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How Companies Innovate

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How do leading companies innovate and what are the keys to driving innovation successfully

How do leading companies innovate and what are the keys to driving innovation successfully

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  • 1. Shani ShohamShani@2020.vc
  • 2. CORPOATE INNOVATION IN A NUTSHELL1 The Importance of Innovation Markets change. Enterprises should challenge status quo to sustain and grow.2 How Innovation Has Changed Cycles are shorten. Barriers are lower.3 How Leading Corporations Innovate eBay, Linkedin, Verizon, Safeway and others4 Why Corporations Struggle with Innovation? Culture, employees, processes, short term focus and uncertainty5 Key Success to Internal or External Innovation Build a portfolio to mitigate risk
  • 3. THE IMPORTANCE OF INNOVATION - RIMMARKETS CHANGE. CRUCIAL FOR COMPANIES TO SUSTAINAND GROWMarkets are dynamic. Organizations need to constantly challenge status-quo to sustainand grow. The ones that don’t – decline.Case 1: RIM – From 40% to a 5% market share in two years
  • 4. THE IMPORTANCE OF INNOVATION - KODAKMARKETS CHANGE. CRUCIAL FOR COMPANIES TO SUSTAINAND GROWMarkets are dynamic. Organizations need to constantly challenge status-quo to sustainand grow. The ones that don’t – decline.Case 2: KODAK – From $14B in Revenues to bankruptcy in 7 yearsEven though Kodak invented the digital camera (1975), they started their producttransformation only when digital cameras became a commodity, driving profits down.Kodak – Net sales and units Film rolls sold Cameras sold
  • 5. HOW INNOVATION HAS CHANGED IN RECENT YEARSSHORTER CYCLES DRIVEN BY LOWER BARRIERS• Lower R&D cost • Many of today’s functionalities are software based rather than hardware, reducing dramatically testing and production cost. • Developing code is not a barrier. Many of today’s developers have no formal education. Anyone can learn how to code. • Updates can be launched and tested in matter of seconds.• Lower sales and marketing cost • Distribution is done online at a friction of the historical cost. • The globe is borderless and people are more mobile, supporting adoption of products globally (e.g iPhone’s adotion in China). • Products can be tests in matter of weeks vs. months and years historically. Microsoft used to launch new versions of windows every 3-5 years Apple/Google launch new versions of iOS/Android every few months Zynga launches new versions of FarmVille every 22 minutes 5-10 years cycles shrunk to 2-5 years on average 2020.VCV
  • 6. HOW ARE LEADING COMPANIES DRIVING INNOVATION INTERNALLY AND EXTERNALLY R&D Internal 80/20 Internal Innovation Corporate M&A labs Competitions Centers VCsIBM X XJuniper X X XNetworksCisco X X X XSystemsWalmart X XSafeway XYahoo! X XeBay X XGoogle X X X X XFacebook X X XAT&TVerizon X X XMicrosoft X X X – used recently X – Have been used at various times X – eliminated
  • 7. HOW ARE LEADING COMPANIEW DRIVING INNOVATION INTERNALLY AND EXTERNALLY R&D Internal 80/20 Internal Innovation Corporate M&A labs Competitions Centers VCsSamsung X X X XQualcomm X XBroadcom X XComcast X XCapital One XJP Chase XNTT X XTelefonica X X X XSingtel X X XB&N XLinkedIn X X XSAP X X X X – used recently X – Have been used at various times X – eliminated
  • 8. WHY INTERNAL INNOVATION CAN’T KEEP UPShort term focusMost enterprises are focused on delivering the next quarter.New businesses are initially small. They don’t get attention or budget, given a companyfocus on its core businesses and their magnitude.Corporations fail to embrace riskNew businesses are high risk. Corporations like certainty and tend to be risk-adverse.Failure is a stigma.Employees and cultureEntrepreneurs shy away from large enterprises. Different skill-sets are required to build anew business vs. manage an existing one (big mis-conception in enterprises)Most employees’ resist change.ProcessesDecisions in enterprises take time and often require multi-party consencus.Internal structure stalls market insightsMost companies’ front line is focused on sales. Many times market insights flow back to theHQ in retrospective.Incentives/UpsideNo upside for employees who take risk. Paycheck is secure regardless of success.
  • 9. NEW APPROACH TO TODAY’S INNOVATIONEXTERNAL INNOVATION. PORTFOLIO APPROACHShort cycles and ever-changing markets require:1. Focus on quick commercialization (vs. long R&D cycles) and hypothesis driven innovation.2. For many industries, tapping into external innovation (companies are often limited by the amount of “bets” they can take).3. Hire executives that value innovation.Companies have to build a portfolio of innovation to diversify and mitigate riskThe choice of innovating internally or externally is a factor of:1. Your company’s DNA – DNA is hard to change.2. To what extent there is external innovation in your sector.3. Startups require capital/resources and distribution – can you provide that? Note that the strategic value is hard to sell and even harder to realize.4. How quickly your market is changing.
  • 10. EXTERNAL AND INTERNAL INNOVATION – KEY FACTORSAUTONOMY, HIRING AND SHORT EXPERIMENTSInternal innovation– Act like a startup1. Measure that independently and not as part as part of the company’s overall performance.2. Hire entrepreneurs.3. Give the new business autonomy and executive sponsorship.4. Little overhead in terms of employees, meetings etc. If a 4-5 people startup can build a new business, so can you.External Innovation – Autonomy and people are key1. Hire externally or partner – Most companies place corporate Executives but corporate Executives and entrepreneurs are different “beasts”.2. Be ready to pay a premium financially.3. Develop a methodology for quickly realizing the strategic value.4. Give the organization autonomy – The decision makers in most corporate VCs are done by the BU managers, leading to long decision cycles and frustration on both parties.
  • 11. LEAVING YOU WITH FINAL THOUGHT DISRUPTIVE INNOVATION AND EXTERNAL INNOVATION Why the following disruptive companies weren’t established by industry incumbents? AIRBNB – From 0 to $1.3B Target audience wasn’t considered an attractive valuation in 4 years (*) one. Wasn’t invented by hospitality veterans ZIPCAR - $1B IPO Out of the box thinking – New business model. Wasn’t invented by the rental companies Spotify - ~$4B valuation (*) Concerns about business cannibalization. Wasn’t invented by the label companies Square – Over $2B valuation (*) Taking risk and questioning status quo by industry Wasn’t invented by credit card outsiders. companies* estimated
  • 12. Shani Shoham shani@2020.vc Twitter: @shohamshttp://shanishoham.wordpress.com Shani Shoham Shani@2020.vc