Corporations constantly seek innovative ways to maintain a competitive edge and drive growth.
The traditional trifecta of corporate strategy — build, buy, and partner — has long served as the foundational framework guiding their pursuit of innovation and market leadership.
However, as the business landscape evolves at an unprecedented rate, an increasingly popular fourth option has emerged: Create.
This addition represents an expansion of the strategy palette, and a paradigm shift in how large-scale businesses, including Fortune 500 companies, can approach disruptive innovation and growth today.
And venture studios — like those we co-create with scaled organizations here at High Alpha Innovation — offer a unique blend of resources, expertise, and agility that enable our partners to build new companies at scale.
Breaking down the 3 traditional innovation options many corporations explore today
The rapid pace of technology advancements. Shifting regulations. Constantly changing consumer preferences. The emergence of disruptive business models. All of these factors have led corporations to realize that traditional strategies alone are insufficient to guarantee sustained growth and competitiveness.
That's why they've increasingly turned to the three innovation paths below:
To explore emerging opportunities through alternative avenues that can not only enhance the core business, but also enable them to penetrate new markets and generate new revenue streams.
However, there are drawbacks to each of these options.
Build: Developing custom offerings in-house
Creating custom products and services for specific business requirements and audiences is a go-to strategy employed by many corporations. It promotes internal innovation and gives more control over product development.
This then leads to efficiency gains and reduced cycle times.
The problem, though, is that this approach is historically slow and often very resource- and labor-intensive.
Building new outputs requires yearly planning and management of the company’s backlog.
New and innovative ideas that challenge the status quo of one's business or place bets on future market shifts will likely never get the full attention, staffing, or budget required to test hypotheses effectively.
Also, building internally can be costly, and it doesn't always lead to the desired return on investment.
McKinsey research found 91% of global corporations had a digital and AI transformation in motion in 2022.
But these organizations only realized 31% of their expected revenue lift and 25% of projected cost savings.
What's more, Gartner research found 89% of corporate boards cited digital transformation as "an implicit part of growth strategy." Yet four in five board members surveyed said their companies have "not made progress toward or achieved their digital business transformation goals."
Low IT budgets, high interest rates, and a lack of internal talent to own transformation initiatives were cited as the top reasons for these organizations' inability to build new products and bring them to market cost-effectively.
Buy: Acquiring pre-built solutions
This approach can accelerate time to value and the desired ROI by investing in existing solutions designed to meet specific needs (e.g., improve employee efficiency, enhance the customer experience).
Acquiring other businesses offers tech enablement benefits without the need to invest in the development and maintenance of custom applications.
However, it can be less cost-effective if a lot of customization is required, and may result in less control over product development.
PwC's 2023 M&A Integration Survey of 600-plus corporate leaders found less than 45% of large-scale enterprises that acquired companies in 2022 saw "significant" strategic, operational, and financial ROI from their investments.
This lack of ROI — and loss of capital — even extends to FAANG companies.
In 2012, Google unloaded Motorola for $2.9 billion, a year after its purchase of the handset business for $12.5 billion.
Partner: Working with other businesses
Partnering with forward-thinking tech providers and/or other cutting-edge companies enables access to established products and their own ongoing innovation initiatives.
And that means the potential for new, jointly created offerings — and possibly entirely new revenue streams.
In short, this approach allows organizations to leverage external expertise and resources that enable greater speed to market in areas where custom development in-house is not feasible.
- Example #1: GoPro and Red Bull. These brands established themselves as extreme sports lifestyle brands, working together to operate, film and sponsor extreme sports.
- Example #2: Microsoft. Roughly 95% of its commercial revenue comes through its partner ecosystem, which grows by an astounding 7,500 partners per month.
However, partnerships carry some risk. That includes misaligned visions and competing priorities.
This can slow progress and lead to negative press. And that impacts consumers' brand sentiment.
"[T]o succeed in a significant, cost-efficient, and timely way, [corporations] need to partner with other companies who have their own special interests and concerns, which turns out to be very hard," a trio of corporate research directors recently wrote for Harvard Business Review.
The role of venture studios in helping corporations with scalable startup creation
"The buy, build, partner decision is not one-size-fits-all," veteran product manager Warren Smith recently wrote for the Bootcamp blog on Medium. "It’s a nuanced process that demands a deep understanding of market dynamics, internal strengths, and potential risks."
And when none of these three options are right for your corporation, it's worth exploring the "fourth leg" of the corporate strategy stool: net-new venture creation.
This is where venture studios, which scale startup development, can help:
- Venture studios are companies that specialize in building startups from the ground up. They combine capital with business building expertise and operational support.
- Studios operate at the intersection of innovation, entrepreneurship, and strategic investment. They provide a unique ecosystem that fosters the rapid development and scaling of new startups.
- Our team partners with large corporations, universities, and state governments to build companies that drive strategic, disruptive innovation in several industries.
Unlike traditional accelerators or incubators, venture studios are very hands-on.
Studios involve themselves deeply in the startup's operational, strategic, and financial aspects and working side by side with corporate partners and eventually onboarded founding teams to advantage their startups well before launch and make them enticing to outside venture capital firms.
This studio model offers three distinct advantages regarding venture creation:
- Speed to market. By using the studio's resources and expertise, new companies can move from idea to execution much faster than traditional corporate innovation channels.
- Risk mitigation. The venture studio model allows corporations to explore new business models and markets with a more controlled investment. That lessens the financial, operational, and brand risks of entering uncharted territory.
- Strategic alignment. Startups created within a venture studio are designed from the outset to align with the corporation's strategic goals. This ensures they contribute directly to the overarching goals of the parent company and scale with capital from VCs.
Our approach to venture creation via studios exemplifies how they are becoming a big part of corporate strategy.
By partnering with large enterprises across industries, we identify new, strategic growth opportunities. Partners can leverages our startup-building expertise to rapidly bring new products and services to market.
The success stories emerging from High Alpha Innovation's portfolio illustrate the tangible benefits of infusing the "create" dimension into corporate strategy.
Simply put, these startups are not just ancillary projects, but rather strategic endeavors that can open new markets, drive radical innovation, and contribute considerably to the parent corporation's growth and competitiveness.
