One of the most significant challenges faced by corporate innovators is managing the silos that exist between different innovation approaches and teams. These silos, specifically in M&A, venture building, and partnerships, can lead to missed opportunities, inefficient use of resources, and a fragmented approach to innovation that fails to leverage the company’s full potential.
Conversations with innovation experts and qualitative research have shown that there is often little intentional communication and collaboration between these different innovation streams. This leads to a situation where each approach may be based on the overall business strategy but ends up pursuing individual innovation tracks. It’s crucial to remember that innovation should fill the growth gap, not create isolated pockets of progress.
Stephen Parkins, Founder at boutique consultancy Culturedge, former Head of Innovation at SGS, and Senior Innovation Manager at ABN AMRO, highlights this issue: “As a corporate innovator, I felt that relationships with M&A were almost completely siloed and practically non-existent. It doesn’t feel like a partnership, although building, partnering, or buying can all be part of the innovation toolkit.”
In many large corporations, different departments or teams are responsible for different aspects of innovation. M&A teams look for external innovations to acquire, internal venture-building teams work on developing new ideas from scratch, and partnership teams seek collaborations with startups or other companies.
While each approach has its merits, they often operate in isolation. This lack of coordination can result in several problems, as Lysander Weiss, Senior Research Fellow at HHL Leipzig, observes. “Corporates need to build so many startups to have a relevant impact on the business that the approach and the numbers just don’t add up. Do you want a chance for a startup with a value contribution of $100m and sustainable profitable growth? Then you need between 500 and 17,000 startups. Are you going to build 17,000 businesses? Probably not.”
The duplication of efforts is a further issue. Different teams might be working on similar ideas without realizing it, wasting time and resources. Additionally, a lack of portfolio thinking can lead to suboptimal allocation of resources across different parts of the innovation portfolio.
Opportunities to benefit from combining internal development with external partnerships or acquisitions may be overlooked. For example, venture teams have a great capability to validate – or invalidate – domains for product-market fit, which would create valuable input for partnerships and M&A decisions. As Parkins puts it: “Today, this level of interaction is quite rare. Once committed to a route, like building yourself, it rarely deviates from the path.” Weiss emphasizes this: “Define innovation focus areas and then debate whether you have enough initiatives going on in those areas. Those are the right discussions because then management understands the portfolio.”
Without a unified approach, different innovation initiatives may pull the company in conflicting directions. Moreover, business strategy needs to be translated into lower-level strategies for different functions, which raises the question of how to manage consistency across these various levels.
Finally, many companies struggle with the handover of innovative projects from dedicated innovation teams to regular business units. Marie-José van den Boomgaard, Head of Liaison Management Startups and Scaleups at KPN, shares a stark example: “From a decentralized model, we developed five initiatives to substantial turnover. However, the handover to the business was challenging due to incompatibility and conflicting initiatives and this led all projects to be halted in the end.”
To overcome these challenges, companies must create an environment for better communication and collaboration between these different innovation streams. A more integrated approach, focusing on a portfolio of innovation initiatives across different areas, can help management understand and support the overall innovation strategy.
Key elements of this integrated approach include developing a unified innovation strategy encompassing all forms of innovation, from incremental improvements to disruptive new ventures. This strategy should align with the overall business goals and provide a clear direction for all innovation efforts. Creating cross-functional teams with members from different departments and businesses to work on innovation projects can bring fresh perspectives and help identify potential synergies between different innovation approaches.
Establishing shared metrics and goals for all innovation efforts, regardless of whether they’re developed internally, acquired, or created through partnerships, ensures that all teams are working towards the same objectives and that they are comparing apples with apples. Regular communication through meetings or forums where different innovation teams can share their work and identify potential synergies can foster collaboration and help prevent duplication of effort, which is inefficient and costly.
Flexible resourcing, allowing resources to flow between different innovation initiatives based on their potential and progress, can help optimize resource allocation and increase the chances of success for promising projects. This portfolio approach allows companies to make more informed decisions about whether to build, buy, or partner for innovation. It recognizes that different stages of innovation might require different approaches, from initial development by startups to eventual integration into a corporate structure.
Thomas Mensink, Venture Capital Founder and CEO at Golden Egg Check Capital, supports this view: “The best innovations come from startups, but with the nuance that the corporate context fits better from the moment operational excellence is required. The most logical route for innovation is for a startup to start at a certain point and then fit into a corporate context.”
By breaking down these silos, companies can create a more robust innovation ecosystem. They can leverage their various strengths to drive innovation more effectively than any single approach could achieve on its own and, in doing so, increase the likelihood that the whole “growth portfolio” contributes to the ambitions set out in the company strategy.
While the benefits of breaking down silos are clear, it’s important to acknowledge that this integration comes with its own set of challenges:
Cultural differences. Different teams may have developed their own cultures and ways of working. Bridging these differences requires patience, understanding, and a commitment to a shared vision.
Resistance to change. Established teams may resist changes to their operating models. Overcoming this resistance requires strong leadership and clear communication of the benefits of integration.
Complexity in decision-making. With more stakeholders involved, decision-making processes may become more complex and cumbersome. Establishing clear governance structures and decision-making frameworks is crucial to avoid paralysis.
The path to breaking down silos may be challenging, but the rewards – increased efficiency, better resource allocation, and more impactful innovations – make it a journey worth undertaking.
Breaking down silos between M&A, in-house innovation, and partnerships is not just a nice to have – it’s a necessity for companies that want to stay competitive in today’s fast-paced business environment. By fostering collaboration, aligning strategies, and creating a unified innovation ecosystem, companies can unlock their full innovation potential.
Ewout Bolhuis, Director of Deloitte Innovation and Deloitte Corporate Incubator, notes: “We used to innovate in splendid isolation, and employees even came over to our department for two years. Currently, we are mostly co-investors for a maximum of 50% together with the business units. So that also there is skin in the game. That is a successful model for us.”
The path to breaking down silos may be challenging, but the rewards – increased efficiency, better resource allocation, and more impactful innovations – make it a journey worth undertaking. As companies continue to navigate the complex landscape of innovation, those that successfully integrate their various innovation streams will be best positioned to thrive in the future.
In his third and final article on Innovation, Joep De Caluwé will cover the need for a strategic, fact-based approach, and bust the myths of flashy innovation.
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