Lessons on why corporate innovation fails, and what you can do instead

Asia's innovation boom is real, and only continues to accelerate. 

An International Data Corporation (IDC) report predicts that 60% of the Asia Pacific (APAC) market leaders will implement digital innovation programs by 2027 to facilitate business growth and agility.

Further substantiating this trend is the Harvard Business Review which confirms that product and service innovation has emerged as the top priority for APAC businesses. Amidst a fast-evolving landscape, Asian companies are maximising innovation to ensure business resilience and global competitiveness. However, statistics reveal that up to 95% of new products fail.

While failure is part and parcel of innovation, the big question is what organisations can do to innovate smarter and boost their success rates. Here, we discuss the common pitfalls of corporate innovation, and how you can overcome challenges to achieve business transformation.
 

Pushing the boundaries with corporate innovation strategies

Today, innovation has become crucial for companies to outperform competitors and achieve sustainable growth, enhancing profitability and revenue generation. One way to do this is through corporate innovation programmes that create a dynamic culture to bring internal ideas to success. Here’s a look at various approaches adopted by organisations. 

Corporate innovation labs

Also called innovation centres or design labs, these spaces let companies brainstorm and test new ideas through collaboration with outside specialists and stakeholders. Companies may build innovation labs, employing a dedicated team of designers, scientists and strategists.

Several global companies have chosen to establish their labs in Singapore, including Bank Julius Baer's Launchpad, the Bank of China Innovation Lab, Dyson’s Singapore Technology Centre, and Novartis Biome Singapore.

Corporate venturing 

Corporate venturing enables many traditional companies to stay ahead of the curve by investing in, partnering with, acquiring, or creating start-ups, which offer products, or services beyond these established corporations’ current portfolios. According to the Economic Development Board (EDB) in Singapore, the global start-up economy has generated a value of over US$3 trillion, which large corporations can leverage, resulting in mutually beneficial partnerships. 

Established corporations like Toyota, Samsung, and Alibaba have recognised the value of collaborating with deep-tech start-ups to gain access to emerging technologies, prototypes, and business models. 

Investment value: Corporations are combing the globe for start-ups with core competencies they want to acquire. By providing venture capital funding to start-ups with high growth potential, corporations can gain equity in these companies. Global Corporate Venturing states that corporate-backed venture capital deals globally amounted to US$192 billion in 2022.

Average timeframe: Corporate venturing typically takes two years to complete. According to an IESE report, among the three stages of corporate venturing – identification, collaboration and integration of value into the parent company – the last stage typically eats up the most time, lasting as long as 16 months.

Key benefits: Companies with four or more companies in their portfolio double their chances of producing at least five times higher returns than other organisations, according to the EDB. Other benefits include gaining access to new markets, diversifying revenue sources, and building capabilities that let them stay relevant.

Corporate venture building

This is considered one of the fastest paths to innovation. Instead of working with an external organisation, companies use existing resources to build a start-up team around an idea for innovation. One example is Google, which built its internal software start-up Niantic in 2010. Five years later, Niantic gained independence, eventually conducting acquisitions and investments.

Investment value: Each business has unique financing needs. Tech start-ups, for instance, can rely on open-source and cloud-based tools that can bring down the cost. The range is vast, from a few thousand dollars to whatever you can afford.

Average timeframe: Depending on your resources, you can build your team in months. What takes longer is the testing of ideas, which will be on a test-and-learn basis.

Key benefits: Aside from avoiding corporate bureaucracy, this strategy ensures that every step aligns with the company’s goals. Because internal resources and connections support the innovation measures, the process becomes faster and more seamless.

Acquisition

Companies have gone beyond investing in start-ups to gain a competitive edge by extending the value chain and investing or acquiring them totally. Some opt to become minor shareholders to boost their knowledge; others make complete acquisitions to include the new asset’s core competencies in their daily operations. 

Singapore-based insurance tech company bolttech expanded its market presence and expertise by acquiring a majority stake in PT Axle Asia, an Indonesia-based risk management and insurance coverage firm. An example of a full acquisition is Southeast Asian property tech company PropertyGuru recently acquiring Sendhelper, a home service tech start-up. 

Investment value: Mergers and acquisitions (M&A) allow corporations to fast-track innovation by accessing new technologies. While M&A value in the Asia-Pacific fell to US$1 trillion in 2022, cross-border M&A deals in Asia are likely to increase in the coming months despite economic challenges, according to Bloomberg. 

Average timeframe: At least six months to several years. Regulatory approval takes longer for transatlantic deals because of the varying government laws.

Key benefits: Through M&A, companies can integrate emerging technologies into their R&D to create new products and services. M&A also fosters collaboration among companies to develop new ideas and expertise. 

Understanding different types of corporate innovation

To understand why corporate innovation fails, it's first crucial to distinguish between two types of innovation: 

1. Incremental innovation

Conservative players will have little trouble accepting incremental innovation, which has low risks and requires minimal investment. These innovations are predictable and can be easily scaled up through minor adjustments to existing processes and structures. 

Incremental innovation strategically focuses on enhancing existing processes and applications by introducing gradual improvements, resulting in a more seamless and user-friendly experience. By addressing specific pain points and offering tangible benefits, incremental innovation is often readily accepted and embraced by users. This approach allows companies to strengthen their competitive edge and optimise performance, ultimately contributing to overall growth and profitability in the long run.

2. Radical innovation

Zühlke's whitepaper on radical innovation reveals that over 90% of respondents believe pursuing radical innovation to be essential for future-proofing their businesses. However, this type of innovation involves high risk and significant investment, requiring fundamental changes to the current setup. 

In radical innovation, the horizon is much longer, involving about five or ten years of investment that requires long-term buy-in. You’re likely to see little results for ten years – yet you still need to continue believing in the cause and moving. 

The different nature of the two innovation categories requires a different set up, different activities and KPI as well as capabilities. For example, incremental innovation often entails a secure and predictable environment, set processes, and an emphasis on cost-efficiency. Meanwhile, radical innovation demands more flexibility and exploration, focusing on experimentation and gaining novel insights. 

One example of radical innovation is Grab, which transformed Southeast Asian public transportation with its on-demand ride-sharing services. Since then, it has expanded to become a superapp with offerings in food delivery, on-demand groceries, and even financial services like insurance. By evolving radically beyond its original value proposition of ride-hailing, Grab has effectively captured the Southeast Asian market.

During times of economic crisis, corporations may zero in on incremental innovation to optimise cost-efficiency and protect their finances. However, abandoning radical innovation sacrifices their competitive edge and long-term growth. Balancing both types of innovation is crucial in facilitating business success.

Why does corporate innovation fail?

Lack of clear customer focus

A lack of customer focus can result in innovations that sound good on paper but fail to meet actual customer needs. For technology executive and entrepreneur Scott Arpajian, this is a major reason why radical innovation fails. 

"Misunderstanding your market is one of the worst innovation failures your organisation can make,”he warns. “And you won't even realise you've failed until the product has gone to market."

How does this come about? There's a risk that innovation happens because someone in the organisation has an idea or hears of a problem – but the reality of the problem has not been validated. That’s why customer research is essential before we build products or solutions, in order to understand whether a problem is worth solving. 

Misaligned risk and strategy

Successful radical innovation strategies require a harmonious balance between effective risk management and strategic alignment. Organisations may struggle to identify and mitigate potential risks while still ensuring that innovative initiatives are well-integrated into their overall objectives and vision. 

The absence of a coordinated approach can lead to disjointed efforts, resulting in failure to realise the full potential of radical innovations.

Failure to involve all stakeholders 

The modern organisation typically operates in silos, impeding clear communication and learning between different departments. To enable radical innovation, it is essential to break down silos that hinder communication and learning between different departments. This way, all relevant stakeholders can bring in their expertise and tackle new, unsolved challenges. 

At Zühlke, we advocate for a borderless approach, enabling the free flow of ideas and information. Innovation has no borders – it cannot stop in one silo and not move to another. We need people across silos to have an end-to-end view and learn from each other.

Resistance to change 

Innovation is disruptive by definition, provoking resistance from those averse to risk and failure. But the more radical innovation is, the less it seems related to the existing business and the job that one is doing currently or that the organisation does currently – and thus, the more resistance to change it arouses. 

In a Harvard Business Review report, Futurist Diana Wu David emphasises the importance of foresight. "Most companies are built to put blinders on their people in order to focus on the task at hand and be as productive as possible. That leaves them open to enormous risks when disruption happens," she says. "If they have staff that can't imagine alternate futures and haven't spent time thinking about those, then they freeze." 

Fear of failure

Closely related to resistance to change is the fear of failure when one experiments with something new and untested. When you’re afraid to fail, you’re less likely to take risks and explore new ideas, limiting creativity. But in innovation building, failure can be a great teacher.

Blueprints for successful innovation

How can businesses learn to innovate more effectively? There’s no one-size-fits-all approach, but here are some pointers we’ve gathered from the work we do that can help to guide you in your innovation journey.

Get management buy-in and formulate a clear vision

Without a sponsor from the top, it will be a game of hit-and-miss. The innovation journey always starts with a clear vision with transparency in everything that follows–setting goals, creating value, measuring impact, and collecting feedback.

Form a winning team and give them the right tools 

It’s crucial to help everyone across silos understand the often complex process of innovation end-to-end, and make it clear how each team stands to benefit. 

“Flexible-enough structures in organisations can help to bridge silos and create open lines of communication and collaboration between teams.” says Noemi Rom, Head of Digital Consulting in Zühlke Asia. “One simple yet powerful approach is to speak a shared, inclusive language, with the goal of bringing people together and aligning their objectives.” 

By creating an environment where eager talents want to try out and explore new tools and methods, we create a safe space to learn collectively. The future belongs to businesses who are able to pivot fast. Failing fast and learning fast will be an essential capability for upcoming challenges. 

Invest in customer research

Customer focus and research are necessary if you want to produce effective innovations. You need to have a real problem you're trying to solve, and then you start ideating with customers in mind. That customer might be an internal stakeholder, a client, a buying centre, and so forth. 

Data is the bedrock of the research process, offering the foundation to pinpoint growth opportunities and create measurable goals. Being data-driven enables you to clarify your objectives, measure your innovation's value to customers, produce cutting-edge solutions, and track your success.

At Zühlke, we involve customer feedback at every relevant touchpoint and share this feedback with the management. In one company I worked with, we developed a pilot cohort and performed a series of feedback loops. Once we launched the project to a larger audience, we had already refined it with valuable insights from the test-and-learn experience of the pilot cohort. 

Encourage a mindset of continuous learning

Cultivating a growth mindset can help employees replace the fear of failure with a focus on constant learning and curiosity, allowing them to take calculated risks and embrace both successes and failures as opportunities for growth. Failure, after all, is an opportunity to grow. For instance, when you receive market responses after the launch of a new product, it’s crucial to integrate the feedback into your next launch for continuous improvement.

DBS Bank is one such company that embodies a passion for innovation. From launching Singapore's first ATM in the 1970s to becoming India's first mobile-only bank in 2016, the bank has been riding high on its successful digital initiatives. Harvard Business Publishing found it worthwhile to study the bank's “purpose-driven transformation” throughout the decades, from overhauling its systems to upskilling employees.

Separate radical innovation from daily operations

Radical innovation is often viewed as unrelated to day-to-day tasks and short-term goals, making it vulnerable to being sidelined when a budget or resource crunch hits. To safeguard long-term commitment to innovation, consider setting aside a separate budget and space to nurture ground-breaking ideas. 

Typically, companies achieve this by building a different entity, such as an innovation lab. Alternatively, you could work externally. As mentioned in my discussion of an internal innovation ecosystem, you could create a new entity with other partners in the ecosystem. This could be helpful in securing buy-in and commitment for the long term. 

Kickstart change with allies

Spark innovation in your organisation by enlisting a small group of open-minded employees to experiment with new ideas and serve as ambassadors of change. 

"This is a community-based kind of learning, where we let select employees go through the experience of new ways of looking at the world and experimenting with new tools and methodologies. Once they learn and grow, they will spread the word," Noemi explains. "So change becomes a movement coming from the bottom up with the blessing from the top" 

Another method of starting small is to carve out a sandbox, where employees can fail without fear of repercussions. "I think if we talk about innovation or trying out new things, permission to fail needs to be there. That's how you learn," says Noemi. Once you validate your idea, then you can transfer it to the business and scale it up."

In his book Digital Darwinism: Survival of the Fittest in the Age of Business Disruption, innovation leader Tom Goodwin writes: “The most successful companies today are the ones with the courage to challenge rules, who build themselves on different assumptions… but do so based on the next paradigm, not the last. It is companies who hope to survive by making small incremental changes that now lose out to the ones that bet big on radical innovation and change.”

Innovation: the spark behind success

In today's fast-changing business landscape, innovation is no longer a luxury – it holds the key to surviving and staying relevant. While the path to innovation can be challenging, businesses can avoid common mistakes and navigate it more effectively by being aware of potential pitfalls. By so doing, they can better position themselves to succeed in an uncertain future.

Keen to learn more about (radical) innovation and our proven approaches working on complex innovation projects with large corporations and start-ups? 

Contact Zühlke today.