All over the world, established companies are joining the race to develop disruptive and customer-centric innovations. Looking at successful startups from the likes of Uber, Airbnb, Amazon and Facebook, many companies feel the threat of losing their markets and customers to these fast and agile Silicon Valley businesses like tankers would lose a race against speedboats.

Tankers would lose a race against speedboats

The obvious answer to this threat? Copy their methods and come up with the same brilliant ideas in design-thinking workshops and lean startup prototyping sessions. The problem: Most of these ideas never make it into the marketplace. These innovation methods were initially developed for startups that can innovate on the greenfield, without any preexisting “constraints”. However, large companies have a (successful) core business with established processes, structures, resources, employees, suppliers, customers, brands, etc. Incorporating an idea into these complex constraints is more challenging than fitting the well-known camel through the eye of a needle. Consequently, the established companies find themselves amidst a dilemma: While they run a successful core business, they seem to be missing out on all the breakthrough innovations outside their playing field. In the long run, this dilemma poses a threat to the company’s marketplace and customers. In his book “the innovator’s dilemma”, Harvard professor Clayton Christensen calls this phenomenon “disruption”.

Luckily, he also came up with a great solution for the innovator’s dilemma: If established companies cannot execute their innovative “greenfield” ideas, they simply need to create a greenfield to do so. Instead of trying to make an idea work within the complex “brownfield” of the core company, the innovation can flourish without any constraints. This solution seems logical, and so many companies are building separate innovation units with fancy names like innovation labs, innovation hubs, future labs, etc. Within these, dedicated teams work on “disruptive” new ideas and try to build new startups for the company, following the motto “disrupt or be disrupted”. The hope: By building the “speedboats” themselves, the “tankers” will eventually be pulled by them instead of being passed by all the other speedboats out there.

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If this idea is so brilliant, why are innovations labs failing to achieve their goal of creating billion dollar startups? Nordstrom, Coca-Cola, Microsoft, Disney, or the New York Times – they all could not make it work.

The answer lies in the concept of the innovation lab itself. Looking at the numbers, it is close to impossible to develop the significant innovations that an established company needs to survive as a separate unit. By giving up all the competitive advantages and strengths of the core business, the corporate startups face the same chances for success as every other startup out there. In a study, Bain & Company found that only 1 out of 500 startups in the US reach a size of 100 million Dollars. If you go for 500 million Dollars and profitable growth, chances go down to 1:17,000.

We have not learned to make Entrepreneurship work internally

However, this is the business size an established company needs. How else can they pull the billion-dollar business tanker? Thus, to bet on startup-building in separate units on the “greenfield” for “disruptive innovation” seems like a very risky gamble for established companies. Yet why are most companies still pursuing this path? The answer is simple: It seems that there is no alternative. Even Christensen admits that this is “just a backup plan”, but “we have not learned to make Entrepreneurship work internally”. Under these circumstances, a 1:17,000 chance seems better than zero.

Yet, what if the company isn’t the problem, but the idea? For the kind of innovation success that established companies need, buzzword-loaded “lean-startup-customer-centric-ideas” are not enough. Although many companies have now learned to consider the customer, it is important they do not forget to think about the execution and practicability as well.

Why are most companies still pursuing this path?

To become a significant and successful innovation, an idea needs to fulfill customer-fit and traction. The latter being the reason why startups show such low success rates. Without any pre-existing strengths, it is very hard to gain traction in the market. In contrast, large companies already possess this kind of traction in their core business. Their resources, processes, structures, networks, brands and other capabilities are not really constraints, they are actually the strengths that lead to traction. Thus, for successful innovation, the companies need to connect customer-centric ideas with the strengths (and constraints) of their core business. They need to develop innovations, which are as close as possible to the core business, and as disruptive as necessary for the customer. We call it “efficient innovation”.

We admit it’s not easy to develop this kind of innovation. To be able to stay close to the core, the whole process must work on the brownfield instead of brainstorming on the greenfield. Simultaneously, trends, customer insights, technologies and learnings from other industries must be taken into consideration to be as disruptive as necessary. Nevertheless, it is possible to develop this kind of efficient innovation. One example is Amazon. As an already established company, it launched the Kindle device, building on their existing customers (readers), networks (with publishers) and resources (content). Another example is LEGO, who managed to leverage their brand to completely new categories and target groups with movies, video games, theme parks and even creativity workshop kits (LEGO Serious Play).

The challenge of systematically building efficient innovation remains

IBM also has tremendous success with efficient innovations: in their “smarter cities” business, they build completely new services for cities based on their existing connectivity and IoT capabilities, cashing in at around 10 billion USD 10 years after their launch.

Apart from these examples, the challenge of systematically building efficient innovation remains. To answer these questions, we finally came up with the 5C-process that we researched, developed and tested for more than 6 years in over 20 different industry sectors with more than 30 large corporations like DHL, Vodafone, Adidas or Estée Lauder. It is a complex method, which we cannot fully explain here. Thus, we defined the overarching mindsets for the 5 key steps, that might already inspire you to stop the “greenfield thinking” in your innovation lab and start innovating instead:

  1. The destination is the journey: Don’t start with the customer! Instead, find the most significant innovation potentials based on the goals of your company and important internal and external success factors. That way, the whole following innovation process can happen in the space with the highest customer fit and traction. (Configuration)
  2. No pain, no gain: Now you can look at the customer – because, in the end, every innovation needs to solve a clear customer problem or “pain point”. That way, we make sure to have a high customer fit for every idea. But only a pain point that is addressable for the company is worth considering. That’s why we don’t just go out and ask customers about any problem but work in the defined innovation potentials. Here, you can collect customer insights and review them based on the internal and external success factors to select the biggest opportunities. (Customization)
  3. Only who reaps can sow: Heureka! Good ideas are not a coincidence but need inspiration. Don’t expect to come up with the best solutions in your morning shower. The better (because more systematic) way is to collect as many inspirations as possible for the customer pain points in your defined innovation potentials. Look at best practices, research examples in other industries, dig into patents, trends and technologies of the future. That way, the innovation potentials are filled with new inspirations that match the pain points of the customer. (Compilation)
  4. Think inside the box!: Well, thinking outside the box is great, if you can implement your idea outside the box. Unfortunately, that is not possible in any company. Thus, instead of brainstorming on the greenfield with creativity methods, you need to work directly in the most relevant innovation potentials with all the collected inspirations. With some additional new perspectives and tools, you will not only discover perfectly matching ideas but even better ones then on the greenfield. Select the best and conceptualize them to fit the strengths and constraints of the company as well as the needs of the customers. Now you got innovation concepts with high customer fit and traction potential. (Construction)
  5. Where there’s a way, there’s a will: As you fitted the innovation concepts perfectly to the company and the customer, everybody will be motivated to execute them now. Select the best ones, and kick-off with the implementation team to let them decide, how exactly they would like to implement it. After this transfer of “ownership”, the ideas can be prototyped and tested to be brought into the market. These efficient innovations have now a high success probability, as they build on the strengths of the core business (traction) and also fit the customer needs (customer fit). (Conversion)

How is your innovation lab going? Are you successful with startup methods and new ventures or do you feel the need for new solutions in your company? Let us know in the comments or write to us personally!

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All over the world, established companies are joining the race to develop disruptive and customer-centric innovations. Looking at successful startups from the likes of Uber, Airbnb, Amazon and Facebook, many companies feel the threat of losing their markets and customers to these fast and agile Silicon Valley businesses like...
Lucas Sauberschwarz & Lysander Weiss
Lucas Sauberschwarz and Lysander Weiss are partners at Venture Idea, an innovation consultancy specialized on large companies. They work with companies such as DHL, Vodafone, L’Oréal, In-nogy and many others to deliver efficient innovations. They currently write a book about efficient innovation and the 5C-process to help large companies to win the race against disruptive startups.