The corporate world is at the forefront of the tech-led transformation of the economy. The democratization of technology, whereby exponential cost reductions have allowed almost anyone to produce tech-based innovations, is disrupting core sectors of the economy.
Technology disruption is not confined anymore to the digital world. Data analytics, artificial intelligence, 3-D printing, robotics, sensorization, and an ever-evolving list of technology platforms have blurred the boundaries that once-protected physical ("brick and mortar") sectors, such as the hospitality, automobile, construction and manufacturing sectors.
Business as usual has not served companies in these sectors well. Traditional innovation models to create products and services do not match the pace and agility of competitive disruption from tech actors (e.g., large technology platforms with unbeatable access to data access and capital, such as Google or Amazon, and small and agile local startups). Thus, a new corporate innovation model, “Corporate Innovation 2.0,” is emerging.
The main characteristic of this new model is that it’s open by nature, as opposed to having a closed R&D process. Established companies tend to offer good structures for marketing, distribution, processes, scaling up products, etc., but, compared to start-ups, they often have a weakness in generating and rapidly applying creativity to develop new products and services.
Using open innovation techniques, corporations are trying to address this weakness by absorbing start-up innovation. We have seen three main types of mechanisms in this emerging model: corporate accelerators, competitions to generate new ideas, and co-creation with startups of new products and services.
Corporate accelerators. This approach consists of creating corporate accelerators in areas linked to the corporation’s market. The goal is to link with new business ideas and ultimately invest or absorb these ventures as they grow. This is the approach followed by Telefonica with Wayra accelerator and Barclays Bank with its program of fintech accelerators. Softbank in Japan has taken this approach further, operating as one of the largest VC fund in new technology ventures. Another example is the Merck Health Accelerator focused on digital start-ups in health care. So far, this approach has not proven successful in terms of absorption of new innovations by companies.
Competitions to generate new products and services. Corporations apply this mechanism to generate business ideas for new products and services. The result of these competitions tends to be a minimum viable prototype from the startup, which is then acquired by the corporation. As in the previous case, the challenge is absorption of the product and, more broadly, the absorption and sustainability of the process itself by the corporation. These competitions have been managed directly by corporations and increasingly by accelerators and other intermediaries that can gain access to a global reach of innovative start-ups to participate in these challenges. An example of such a program is BBVA’s annual Open Talent competition. Startup500 or Nest are examples of intermediaries running these programs.
Co-creation of new products and services. This approach takes the competition process a step further and increases significantly the possibility of innovation absorption by the corporation. Innovative ideas are sourced from startups through challenges. Once a short list of these ideas is selected, startups work with the corporation’s development team to jointly co-create a new product or service. This co-creation process is essential, as it allows for a direct absorption of the new product or service by the corporation (which is developed within the internal corporate processes) while also informing changes in the processes, culture and incentives of the corporate innovation process. This approach is not as common as the previous two, and it is far more challenging to implement. However, if applied consistently (and not as a one-off), it provides a better chance of transforming the corporation’s innovation process to compete in the new all-tech world.
For the past three years, our team at the World Bank Group has been working on the application of this third approach across geographies in several sectors, including banking, fashion and agribusiness. We have found promising results in large organizations based on initial evidence. In essence, this approach serves as a catalyst for internal transformation; it helps adapt business processes, culture and incentives; and it operates like the newly emerged tech competitors. When the corporate leadership understands this process and when the implementing teams embrace it, it can produce the needed transformation.
However, that’s not always the case. It is not an easy process to implement, and its sustainability and absorption by the corporation depends on human factors, because it results in behavioral and organizational change from the corporate side. Resistance to change from the middle-management layer may block this approach for expanding results beyond a one-off from the competitions described above.
Through the World Bank Agritech pilot project, we are testing the co-creation model in Kenya. Building on the lessons learned, the pilot project will inform a new lending operation aiming to increase productivity and innovation among Kenyan firms.