the corporate innovation journey and the impact of new initiatives on various business functions. Scott developed the fourth approach, Inside Out, which helps corporations understand a menu of approaches to innovation. All of the frameworks emphasized the importance of developing innovation programs within the context of overall corporate strategy goals.
1. Horizons of Growth
This model is sometimes referenced by corporate innovation teams and sorts innovation efforts by stage, risk, and timing; this allows a portfolio approach to balance near-term execution with long-term goals.
Horizon 1: incremental innovation on today’s products, which are often sold through established channels to existing customers
Horizon 2: early stage opportunities that have typically reached the market and are generating some revenue, but have yet to replace the core business
Horizon 3: pre-market opportunities with potential to disrupt the core business, often via new business models and approaches to addressing customers’ needs
In this paradigm, corporations evaluate each potential innovation opportunity to assess whether there is a mutually beneficial near-term relationship, or long-term potential to change the overall business approach.
2. Four Models of Corporate Entrepreneurship
According to Wolcott and Lippitz, there are four main types of uncertainty facing corporations: market, technical, resource, and organizational. Of these, only resource and organizational uncertainty are under direct control of management and the Board of Directors.
The “Four Models” framework categorizes innovation programs into quadrants based on financial commitment and organizational structure. Dedicated resources generally indicate a higher level of commitment than ad hoc resources, and focused organizational ownership generally indicates a higher level of commitment than diffused ownership. There are certainly exceptions to the rule — like Google’s diffused innovation model — but the framework is designed to highlight the types of uncertainty that are under the corporation’s control.
Grow From Within’s research shows that many companies start as innovation “Opportunists,” without a deliberate approach. Then, as some demonstrate success and become more serious about innovation strategy, more formalized efforts lead to the “Producer” quadrant in the upper right-hand corner. As an example, when Jerome Metivier made Pepsi’s original strategic investment in Kevita, a manufacturer of probiotic beverages, the company did not have dedicated personnel or capital resources for investing in startups. Jerome visited our class and explained how the investment led to a successful acquisition several years later, and Pepsi then allocated a dedicated budget and team to its corporate venture capital (“CVC”) effort. Although Pepsi followed a direct path from Opportunist to Producer, many companies take a more circuitous journey through the other quadrants along the way. This sequence is sometimes described as “crawl, walk, run.”
3. Innovation Radar
Innovation Radar is also an academic framework, providing corporate entrepreneurs a mechanism for understanding twelve different aspects of their business that are impacted by innovation efforts. Each dimension of the innovation radar can be emphasized by different activities. For example, when Kellogg’s launched its CVC fund eighteen94 Capital to invest in healthy, “better for you” food brands, the effort began addressing dimensions like Offerings (by funding new products and food categories), Brand (by developing an identity tied to health, sustainability, and better ingredients), and Customers (by accessing new consumer groups through novel products). Simon Burton, the head of eighteen94 Capital, spoke to the class about the formation of Kellogg’s corporate venture fund (disclaimer: Touchdown Ventures works directly with Simon to manage eighteen94 Capital).
Innovation Radar can also be used as a tool to assess opportunities for competitive differentiation. Before joining Touchdown, I invested in a startup craft brewery called Saint Archer that exploited a branding opportunity in the beer category through this type of analysis. While we did not possess the resources to innovate in Supply Chain, Product, and Channel to the same extent as the more established craft brands like Stone, Firestone, or Lagunitas, Saint Archer delivered a unique, differentiated experience to customers driven by social media and authentic Brand ambassador engagement. It worked well, and Miller Coors acquired the company approximately three years after launch. Although these insights can be useful for innovation design, the magnitude of the radar’s dimensions are difficult to quantify, making the framework a stronger fit for an academic setting.
4. Inside Out
The Inside Out framework focuses on implementation, categorizing the different types of tasks available to corporate entrepreneurs according to whether the corporation is in control or third parties are in control. As described in Scott’s article Inside Out, originally published in TechCrunch, corporations can choose among research & development, incubation, acceleration, corporate venture capital, and mergers & acquisitions. Innovators can mix and match these tools. We developed the “cheat sheet” below to summarize the strengths, weaknesses, and use cases of these various approaches to innovation.
While some of these frameworks are academic and others are derived from practice, each provides a lens for assessing innovation activities and aligning efforts with an organization’s goals. We’re looking forward to teaching this class again in the spring of 2019!
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Will Geiger is a Senior Associate at Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help leading corporations launch and manage their investment programs. Touchdown’s President Scott Lenet contributed to this article.
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