The illusion of innovation is real for many enterprises today. Transformative innovation stalls for these businesses for a variety of reasons, even when leadership buys into and provides resources for corporate innovation initiatives.

It's disappointing when a scaled organization fails to see the fruits of its innovation labor.

Morale worsens. Budgets are cut. Programs end. Some innovation team members even quit.

‍The good news? There's a way for large-scale businesses to avoid this outcome.

By identifying bottlenecks and barriers to innovation progress, corporations can clear a path for their innovation teams to make meaningful headway with their efforts — including those that aim to build new, external companies.

4 reasons why transformative innovation stalls (and how to overcome these obstacles)

There are many external factors that can influence the success of an innovation program.

For instance, recent National Bureau of Economic Research research in a working paper shows a strong and growing link between rising industry and economic regulations and lower levels of corporate innovation initiatives.

But arguably the most common reasons why innovation stalls at large enterprises today are internal ones, including:

1) Misalignment and/or disagreement on innovation goals

Many corporate innovation teams are (rightfully) given free reign to explore and experiment with ideas. But too many innovation labs do so without factoring in near-term business objectives and the long-term business strategy.

"To succeed, corporate innovation needs to be bounded by a clear set of strategic priorities that matter to the business," Columbia Business School's David L. Rogers recently wrote for Harvard Business Review.

Solution: Ensure your transformative innovation aspirations account for your corporation's big-picture, strategic vision.

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Every company has their own distinct business objectives and views on how innovation can help them reach them.

A recent InnoLead poll of corporate innovation and strategy leaders found their innovation priorities vary: from developing new internal ventures to support the core business, to increasing organizational efficiency.

Whatever your corporation's North Star goals are, it's vital that your C-suite and innovation team are on the same page regarding which innovation projects take precedence today versus months (or years) down the line and how that near-term initiative will help the company achieve its objectives.

2) A lack of long-term vision beyond the core business

Writing for HBR all the way back in 2012, Monitor Group Partners Bansi Nagji and Geoff Tuff noted that, based on their research, corporations that abided by the '70-20-10' rule had the "strongest innovation track records."

In other words, large enterprises that allocated 70% of their innovation resources to core innovation programs, 20% to adjacent innovation initiatives, and 10% to transformational innovation activities were deemed most successful.

Regularly exploring opportunities to improve core operations is essential. But that percentage share is increasingly tipping toward the transformative innovation side of the pendulum in recent years — and for good reason.

Transformative innovation, in which corporations play "infinite games" that help all business stakeholders (the organization itself, employees, customers, and partners), enables corporations to become more resilient.

Solution: Pitch the competitive advantage your corporation can gain from exploring entirely new business models.

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"Extreme capital efficiency creates fragile companies," said High Alpha Innovation CEO Elliott Parker. "Some deliberate inefficiency can help companies learn, prepare for, and even thrive through crises. Over the long run, resilience beats efficiency and is therefore a better objective for most organizations."

To boost business resilience, corporations can't just explore internal ventures to enhance existing products.

Rather, they must also build external ventures (startups) that can generate insights that provide value organization — something that can give them an edge over competitors who aren't innovating outside core operations.

"The trick in transformative innovation, like in certain kinds of investing, is to remember that it is the magnitude of correctness that matters, not the frequency," Elliott recently wrote in a guest post for Fast Company.

3) Poorly defined (or undefined) success metrics and KPIs

Roughly half (51%) of corporate innovation leaders recently polled by Wellspring said their organizations "were measuring innovation's effectiveness on a corporate-wide basis through direct financial measures."

As Elliott said in his book, "The Illusion of Innovation," using traditional business metrics like return on net assets (RONA), return on invested capital (ROIC), and internal rate of return (IRR) isn't ideal for transformative innovation.

"One of the reasons companies have such a hard time innovating and doing things differently is that they are optimizing for certain metrics that prioritize short-term financial capital efficiency, short-term results," Elliott recently shared on The Remarkable Leadership Podcast.

Efficiency innovations driven by the metrics above are good, Elliott noted. But they don't lead to sustainable growth.

Solution: Discuss which metrics tied to innovation projects matter most, then monitor and measure those over time.

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As noted, generating new learnings is arguably the biggest benefit of building new companies for corporations.

A mix of quantitative and qualitative data from new, transformative startups launched by a corporation can help them uncover anomalies and think differently about how they run, grow, and scale the core business. How you define metrics tied to these learnings should align with your goal(s) for your transformative innovation program.

For instance, if you're a health system that wants to tackle a big societal issue like health equity and builds a startup that aims to solve a problem tied to that challenge, monitor customers' use of the solution offered by said startup to determine if it's helping them gain easier, more direct healthcare access.

This can be accomplished by closely communicating and sharing data with that startup's leadership team.

4) Insufficient resources provided to innovation teams

A 2023 Boston Consulting Group survey found 83% of senior corporate executives rank innovation as a top-three business priority. Yet only 3% of these leaders' organizations were "innovation-ready," a 20% decline from 2022.

Part of this lack of readiness is uncertainty around how these companies should fund their innovation efforts.

Nearly three-quarters of executives surveyed by InnoLead and KPMG in 2023 said they fund innovation programs as part of their annual budgeting process, with many allocating innovation dollars through operating expenses.

But this funding approach has proven to be a barrier to innovation progress for many large enterprises recently.

Solution: Use balance-sheet capital, not operating expenditures, to fund your company's transformative innovation efforts.

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"If you are having to go up and compete with budget for marketing activities against your innovation efforts where the ROI is unknown, marketing will always win in the end," Elliott shared in a recent Innov8rs Learning Labs webcast. "It's inevitable because the organization is always optimized to do that."

That's why Elliott noted transformative innovation activities, like venture building, must be funded from the balance sheet. By doing so, large corporations can tap into their "growing mountains of capital" on the balance sheet to build new companies via one-off programs or possibly even create a venture studio to launch multiple startups at scale.