Changes

Josh Lerner, the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, says companies have been too fickle in their commitment to new innovation initiatives. A historical lack of commitment in the corporate venture domain has made employees less likely to join a corporate venturing group they fund, entrepreneurs reluctant to accept their funds, independent venture funds hesitant to syndicate investments with these groups, and corporate funded start-ups find collaborations harder to arrange. In each case, the very real possibility that the rug will be pulled out from under the corporate venture initiative leads others to be reluctant to work alongside them.[https://hbr.org/product/the-architecture-of-innovation-the-economics-of-cr/an/10796-HBK-ENG Harvard Business Review]

A general problem for firms is figuring out how to offer appropriate rewards for those within research laboratories. Lerner says the key for finding these rewards is partially removing some of the stigma from the failure for corporate innovators. One of the reasons why failure is not an option in many corporate laboratories is that group leaders are loath to endanger continuing funding for their projects. A question which would reward both further research by economic theorists and real-world exploration is how to induce “truth telling” when evaluating high-risk innovative projects. Several examples exist of ways to address this problem, from venture groups who employ a “devil’s advocate” to make the case why a proposed investment should not be undertaken, to corporations who rely heavily on outside experts when making project funding decisions.[https://hbr.org/product/the-architecture-of-innovation-the-economics-of-cr/an/10796-HBK-ENG Harvard Business Review]

Far too often, the corporate world does a poor job of learning from the past: earlier initiatives, if unsuccessful, are forgotten about, and the key architects dismissed or exiled to the Kazakh subsidiary. The outcome is highly predictable: many firms seem destined to repeat the past, making the same mistakes in pursuing innovation again and again. An illustration is the experience of General Electric, which repeatedly began corporate venturing efforts, only to abandon the efforts after the venture teams left due to frustration over the disconnect between their broad responsibilities and modest compensation levels.[https://hbr.org/product/the-architecture-of-innovation-the-economics-of-cr/an/10796-HBK-ENG Harvard Business Review]

Despite the academic and real-world insights of recent years, many aspects of the innovation process remain poorly understood. Rather than sticking to one time-honored route of pursuing new ideas, exploring the impact of different organizational structures—whether internal skunk-works or formal corporate venturing initiatives—is likely to be a recipe for success.[https://hbr.org/product/the-architecture-of-innovation-the-economics-of-cr/an/10796-HBK-ENG Harvard Business Review]