Incubator or Respirator? Why you need to change the way you innovate. Now. By Cédric Vatier
One thousand of the world s largest public companies spent a whopping 650 billion dollars on research and development in 2014 alone. 1 An increase of over 6 percent per year over the last five years. But although according to Accenture research 63% of companies have a Chief Innovation Officer, 26% of companies still have no formal or no system at all in place to achieve innovation. 2 The problem? In a digital world, R&D is stuck in an analogue rut: siloed, focused on legacy products and services. And ill-equipped to step up to the challenge of digital disruption. Companies today need to adopt the capabilities of an incubator. Or end up on life support when it comes to competitiveness. Whether you call it research and development (R&D) or innovation, the approaches most companies use today to promote differentiation are obsolete. They exhibit all the earmarks of pre-digital business: R&D is siloed within a given industry and tends toward an inside out view of the world instead of one connected to cross-industry input. What s also lacking: a deep understanding of the universal customer experience. The prevailing mindset is, What can we do to get buyers to like what we already have by tweaking the offering? Instead of, What can we do to disrupt to give them what they don t know they want? Creating groundbreaking business opportunity requires new skills and ways of working together that most traditional companies simply don t have. Consider that 40 percent of the 50 most innovative companies in 2014 have been in existence for a decade or less. 3 Unfettered by traditional practices, these agile players are able to innovate and prosper at staggering speed, making it difficult for incumbents to compete. What can big traditional companies do to breathe new life into business? Borrow a page from their smaller, more agile counterparts and gain the ability to accelerate innovation. Create an outside in culture that embraces transformation. Through incubator capabilities that zero in on disruptive plays. And are run as a service, supporting the most promising opportunities to kick-start innovation and boost competitive advantage in an increasingly frenetic marketplace. 2
Mapping new possibilities In the days before digital really took off (think back a handful of years before cloud and the Internet of Things became ubiquitous), differentiation efforts were focused on tweaking existing products and services. Perfecting them and launching new generations of products and services. Today, competing requires fundamentally changing the old school methods. Behaving like a startup. How does that look? Take Michelin. A company that has a history dating back to 1889. The tire manufacturer has a so-called Incubator Program Office to deliver new ideas in the mobility space, new business models, new ways of working and new processes for bringing innovative products into the market in a very profitable, sustainable manner. 4 Michelin has identified several domains as emerging ecosystems and is determining how to capitalize on those domains, such as Flexible composites, which encompasses everything about rubber, rubber composites and technology Connected mobility, which includes everything from intelligent tires to fully autonomous cars Incubator-as-a-service vs Incubator - a definition An Incubator is a specific standalone entity (department, subsidiary), in charge of launching new businesses with an open approach involving a broad ecosystem: start-ups, universities. Its primary focus is to develop partnerships and perform acquisitions of start-ups. Incubator-as-aservice involves creating an internal capability that nurtures new businesses across the entire organization including all functions, business units, etc. This capability is developed, deployed and maintained by a small group of people (a maximum of 10), whose objectives are not to launch new businesses and acquire start-ups, but rather to team with functions and projects and accelerate their ability to innovate. 3
Tap into innovation As the Michelin example shows, large companies are starting to get closer to new sources of innovation. Shifting from traditional static R&D models to incubator capabilities and gaining the innovation muscle of a start-up. According to Accenture research, 60 percent of executives surveyed are planning to collaborate with new digital partners within their respective industries over the next two years. 5 What does that require? Opening up to a new ecosystem of start-ups, customers, think tanks, suppliers and even competitors to create marketplace differentiation. Because one of the key roles of the incubator-as-a-service is to bring an external vision of the entire market new and traditional players alike. It s something Coca-Cola has learned through its accelerator program. The program s aim: to move beyond investment with start-ups and co-design, collaborate and build next wave products and offerings with them. It s a win-win: the beverage company gains from the start-ups innovation. The start-up gains major scale ability. 6 Getting start-(up)ed One advantage of start-ups is they re not encumbered by legacy processes, systems and mindsets. They can pivot quickly to respond to new opportunities and are by nature more adaptive to the frenzy of digital development. For incumbents, not so much. There are a number of hurdles significant ones that need to be tackled in order to develop new business incubation and to bring incubator-as-a-service discipline within a company. Align your business strategy and your incubator strategy. Incubation needs to be focused to avoid getting pulled in too many directions. And that focus should be seen through the lens of the larger goals of the overall business. Why? Because the degree of freedom is significantly wider for an incubator-as-a-service over a traditional R&D or innovation function. That s why it s essential to define priority domains: New product development? Connected Solutions? Mobility services? Digital services? Companies need to choose a handful of (no more than five) areas. And then pair the incubator-as-a-service to these strategically important projects. Position incubator-as-a-service at the proper level within the organization. The service needs to have a direct report into a company s innovation board structure. Getting this type of visibility and the right weight will ensure that efforts have organizational teeth. And can make headway. Ensuring the right level of engagement infuses confidence in the incubator-as-a-service as an agent for innovation. It can unite the company energizing all functions about the idea of generating new opportunities. 4
Adapt new capabilities to manage innovation. In pre-digital days, R&D would be given a defined budget, say 100 million dollars, to develop new products. A couple of years would pass and the result on the bottom line would become apparent. In the age of digital, companies who win can cycle through ideas quickly. Refine them. And kill ideas that don t catch on. This indicates a whole new suite of capabilities to support innovation and new skills sets including prototyping, financial management of innovation, connections to the outside world, analytics and big data capabilities. Develop the ecosystem with the right partners. With the necessary internal processes and approaches in place, companies will have the foundation for effectively collaborating with universities, other start-ups and third parties that complement and supplement holes in capabilities. One example: Automotive OEMs need to acquire competence in telecom, software and analytics to tackle the future challenge of the connected car. It s something Renault did when it teamed up with Paris Incubateurs. 7 By collaborating with Paris Incubateurs, Renault has access to a host of start-ups that will help them design innovative services, applications and technologies. Incubate the culture. Gaining the ability to have an incubatoras-a-service requires changing the culture of an organization. Ensuring that from the corner office to the factory floor, everyone in the company understands the change from traditional innovation to a much more responsive innovation ability. For most companies, getting the culture right will be the hardest of all the steps. Why? Because they ll approach incubator-as-a-service in a traditional style keeping it siloed. And cut out of the DNA of the overall organization. Why many companies are failing? Although companies have varying degrees of awareness of what they can do to develop incubator capabilities, many traditional ones are failing in this new world of innovation. Take lodging for example. The industry was caught unaware as seismic shifts from startups like Airbnb rattled the foundation of the business. And were slow to catch on to online travel aggregators and distributors. One root cause: underestimating the magnitude of change that must take hold through the entire organization. Incubatoras-a-service is not just about launching a new activity, a new process, or a new department within the company. It entails bringing new discipline, a new DNA and a new mindset and infusing them throughout the company. A breath of fresh innovation Typical innovation cycles pre-digital used to range up to seven years. Now those cycles are down to a number of months. Getting the necessary bench strength for innovation requires changing the DNA within a company, starting with innovation. Incubator-as-aservice strengthens a company s ability to identify new, disruptive plays that lead to growth and innovation. And creates unassailable business agility a necessity in the age of digital. 5
Contact the Author Cedric Vatier cedric.vatier@accenture.com Join the conversation @AccentureStrat References 1 Accenture Analysis based on Bloomberg & Capital IQ Data 2 Accenture Innovation Survey, 2015 3 Fast Company s ranking, Accenture Analysis 4 Don Detore, Michelin s incubator program expands business, Rubber & Plastics News, www.rubbernews.com May 2015 5 Accenture Technology Vision 2015 6 Coca Cola, David Butler: From Startup to Scaleup: The Next Wave of Innovation, www.coca-colacompany.com, August 2013 7 A second batch of start-ups at the Mobilité Connectée incubator, www.sustainablemobility.org, July 2013 About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 336,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become highperformance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com. About Accenture Strategy Accenture Strategy operates at the intersection of business and technology. We bring together our capabilities in business, technology, operations and function strategy to help our clients envision and execute industry-specific strategies that support enterprise wide transformation. Our focus on issues related to digital disruption, competitiveness, global operating models, talent and leadership help drive both efficiencies and growth. For more information, follow @AccentureStrat or visit www.accenture.com/strategy. Copyright 2015 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by Accenture and is not intended to represent or imply the existence of an association between Accenture and the lawful owners of such trademark. 6