Have you noticed that the Fortune 500 is trying to become more innovative? Recently, there has been a proliferation of innovation centers worldwide representing corporations from every industry sector, including Barclays, Ford, Google, J&J, Samsung, Sephora, Visa, VF and Walmart. Why is this trend occurring?
The most obvious explanation comes from a quick analysis of the components of the S&P 500 by market capitalization. Three stocks, all technology companies and all former tech startups – Apple (AAPL), Microsoft (MSFT) and Google parent Alphabet Inc. (GOOG) – comprise 10% of the index’s total value. Only 5 of the 10 largest companies by market cap are traditional blue chip companies. They include: GE, ExxonMobile, Johnson & Johnson, and AT&T.
But is technology simply the steam engine for innovation, or is innovation what drives the speed of technological change?
Technology is certainly an enabler for innovation. The shift to the technology sector in the S&P and its speed of growth is driven by the simple, well know theorem known as “Moore’s Law.” In 1965, Gordon Moore made a prediction that would set the pace for our modern digital revolution. Moore extrapolated that computing would dramatically increase in power, and decrease in relative cost, at an exponential pace. He predicted that computing power would double every two years, and it certainly has!
Ironically corporate America is responsible for most of the primary innovation that sparked the digital revolution. The first transistor was invented by scientists at Bell Labs. The first commercial silicon integrated circuits were produced by Texas Instruments and Fairchild Semiconductor. Motorola, which is now owned by Google, developed the first cellular phone.
So why can’t corporate America innovate today at the same amplified level of success as startups? There are many explanations given. The short term financial perspective demanded from public companies makes it hard to continue to pour capital into primary R&D and then wait for results. The efficiency and access to capital markets makes it easier for large companies to acquire small innovative companies. Even large technology companies like Google fuel their growth and innovation strategies through acquisition of technology and talent.
My view is that people and culture drive innovation. My favorite quote on innovation comes from Albert Einstein and reads, “Anyone who has never made a mistake has never tried anything new.”
Put another way, the reason 90% of all startups fail is so that innovation can happen. Corporate America could not tolerate a failure rate for internal projects that was even half as bad. So no matter how hard a large organization tries to embed the risk-taking entrepreneurial culture required for real innovation, they are really better suited for getting incremental improvements and building products, services and organizations that scale.
The essence of the industrial revolution was Adam Smith’s belief that the division of labor or “specialization” would lead to a qualitative increase in productivity. But innovation is about collaboration. Teams of workers that can share ideas and tasks. Teams that are free to take risks. Teams that have both complementary and differentiated skills and experiences required to create something new and great. Google has been recognized for their work in studying how to build innovation teams into to their organizational structure and culture. In addition to how they build and cultivate teams, they have created what the Harvard Business Review calls an “Innovation Ecosystem” that stimulates collaboration from both inside and outside the organization. This includes consumers, third-party developers and technology providers that become part of the innovation process.
The astronomical increase in raw computing power is not the only factor spurring innovation. The maturing technology trends such as open source, APIs, and cloud computing themselves can spur innovation. They can level the playing field for startups and large corporate IT systems by allowing connectivity between systems and organizations like never before. My own career has been spent largely in fintech, creating innovative payment solutions. It is hard to envision any innovation in financial technology that does not require partnerships and collaboration with multiple parties. Try to build a new payment solution that does not involve banks, processors, gateways, networks, and regulatory agencies.
The trend for corporations sponsoring innovation centers and accelerators makes sense. When a big corporation can work side by side with a startup, there is significant value beyond simply learning about the innovation process or imbuing an entrepreneurial culture into their own organization.
The innovation center brings resources, expertise and connections to startups. The startups bring their unique talents, innovative products and services into the innovation ecosystem. The end result will accelerate innovation and improve success rates for new products, services and technologies for all parties involved.
Image Credit: CC by Intel Free Press
