Edmund Morris’s new biography of American inventor and publicist Thomas Edison brings up an interesting perspective of how closely tied innovation is to both talent and organisation structures to enable them.
This review of Edison’s latest biography in The Atlantic notes the decline in several measures of innovation since the 1980s in the US and correlates this with there being fewer “cross-disciplinary invention factories” of the sort Edison started at Menlo Park.
An academic paper, The Changing Structure of American Innovation: Some Cautionary Remarks for Economic Growth, identifies the issue as a result of “a growing division of labour between universities focusing on research and large corporations focusing on development.
“Knowledge produced by universities is not often in a form that can be readily digested and turned into new goods and services. Small firms and university technology transfer offices cannot fully substitute for corporate research, which had integrated multiple disciplines at the scale required to solve significant technical problems.
“Therefore, whereas the division of innovative labour may have raised the volume of science by universities, it has also slowed, at least for a period of time, the transformation of that knowledge into novel products and processes.”
The Atlantic puts it categorically: “It is hardly an exaggeration to say that almost every important technological invention in the 20th century emerged from just the sort of R&D lab that Edison created.”
Maybe. It is certainly the case that plenty of ideas need to be generated to find the ones that are transformative and that the speed of change is heating up.
Stanford professor Bob Sutton’s research shows for an organisation to deliver two or three commercial successes it must first start with 4,000 raw ideas. That is an order of magnitude larger than what most chief executives think they need but those that use a portfolio approach to any innovation effort gain the speed, agility and iteration that positive disruption requires, according to management consultant Bain & Co in its report, Navigating the Route to Innovation.
Technology platform companies such as SAP are grappling with technology disruptions every three months, compared with every three years in earlier cycles.
To give some perspective, within three to four years a company could have witnessed as many innovation cycles as would have lasted a working lifetime before the millennium. Perhaps, therefore, it is little surprise that the average CEO lasts about three to four years and that the rate of obsolescence is increasing for Fortune 500 companies.
Those that thrive understand The Atlantic’s broader point that genius loves company and “invention is a team sport”.
This applies to how the teams are formed. Internal R&D labs become more efficient when allied to open innovation tools, such as corporate venture capital, accelerators and mergers and acquisitions, to drive value at different stages of development.
In the third instalment of the annual series Touchdown Ventures’ analysis of Global Corporate Venturing’s most active CVC list showed the median stock price of 26 US-based corporations appreciated 21% more than the price of its listing index from the time of CVC unit establishment through to 28 June 2019 (see page 69).
But as these and other corporations recognise the value of corporate venturing, so does the challenge of shorter-term pressures interact with the longer-term time horizon for research and product development, whether by entrepreneurs or internal invention factories. Putting more money into the venturing unit surfaces more ideas but puts pressure on the balance sheet and cashflow.
Edison’s own startup, which after several mergers became General Electric (GE) in 1892, shows how even successful corporate venturing programs can be affected through financial problems in other areas. Secondaries investors that have looked over GE Ventures’ book of about 84 portfolio companies say they have seen an opportunity to buy quality assets at a discount to their estimated $500m of investment because the parent company is looking for cash.
Similar dynamics cut through the corporate venturing industry after the dot.com crash after the millennium.
This decade’s totemic investor, SoftBank, posted a $6.5bn loss for the quarter – its first in 14 years, including $4.6bn due to WeWork and much of the rest from Uber write-downs. (see page 6).
Search engine Google’s parent, Alphabet, last month reported third-quarter revenue of $40.5bn and a “disappointing” overall profit of $7.1bn, down 23% from the year before, in part due to paper losses of $1.53bn in its equity investments compared with gains of $1.38bn a year earlier, as the Wall Street Journal notes.
In the Los Angeles Times, PayPal reported a $228m loss on investments before taxes in the third quarter, driven in large part by bad bets on Uber Technologies and Latin American online retailer MercadoLibre.
When hundreds of millions or billions of dollars are at stake each quarter even stock market analysts start to take note.
Don Valentine, founder of venture capital firm Sequoia Capital, who sadly passed away last month, famously asked potential portfolio companies “who cares” about their work.
The corporate venturing industry has reached this milestone – their parents and entrepreneurs care about their longevity and professionalism but the stakes and challenges the industry leaders and next generation of rising stars and emerging leaders face has grown as a result.
To succeed requires the industry to heed an earlier genius, Sir Isaac Newton’s, insight: “If I have seen further it is by standing on the shoulders of giants.”
Or as Wendell Brooks, president of Intel Capital and chairman of the GCV Leadership Society’s advisory board, puts it: “The industry is better, together.”
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