Corporate Innovation: How to Build Your Strategy

  • 9.30.2024
  • High Alpha Innovation

Corporate innovation tied to core business operations has the power to help enterprises improve existing products and services, give them a competitive edge in the market, and better commercialize their intellectual property.

But the corporate innovation model has evolved a lot in recent years.

The most innovative companies no longer focus solely on minor business upgrades. They also seek transformative innovation opportunities by conducting fast, cheap, and weird experiments outside the core business.

Specifically, they explore new business models, build their own companies, and diversify their investment portfolio.

Corporate innovation is a fairly broad topic. For the sake of our guide, we'll zero in on three types of corporate innovation — core, adjacent, and transformative — and their benefits to scaled enterprises across industries.

With that out of the way, let's break down what the top corporate innovation strategies entail today.

What is corporate innovation?

Corporate innovation refers to the efforts by enterprises to find new ways to conduct business so they can make their companies more resilient and gain a competitive advantage in their industry and vertical. Corporate innovation involves the exploration of new ideas, practices, technologies, and strategies with the goal of transforming the business long term and fostering a culture of innovation.

  • Some corporations embrace the closed innovation model. Through this approach, they aim to introduce new offerings and improve current ones without the aid of outside entities, like consulting firms.
  • Other corporations adopt an open innovation model. These companies actively seek out and work with outside parties (industry groups, other companies, subject-matter experts, etc.) to brainstorm and crowdsource ideas, share research and development resources, and innovate more cost-effectively to achieve long-term success.

Support from leadership and a program sponsor and champion allows corporate innovation teams to operate away from the core business and investigate business opportunities that can help their company:

  • Enhance existing products and create entirely new ones
  • Boost operational efficiency and workforce productivity
  • Design new business models to future-proof the business
  • Generate new cost savings and eliminate any wasted spend
  • Address their, customers', and/or partners' needs and issues

Many corporations have dedicated innovation teams.

These teams' sole job is to identify new growth opportunities for the business by:

  • Analyzing internal and external trends. Many corporate innovation labs regularly research trends tied to emerging tech, the economy, competitors' product improvements and releases, and customers' buying behavior to discern where they should spend their innovation attention.
  • Speaking with colleagues, customers, and experts. These teams also spend a lot of time meeting with peers, customers, industry experts, and even advisory and consulting firms to get their thoughts on their organizations' offerings and the business landscape.
  • Detecting business problems to solve. Cross-functional collaboration, in particular, enables corporate innovation teams to unearth big issues facing different business units (e.g., Marketing, Sales, Software Development) and the company at large that it could help address.

Regardless of the distinct goals and approaches, High Alpha Innovation CEO Elliott Parker said the most successful corporate innovation programs today focus on ongoing experimentation and analysis.

Doing so enables these companies to unearth new anomalies and unlock invaluable insights.

"It is hard to predict ahead of time which insights are going to lead you into new paths for growth," Elliott told Global Corporate Venturing. "You have to gather as many insights as possible."

The state of corporate innovation

Corporate innovation looks different from one business and region to the next. The 30,000-foot view of modern corporate innovation programs across sectors and the globe, though, paints two very different pictures:

  • More than seven in 10 (71%) international executives and innovation leaders polled for Deloitte's 2023 Survey of Innovation Excellence said their organizations are "embracing emerging technologies that can serve as catalysts for competitiveness and strategic positioning."
  • Nearly the same amount (69%) of these strategy leaders surveyed by Deloitte said their corporate innovation budgets weren't negatively affected by the recent global economic slowdown, with some actually noting their organizations plan to increase their innovation budgets in the years ahead.
  • Meanwhile, a 2024 Boston Consulting Group study found just 30% of senior innovation executives at corporations worldwide update their innovation strategies annually. In fact, 70% said their companies are more focused on core "process optimization" than broader innovation initiatives.

Recent data from these reports and others show stark differences between innovation 'leaders' and 'laggards.'

But one consistent theme in these studies is the recognition that innovation is a top priority for scaled companies. It's just that there's too often a lack of agreement and alignment on the ideal direction to take corporate innovation programs that is leading many large enterprises' innovation efforts to stall.

Add on the fact many of these companies are focused on capital efficiency, and it's easy to see why these businesses continually engage in the illusion of innovation and are ill-prepared to truly drive their organizations forward.

"Large corporations ... have systems of governance and incentives that are optimized for safety, predictability, and the reliability of their business model," Elliott said in a Q&A with Startup Savant. "It's a deadly trap that creates what I call 'innovation theater' — people acting like they are doing something creative."

3 types of corporate innovation

Corporate innovation, from our vantage point, really boils down to three 'flavors' that each serve a different purpose.

(Note: When thinking about these approaches, it's not about which is 'right' or 'wrong.' Rather, it's about understanding when each can and should be applied to help achieve different strategic business goals.)

Core innovation

Also commonly referred to as sustaining innovation, core innovation is focused on strengthening a company's products and services. The goal is to drive revenue growth by increasing customer acquisition and retention.

"Most of the things that we benefit from in the world are sustaining innovations," Elliott said on the Inside Outside Podcast. "There's slight improvements over what existed before. That's what corporations do fantastically well."

The problem, per Elliott, is that these "sustaining innovations over time [do] not produce an enduring organization."

Cash flow is vital for corporations. But look at the most successful scaled enterprises of all-time. You'll see they endure not just because they made continual upgrades to their core offerings but also because they looked for innovation opportunities beyond the four walls of their businesses.

Adjacent innovation

The wealth of customer data at corporations' disposal along with their sizable R&D budgets and personnel enables them to research and test new products and services to bring to market and fill market gaps and needs.

Whatever it might be, this kind of adjacent innovation helps corporations move the needle for existing customers and business models. In some cases, it can even improve relationships with business vendors and partners. A common form of adjacent innovation carried out by corporate venture capital (CVC) teams is investment in startups.

Finding thriving early-stage startups with promising tech tools that complement products offered by the core business (and could perhaps one day be rolled into the core business) is a go-to tactic for many CVCs today.

Transformative innovation

And then there's transformative innovation. This approach is all about creating new business models that can provide insights near term that can improve core operations and robust financial returns in the long run.

Venture building is a great example of transformative innovation.

As Elliott noted recently in a guest post for InnoLead, transformative innovation is best done "outside the corporation, where things move exponentially faster and breaking paradigms is built into incentives."

Speaking with digital magazine The Gallery, Elliott added that transformative innovation requires "strong senior leadership support, a clear strategic rationale for innovation, and a well-thought-out investment plan."

Without these, Elliott said corporations struggle to "gain the necessary traction and alignment" to realize their vision of building new companies that solve critical business, customer, strategic, and/or market problems.

The good news is there are experienced venture builders with proven venture-building playbooks that can guide corporations and their innovation teams on their startup-creation journey and unlock transformative growth.

Elliott-Keynote
High Alpha Innovation CEO Elliott Parker gave a keynote on AI and the case for human ingenuity.
David Senra Podcast
Founders Podcast host David Senra gave a keynote talk on what it takes to build world-changing companies.
Governments and Philanthropies
High Alpha Innovation General Manager Lesa Mitchell moderated a panel on building through partnerships with governments and philanthropies.
Networking
Alloy provided great networking opportunities for attendees, allowing them to share insights and ideas on their own transformation initiatives.
Sustainability Panel
Southern Company Managing Director, New Ventures Robin Lanier spoke on a panel about the energy sector's sustainability efforts.
Healthcare Panel
Microsoft for Startups Worldwide Lead, Health & Life Sciences Sally Ann Frank took part in our panel on healthcare transformation.
Agriculture Panel.
Make Hay CEO and Co-founder Scott Nelson discussed the ongoing transformation in the food and agriculture value chain.

Stay up to date on the latest with High Alpha Innovation, our work, and the future of venture building.