The Key To Combating Disruption? Relationship-Based Innovation

In today’s business world, disruption is a dominant part of the conversation. Corporations have begun to prioritize innovation to ignite growth and keep pace with a constantly shifting landscape. But acknowledging the importance of disruption is still relatively new. Even just 10 years ago, nobody could’ve predicted the magnitude of change to come.

For example, who knew that an online retailer would have a market capitalization twice that of Wal-Mart’s? Who knew that the largest hotelier in the world wouldn’t be either Marriott or Hilton, but rather Airbnb? And who could’ve predicted that the market value of a leading U.S. car manufacturer would be surpassed by an electric vehicle company with one-tenth the U.S. car sales?

Disruptive innovations are only going to continue uprooting and altering existing products, markets and entire industries. As disruption becomes more and more commonplace, the pressure to develop innovative technologies will continue to plague businesses, especially if their core business isn’t technology based. But this mindset is exactly what’s holding them back from success, because, technology isn’t at the heart of innovation – relationships are.

Leveraging Your Team Dynamics To Combat Disruption

As former leaders in the U.S. military, we experienced enemy disruption first-hand on the battlefield. We quickly discovered that while sophisticated technologies, tools and weapons were valuable resources, they weren’t what made our units truly successful. It was the trust within our unit and the relationships we built with our partners and allies that helped strengthen our forces.

Using strong, authentic relationships to combat disruption also applies within the context of business. Deep connections with shareholders, employees, suppliers and customers help drive value creation more than almost anything else. Unfortunately, misplaced faith in technology often clouds the importance of these relationships.

But if technology isn’t necessary for disruption, why is the belief that it is so widely held? When businesses are dealing with complex challenges and witnessing the nonstop pace of technological advancement, they start to feel like they have to stay at the forefront of technological change by expending corporate resources or else become obsolete.

But as technology development starts to devour these corporate resources, it can threaten and distract from a company’s core profit-driving initiatives. If a non-tech company uses technology as a replacement for relationships with customers, investors and employees, they’ll quickly find themselves off track.

Are Corporate Venture Programs A Viable Response To Disruption?

Companies are well aware of the threat of disruption. This is reflected by the meteoric rise of corporate venture funding. According to Forbes, the number of global active corporate investors tripled in number from 2011 to 2016. Unfortunately, without first focusing on the corporate constituents, it’s impossible to predict the ultimate impact of a new technology on a business, making most technology efforts merely speculative.

Despite having in-depth industry knowledge and rigorous technology selection and investment processes, technology companies still have trouble identifying technology winners and losers, as evidenced by the following examples:

• In 2015, Google’s “other bets” section, which includes Google Ventures, experienced an operating loss of approximately $3.5 billion.
• The tech incubator, Y-Combinator, experiences a failure rate of around 90% among its invested tech companies, despite having a highly selective 3-5% acceptance rate.
• In 2017, Tilt sold to Airbnb for $12 million after achieving a 2015 valuation of $375 million, experiencing a valuation decrease of 97%.

It’s relatively normal to expect huge losses in youthful tech environments, where technology innovation is used to reinforce brand and underlying value, regardless of outcome. However, in non-technology companies, the investment focus must be aligned with the needs of corporate constituents – not the latest technology trends.

When properly structured and focused, corporate venture programs (CVPs) can take risk out of the equation. The first step is to construct a CVP’s innovation infrastructure to open the pathways for communication and collaboration.

Innovation Infrastructure Is The Roadmap To Success

The complexities of disruption require CVPs to leverage all available corporate resources to inform strategy and decision-making. With the proper innovation infrastructure, a CVP is empowered with insights and information from all necessary corporate constituents.

At the most basic level, a CVP’s innovation infrastructure must consist of four elements: a joint operating cohort (JOCC), a venture capital accelerator, an innovation lab and a corporate venture capital fund.

1 Joint Operating Company Cohort (JOCC)

The first element of the right innovation infrastructure is known as the JOCC. This is a group of key executives and managers that come together to share pain points, best practices and opportunities.

Members of the JOCC should:

• Have broad perspectives on the strengths, weaknesses, challenges and opportunities of the operating companies they represent
• Be comfortable challenging the status quo
• Consistently consider innovation as a solution to each problem presented

Although sometimes geographically dispersed and operationally decentralized, the numerous perspectives of the JOCC members form a mosaic-like picture that can be used to better understand and allocate resources.

2. The Venture Capital Accelerator

The venture capital (VC) accelerator facilitates all venture efforts. From expediting execution of initiatives to developing and maintaining key relationships with internal constituents, the VC accelerator’s primary role is to foster agility within the innovation infrastructure.

The VC accelerator team is comprised of a small number of diversely trained individuals who can:

• Fully understand business operations and their impact on corporate constituents
• Intake and process large amounts of information, and then quickly and efficiently report this information to corporate leaders
• Rapidly respond to the dynamic challenges facing corporate leaders

Each team member of the VC accelerator must be well-versed in the corporation, its constituents and the venture community in order to achieve success.

3. Innovation Lab

The innovation lab is where researchers and technology professionals collide. The collaboration between these two groups is centered on exploring new technology possibilities and translating technological complexities into actionable insights.

Like the JOCC, it’s critical for members of the innovation lab to come from a variety of backgrounds. This diversity allows blending of each member’s disparate knowledge, creating a more fully formed and multi-perspective picture. This picture ultimately allows the innovation lab to better understand the impact of these solutions on constituent interests.

Every corporation’s innovation lab should have these four features:

• A direct line to a senior executive sponsor
• Geographic dispersion and autonomy
• Co-location with technology/innovation community
• Frequent internal constituent contact to help information flow into and out of the lab

4. Venture Capital Funds

Successful venture capital funds need two important elements:

• The ability to rapidly identify valuable entrepreneurial companies and teams
• The ability to quickly take sensible equity positions for fair prices

If corporations aren’t willing to commit the resources necessary, they won’t be able to build and maintain the necessary innovation infrastructure. The VC’s purpose is ultimately to serve its constituents and enhance the corporation’s innovation mechanics.

Innovation Can Only Succeed On A Bedrock Of Strong Relationships

Today’s corporate leaders are focused on avoiding disruption. In response, they’ve started allocating time, energy, and funds into corporate venture programs. Unfortunately, many of these programs are centered on technology-based investment strategies.

While a corporation’s venture efforts can use technology as a tool, the core focus of a corporate venture strategy should be to maintain and develop a more fundamental business asset – relationships. This requires the right innovation infrastructure that allows regular enterprise communication and strong relationships with corporate constituents.

It’s these relationships that are fundamental to identifying and understanding the various needs and capabilities across a corporation. And it’s these relationships that will ultimately deter disruption and ensure long-term organizational success.