The rise of digital technology, coupled with weaker economic growth in emerging markets and globalization, have combined to prompt an enhanced focus on innovation.
After years of cutting costs and slashing investment after the global financial crisis, companies are realizing that they must create, scale and sustain new businesses.
Justin Jansen, professor of corporate entrepreneurship and scientific director of the Erasmus Centre for Entrepreneurship at Rotterdam School of Management, says that companies face a highly dynamic and disruptive environment.
“Incumbent firms need to behave like a start-up, with a mentality that is driven by risk-taking and growth orientation,” he says.
There are a growing number of start-up entrepreneurs emerging from London to Bangalore. But, equally, younger managers are increasingly set on pushing entrepreneurial ventures from within large corporations
Examples range from the rise of mobile technologies that allow companies from banks to retailers to reach consumers on the go, to the more futuristic 3D printing, which could allow manufactures to produce components such as for aircraft engines quickly and more efficiently.
The connecting theme is increasing use of new tech — such as analytics, mobile and the cloud — which is enabling companies to produce new products, services, and business models.
A recent survey of senior business figures by the professional services firm Accenture found that 88% of the chiefs had developed a digital strategy.
Jim Bailey, Accenture Mobility's global managing director, says business has made significant in-roads in using digital technologies over the past year.
“The benefits of digital technology are not just being talked about anymore but are being put into action, as organizations are reshaping themselves to take advantage,” he says.
The potential is attracting the attention of the world’s future business leaders. At Cambridge Judge Business School in the UK, Simon Stockley, senior teaching faculty in entrepreneurship, says the British school’s students are keen to build careers at innovative companies. “Innovation and change acts as a magnet for talent,” he says.
Google, for example, is poised to shake up the automobile market with the secretive development of electrically charged cars. Its Google X research laboratory is also experimenting in medical science, including developing wearable monitoring devices. Google is now a top recruiter of MBAs at London Business School; MIT Sloan; Berkeley Haas; HEC Paris.
Other industries, including healthcare, advertising and manufacturing have been quick to adapt. “Innovation waits for no one. Those who fail to embrace the new reality of the accelerating innovation cycle will quickly be left behind,” says Jeff Dobbs, KPMG’s global head of industrial manufacturing.
Even banks are trying to innovate. For example, Deutsche Bank will launch “innovation hubs” in London, Berlin and Silicon Valley in an attempt to improve its use of digital tech. The hubs are being set up with Microsoft, IBM and HCL, the Indian IT services group.
“Innovative organisations allow their people to innovate and grow; bureaucratic organizations crush innovation and reduce their workforce to the level of ‘human resources’, mere factors of production, or ‘cogs in the machine’,” says Cambridge Judge’s Simon.
Innovation is often driven by challengers who threaten to destabilize existing business models. “Start-ups have successfully challenged traditional players over the past 10 years,” says Diane Morgan, associate dean at Imperial College Business School in London
Amazon has transformed commerce; Apple shook up both the music and telecoms sectors; Airbnb has more rooms available than IHG or Hilton, the world’s top hoteliers.
But there are numerous challenges entrepreneurial managers face in innovating from within corporations.
Emerging businesses rarely merge smoothly with well-established systems, processes and cultures. They also often lack data, particularly if their technologies aren’t widely used in the market.
Jeff Skinner, executive director for the Deloitte Institute of Innovation and Entrepreneurship at London Business School, says that it is also challenging for companies to come up with useful ideas.
Another potential pitfall comes when trying to integrate the best ideas without disrupting what the business already does well. “To do this well you need people who have a very good sense of how to formulate and implement strategy,” Jeff says.
Corporate ventures are also likely to be judged on financial success and are often the first units to be cut in times of austerity. But experts say this is the wrong approach.
“Rather than using financial figures and measures to control progress, managers need to understand that entrepreneurial efforts need to be measured against progress in terms of learning, and the steps being taking toward market access,” says Rotterdam’s Justin.
He argues that lack of innovation is even more risky than innovation, leading to stagnation and even bankruptcy.
Corporate entrepreneurship is a notoriously risky business and companies must be willing to accept failure as a learning curve. Such ventures are a marathon, not a sprint.
Yet innovation may be much easier for younger, more nimble firms than for established corporations, which are notoriously slow-moving.
Dr Andrew Corbett, a professor of entrepreneurship and research scholar at Babson College, which specializes in entrepreneurial training, says that politics and power relationships can be disruptive. The right culture must be developed for entrepreneurial ideas to flourish.
“That comes from things like truly empowering folks, knowing that the metrics — financial and otherwise — need to be different for a new, internal initiative,” he says. But he adds that companies must recognize when to kill ventures that simply aren’t working.
While a flop is never far away, there are already examples of corporate entrepreneurs producing results.
IBM’s head of security Brendan Hannigan, for example, spearheaded the US tech conglomerate’s pivot to enterprise security. The 100-year-old company has unleashed cloud-based security products to capitalize on the shift to cloud computing.
Since Brendan was hired by IBM in 2011, the company has pumped more than $1 billion into security R&D. Last year IBM’s security revenue had grown by 20%, the company said, and Gartner valued its security business at $1.14 billion.
Concerns about investor relations remain a hurdle. But it seems that the younger generations of executives see the potential benefits of corporate entrepreneurship.
Ashley Bienvenu, an executive at Google handling mobile partnership development, and an HEC Paris graduate, says she values the chance to use her assets to make a tangible impact on her business area.
“Google is a very fast-moving place where employees have ownership over their roles and careers,” she says, where “out-of-the-box” ideas are encouraged.