How Large Corporations Are Playing to Win Against Start-ups in the Digital Innovation Game

In game of digital disruption, are large corporations doomed to lose?

On the face of it, it would certainly seem so.  Forrester Research released a study showing that the emergence of digital platforms and digital tools allowed innovation to speed up radically in every sector—creating 10 times the number of competing innovators.  How?  By lowering the cost of market entry to 1/10 previous levels, using tools that were 100 times more powerful than previously available. Add to this a healthcare industry that is on a global drive to lower cost, maximize “big health data,” and increase direct patient engagement and you have the perfect opportunity for smaller, more nimble competitors to disrupt markets with new, patient-centric technologies.

In spite of these facts, many large companies are starting to realize they don’t have to be the “disruptees” when digital disruption strikes. They already have the tools to win, if they choose to use them. Their vantage point in their industry gives them capital to invest, easy access to talent, and the digital infrastructure and “boots on the ground” to get products to market faster than their start-up competitors. In fact, some experts estimate that 30 percent of major corporations now have some kind of innovation center set up for quick development.  The key to success  is learning how to innovate quickly, fail fast, and learn even faster.

While many large organizations are just starting to embrace digital disruption, there is much to learn from other companies that have made digital innovation a long-standing, central part of their culture. Here are some of the ways companies have been taking some lessons from the entrepreneurial playbook, and using them to win:

Innovation Divisions 
To succeed in Digital Innovation, large corporations are creating stand-alone innovation divisions—creating space within their organizations to  innovate, test, fail and learn quickly. For instance, software company SAP has created an Innovation Center with healthcare being one of its primary product areas.  The Innovation Center, with two German locations in Potsdam and Walldorf, combines SAP’s programmers with students and research academics from their partner institutions, The Hasso Plattner Institute for Software Systems Engineering, the Berlin Universities, the Fraunhofer Institutes, Stanford University and The Massachusetts Institute of Technology (MIT).  Much of the output of the center focuses on managing big data in healthcare, such as a new patient management analytics platform and data explorer, in addition to a proteome-based Cancer diagnostics tool, as a start.

Investment Funds & Entrepreneurs-in-Residence
Janssen is well known for Janssen Labs, which provides an accelerator space for new companies that are exploring new drugs and treatments for disease. Entrepreneurs get advice and use of Jannsen’s lab space, while Janssen gets early access to potential investment  and acquisition opportunities.

Even naturally innovative companies like Google and Dell have hired their own Entrepreneurs in Residence, experienced entrepreneurs who can help the company get plugged into the startup scene and identify which new companies are on the rise.

Many companies have set up specific venture funds specifically targeting startups.  Microsoft’s Bing Fund is an incubator program funding companies in the mobile and web experience spaces.   Computer Manufacturer Dell even put up $100 million in financial and scalable technology resources for start-ups as part of its Dell Innovators Credit Fund, to help new companies get on their feet.  American Express announced last year they would invest $100 million in digital commerce start-ups.

Innovation Prize Programs : 
While most people often think of prize programs as a challenge companies offer to external world—such as Qualcomm’s QPrize Competition for digital entrepreneurs-- some of the most successful innovation prize competitions are for company employees only. Hewlett Packard’s Flashpoint 2.0 program, for instance, attracted 152 employee teams of 3-5 people each, all competing to address specific strategic business problems HP was facing.  The top 3 teams advanced to the finals, where their work was judged by venture capitalists, business professors and top HP executives.  The prize for the winners?  $200,000 in seed capital to advance their new business idea in the organization, and paid attendance at MIT’s one-week Entrepreneurship Development Program. 

When consulting company PwC (Price Waterhouse Coopers) ran a similar program, they expected 100 ideas to come through on the first round, but instead were overwhelmed with 779.  They awarded $100,000 in seed funding to their winner.  But the real prize for the company was program engagement levels at 60 percent for their 30,000 employees internationally.  Ideas generated from the program included a whole new service line for the company and a cloud based “idea refinery” where employees worldwide can collaborate on new ideas throughout the year.

While many corporate innovation programs hover around $200,000 or so a year, it is not unusual for companies to invest up to a million dollars in similar employee-based innovation initiatives. 

Hackathon Events:
Sometimes internal innovation thrives best when a large group of people come together with a tight deadline.  Take, for instance, Facebook, which has sponsored 30 different Hackathons over its short history.  During these events, Facebook puts together a large group of its programmers for a day or two who collaborate intensively against a set of stated corporate goals.  The Hackathons have produced many service innovations over the years, the iconic “like” button being one of them.

Corporate Culture Mandates:
Microsoft’s innovation strategy is more relaxed.  Their corporate campus has a 60,000 square foot innovation garage where employees are encouraged to hang out together after work to collaborate on any new ideas they might have.  3M is legendary for its commitment to employee innovation, drafting a “Bootlegging Policy” requiring that all employees spend about 15 percent of their time working on ideas that are completely new.  This process has spawned many innovations for the company, including the now indispensable Post-It Note.

And that, in the end, is why large corporations are stepping out of their comfort zone, and into the new and unusual partnerships that come with the Digital Revolution.  It’s just good for business.  


"Six Lessons for Corporations Building Innovation Accelerators"

This terrific piece from Insight explains how other major corporations have dealt with the bumps in the road that come from building innovation practices, and have changed their innovation organizations to suit.

"Digital Transformation: Why and How Companies are Investing in New Business Models to Lead Digital Customer Experiences"

This report from marketing think tank The Altimeter Group talks broadly about why digital innovation is important to companies, and what they have been willing to invest to succeed.

"From Digitally Disrupted to Digital Disrupter"

Get a cup of coffee. This might take some time. This comprehensive, 124-page report from consulting firm Accenture offers a thorough look at the Digital Innovation process, and what large companies have to do to turn their size into their advantage. A great discussion of the digital innovation management challenges with concrete, CIO-level detail on which steps to take to proceed.

"The New Corporate Garage"

Harvard Business Review took a broad look at innovation in large companies here, even venturing beyond just the "digital" disruptive technologies. In order to view and download this report, you have to register with the review. The link above will take you to a page where you can enter your information for a download.

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