Technology has reached a previously unknown level of maturity and availability, greatly altering how modern businesses grow and perform. We have seen the phenomenal rise of companies such as Google, Uber, Tencent, Tesla and Huawei. Thanks to disruptive innovation, the speed of change is so great that a “business as usual” approach no longer works for today’s leading companies.
As technologies converge and create business models that are spurring competition from different sectors, it is not sufficient to innovate in a current industry.
In this book, we will go on a journey through changing technology and consider how organisations need to align their strategy and processes to deliver strategic and financial returns. I will explain the strategic importance of innovation and effective corporate venturing, as I believe there is a need to go beyond just innovating and investing.
Looking outside the organisation is key to see new technology and business models that were “not invented here”. Organisations now need to be joining startups, technologies and corporates to create new business models globally. This is what we have termed “innovative new value chains”, and building them will improve people’s lives and the planet as we tackle the challenges in health, food, transport, urban living and many other areas.
Embracing innovative new value chains means companies must first define their strategic objectives, search the markets and subsequently invest in ways that allow them to look beyond existing business models to drive long-term growth.
There are organisations leading the way. There will be many examples in this book, and many more in the resources, giving insights to the changes in the organisations and industries.
- Merck, a health company, has a Global Health Innovation Fund led by William (Bill) Taranto with a focus on digital health. In an interview with me, Taranto said: “You have to build a strategy around how you are going to invest and how you are actually going to scale, and then bring that value back to your parent company.”
- RELX (formerly called Reed Elsevier) has moved from paper-based information publishing to decision support systems and is a world-leading provider of information and analytics for professional and business customers across industries.
- DSM has transformed itself, moving from coal mining in Holland to health, nutrition, and materials.
- BP Venturing plays a key role in BP corporate strategy by helping the transition to a low-carbon energy future, leveraging its investments across a wide portfolio of relevant technology businesses.
- GE is moving, on an industrial scale, toward being a “software” company, as data will be the core of future business.
- Unilever has been innovating and venturing for more than fifteen years in sustainability, personal care, and digital marketing, which has brought financial and strategic returns.
- IBM is continuing the transition from a computer hardware company to cloud platform and cognitive solutions company—the basis of many of the new technologies behind the start-ups and corporates going through the change.
These companies know that the path to big-picture growth involves more than modifying the current suite of products in their respective industries or making ad hoc investments. Instead, those businesses continue to harness the power of disruptive innovation, gathering knowledge, investing, and acquiring to create new business models.
They are delivering valuable strategic insight and new business areas for the core business. Also, we will see that one of them has created a billion-dollar entity with its corporate venture capital and private equity transaction.
The value of strategising for change
The convergence of technology creates both opportunities and disruption to leading corporates. A business that ignores such innovation risks a “Kodak moment” – that is, the possibility of going, like Kodak, into liquidation in just a few years as it fails to meet the fundamental change in its industry.
Most organisations do not face the threat of this kind of rapid obsolescence, but they could very well miss multibillion-dollar opportunities caused by their failure to adapt to the changing digital marketplace. Incumbent corporates might have the right technologies, a standout relationship with customers, multiple distribution channels, and a brand they can leverage into a new disruptive industry by way of innovative new value chains.
Developing a strategic innovation strategy
Having stakeholders and executives say they are going to innovate is not enough to produce real results, even at the incremental level. For many executives, proactively facing disruptive innovation means understanding the scale of the issue, balancing the various innovations, and joining up the delivery. For this process to be effective, there must be a clear method to guide the way. We are going to go through the five Ps of innovation and venturing, which have been effectively used for more than 10 years in leading corporates to address the key challenges and questions organisations face:
- Purpose: What is the purpose of the innovations the business is trying to address? Incremental innovation to improve the current business is a valid answer, but disruptive innovation is a different matter entirely, bringing different technology and business models together. Defining the purpose of the endeavour is a critical first step.
- Process: What will the innovation process look like for this particular business? Different purpose objectives will drive different processes. We will cover the range of processes from fund investing, to direct investment, incubation, partnering and so forth.
- People: People are central to the five Ps. Are the right types of people looking outside the organisation effectively, building strategic narratives with executives, and driving a process involving startup investments?
- Partners: Have the right partners, outside the scope of the organisation’s current capabilities, been selected?
- Performance: What is the appropriate balance of short-term financial return and strategic, long-term growth, and how can organisations measure this?
The five Ps are an iterative process. Purpose, process, partners and performance all circle around a centre – people. The method was built on the concept of adapting and learning, a cycle focused on moving forward in the face of fundamental change to build a winning strategic innovation and building innovative new value chains.
Investing today is not enough. It is strategically important to gather data to create new business models that result in strategic innovation and change. Currently, corporates are not joining the pieces together properly – that is where innovative new value chains come into play. The purpose of this book is to enhance the discussion between innovation areas in the business and give a framework for discussion with C-suite executives and boards.
This book’s first chapter explains the fundamentals of corporate venturing. Subsequent chapters explore each component of the five Ps and provide additional information, including basic legal considerations for corporate venturing, overviews of the leading global innovation superpowers in the space, and techniques for leveraging analytics, with a focus on GCV Analytics examples, to drive optimal growth.
This discussion ultimately leads to a thorough examination of innovative new value chains strategy. Having developed the five Ps method in the early 2000s, I set out to build a framework to help businesses struggling with innovation launch strategic discussions. I first published the five Ps method in my 2006 book Open Innovation in Action: How to be Strategic in the Search for New Sources of Value, and I have more than 17 years’ experience helping corporates reach their corporate venturing goals, which can now be truly strategic.
Purpose to Performance: Innovative New Value Chainsis availble in hard cover, paperback or eBook from Amazon. There will be a series of global book launch events and innovative new value chain programs. Details at Aimava Eventbrite.