In-house innovation labs have gotten a bad rap as of late. Whether their primary area of focus is retail, consumer packaged goods, or technology, labs across the board have been hit with criticism of being too siloed, too insular, too slow to adapt, and the like.
However, having been on multiple sides of the equation as an investor, founder, and corporate venture partner, I can confidently say that not only are these criticisms lacking a solid foundation, but they also run the risk of burying the real issue we’re facing in today’s market: it’s rare that a mature corporation can successfully innovate from within at the required speeds and efficiency needed to compete with today’s startups.
When Neiman Marcus’ head of innovation, Scott Emmons, left the company at the start at 2019 he wrote in an op-ed on his departure: “Processes are broken, execution is too slow, politics stalls decision-making and resources are too scarce.”
This is not to say that companies aren’t finding any success innovating. However, success may be occurring more at the periphery of the main innovation system than at its center, making it difficult to replicate and scale.
There’s no denying that legacy brands need innovation to survive and compete against new startup brands, but it’s not an easy process. Nearly three-quarters of businesses admit that they’re not out-innovating their competitors, according to a PwC report. But those that consider themselves leaders in innovation are expecting considerable growth — 15 percent over the next five years.
So, what does the path to corporate innovation look like? First, legacy brands can learn a lot from what newer consumer-facing brands are doing to innovate. Brands like Halo Top and SkinnyPop didn’t start big, but focused on meeting a targeted and unmet consumer need that developed into a broader reach.
Although I might be somewhat biased, I also believe that corporations should stop trying to make innovation happen from within when it’s clearly not working. Instead, they should partner with an external innovation lab that can provide a shorter, more efficient route to innovation success.
In my experience, external labs have the benefit of sitting outside the brand and benefit from a more worldly, holistic view. As the old adage goes, “Sometimes you can’t see the forest through the trees.”
Approaching innovation from “the outside in” can offer a number of tools and benefits that you can incorporate into your strategy. Here are three to consider:
1. Agility and added resources
It’s much easier for external partners to navigate the corporate ecosystem while keeping an agile and nimble mindset. If a new concept is not performing well, outside innovators can quickly move on to the next idea without being constrained by internal bureaucracy and without being seen as a threat to existing talent.
They can provide an environment where it’s okay to fail because new ideas can quickly take their place. Partners can also consolidate the resources they have internally that may become cost-prohibitive for brands – everything from marketing to technology.
Perhaps the best example of this, I think, is Google, which added an entire corporate structure focused on innovation with Alphabet. By restructuring to create Alphabet, a parent company that oversees the core Google Business in addition to transformational units like Google Ventures, Google X, and Waymo, Google provided the freedom for their innovative ventures to make unencumbered bets on groundbreaking concepts and technologies with the potential to change the world.
2. Better access
When you’re on the outside, people within a company will always be more likely to share their perspective and ideas with you when you’re not directly affiliated with the established corporation.
By the nature of your position, you are more objective in your thinking and approach, increasing the likelihood that you’ll get more honest intelligence into the areas that you’re trying to change and innovate.
To give you an example of this, in 2018, our business invested heavily in learning and understanding the depths of the Amazon Marketplace. We were able to test new ideas quickly, launch product concepts efficiently, make data-informed decisions, and terminate failed initiatives with negligible loss.
Our deep evaluation and uninhibited perspective allowed us to navigate the Amazon ecosystem successfully and resulted in a formal Amazon partnership being established earlier this year. Our unique capabilities for innovating gave us differentiated access that a larger corporation values.
3. Deeper talent pool
An innovation partner has the ability to form a deeper talent pool that is laser-focused on what’s needed for the brand to get to the next level. Instead of recycling ideas internally, a dedicated team can offer fresh perspectives and cater to creativity.
While the team may vary from industry veterans and strategists to developers and creatives, a standalone innovation environment empowers a core group of people who are consistently working collaboratively to yield the highest performing, next-generation innovations.
Take Procter & Gamble’s Connect + Develop program as an example. In what is arguably a rare move, P&G built a program around open innovation that actually highlighted the company’s pain points and/or untapped opportunities in order to leverage outside talent and innovation to solve for them.
If P&G is looking to innovate in the oral care space, for example, rather than exhausting internal resources on R&D, the Connect + Develop program allows P&G to put out an open call for new ideas from innovators and patent-holders that already have a notable level of expertise in that particular space.
By identifying areas where the company could improve its business – be that through gaps in product lines or weak points in supply chains – P&G created a platform through which it could facilitate sustainable innovation that wasn’t limited in scope or quality by the company’s own competencies.This bold approach from an established corporation has set an example that many more corporations will soon follow.
Corporate innovation is alive and well, even if in-house labs are under the microscope. Thinking about innovation from the outside-in may be just what legacy brands need to stay relevant in today’s fast-paced, “innovate or be disrupted” environment.
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