The Innovator´s Dilemma of Innovation Labs and Corporate Accelerators

1. Overcoming the Innovator’s Dilemma of Innovation Labs and Corporate Accelerators

2. Field Study: about 50 Labs and Corporate Accelerators Research: about 200 international Reports, Books und Studies Interviews: 10 Corporate Innovation Experts (September 15) Reach: over 85.000 Slideshare Views (January 17) Im Rahmen einer Masterarbeit an der Universität der Künste Berlin   in Kooperation mit der Universität St. Gallen.   Betreuung durch Prof. Dr. Dr. Schildhauer und Dr. Nancy Richter (HIIG.de) Manuel Funk © Honeypump GmbH

3. Why Innovation Labs and Accelerators fail? * © Honeypump GmbH *Don´t get me wrong: This is NOT an argumentation against Labs and Corporate Accelerators.  In contrary: We strongly belief, that corporations need protected environments for experimentation and radical innovation beyond R&D departments. Nevertheless many innovation centers do not fulfill expectations and we´ve been curious   to research the reasons behind this observation.

4. Thesis 1: Established companies underestimate the destructive power of Technology

5. Its harder than ever to stay on top In 10 years 40% of the Fortune 500 will no longer exist Olin School of Business at Washington University © Honeypump GmbH / Innosight

6. German (over-) Engineering: German companies are World Champions   in the field of Sustainable Innovation © Honeypump GmbH What is missing: Speed Startup-Culture Moonshot-Missions Disruptive Innovations

7. Report: Digital Vortex  How Digital Disruption is Redefining Industries Key insights from a survey of 941 business leaders around the world in 12 industries: „Digital disruption has the potential to overturn incumbents and reshape markets faster than perhaps any force in history.“ „Whatever can be digitized is digitized.“ Wirtschaftshochschule International Institute of Management Development (IMD) in Lausanne Quelle: Bradley et al, 2015 © Honeypump GmbH

8. Source: O’Connor 2006, Christensen / Raynor 2013 - Growth imperative - Disruptive attackers - Dependence on US technology platforms - Customer centricity - Acquiring qualified employees - Missing interfaces for cooperations - Exponential technological development - Complexity and accelerated innovation cycles Challenges for Established Companies © Honeypump GmbH

9. © Honeypump GmbH Challenges for Established Companies Exponential Technologies

10. System of Systems Product System Connected Product Product Quelle: Porter und Heppelmann 2014 Dissolving Industry Boundaries Challenges for Established Companies © Honeypump GmbH

11. Thesis 2: Corporate Response is often inadequate and action-oriented

12. Wait & See - Roughly 65% of german SMEs and 33% of international companies   build on „wait & see“ strategy - 62% of german companies have no comprehensive digital strategy Pioneers - Sofar only 15% of german companies are profiteers of digitalization - Above-average growth thanks to a commitment to innovation Source: TNS Infratest, 2015; Bradley et al, 2015; Deburba/Neurohr, 2015 Corporate Response to Digital Disruption © Honeypump GmbH

13. Thesis 3: Companies do not understand or consider the mechanisms of   The Innovator´s Dilemma

14. Foto: whalebonemag.com 1997

15. Successful, Established Companies are Prisoners of their Success. They can neither withdraw from their profitable core business nor are they able to assert themselves in small, emerging markets with uncertain prospects for success due to their processes and structures. The Innovator’s Dilemma Source: Christensen, 1997 © 2016 - Honeypump GmbH

16. 1. Companies Depend on Customers   and Investors for Resources The decisional routines of companies systematically reject ideas that customers do not want (yet). This results in a lack of resources or the rejection of any disruptive technologies. Source: Christensen, 1997 Clayton M. Christensen: 5 Principles of Disruptive Innovation © 2016 - Honeypump GmbH

17. 2. Growth Imperative Small markets don´t solve the growth needs of large companies. Strategy of waiting until the new markets are „large enough to be interesting“ leaves these future markets to small organizations. Clayton M. Christensen: 5 Principles of Disruptive Innovation Source: Christensen, 1997 © 2016 - Honeypump GmbH

18. 3. Markets That Don’t Exist Can’t Be Analyzed Established planning techniques fail when applied to disruptive technologies and therefore have to be replaced with explorative discovery-based planning. Clayton M. Christensen: 5 Principles of Disruptive Innovation Source: Christensen, 1997 © 2016 - Honeypump GmbH

19. 4. Values and Processes An organization´s capabilities define its disabilities. The very processes and values that constitute an organization´s capabilities in one context (sustainable technologies), define its disabilities in another context (disruptive technologies).     Processes and values are not flexible and very difficult to change. Clayton M. Christensen: 5 Principles of Disruptive Innovation Source: Christensen, 1997 © 2016 - Honeypump GmbH

20. 5. Over-Engineering In their efforts to stay ahead, many companies don´t realize the speed at which they are moving up-market, over satisfying the needs of their customers and creating a vacuum for disruptive technologies to enter the market. Clayton M. Christensen: 5 Principles of Disruptive Innovation Source: Christensen, 1997 © 2016 - Honeypump GmbH

21. Source: Christensen, 1997 Time ProductPerformance Progress due to sustaining technologies Disruptive Innovation Progress due to disruptive technologies Performance demanded at the high end of the market. Performance demanded at the low end of the market Over-engineering Vacuum © 2016 - Honeypump GmbH 5. Over-Engineering Creates Room for Disruptors Clayton M. Christensen: 5 Principles of Disruptive Innovation

23. Insufficient Differentiation: The Failure Framework: Why Good Management Can Lead to Failure Radical Innovation Radical innovations are significant Improvements and affect and/or change entire companies. A) New to the world features B) Significant (5-10x) improvement in known features C) Significant (30-50%) reduction in cost Disruptive Innovation Disruptive innovation first takes a foothold in new markets and, at first, often exhibits significant disadvantages compared to conventional products. They satisfy other customer needs and have their advantages in other, new criteria. High risks, low sales   and margins Sustainable Innovation Sustainable (incremental) innovations improve the performance of   of established products or services along the dimensions of performance that customers in major markets have historically valued. Source: Christensen, 1997; O’Connor 2006 © 2016 - Honeypump GmbH

24. Many disruptive innovations are first discovered in established companies and subsequently not utilized.   —> Active management decisions against disruptive innovations out of strategic considerations (risk, margins, cannibalization, etc.). This favors advanced development of existing products in existing markets and the associated high, predictable profit expectations. Disruptive Technologies Were First Developed within Established Firms The Failure Framework: Why Good Management Can Lead to Failure © 2016 - Honeypump GmbH

25. Clayton M. Christensen Overcoming the   Innovator’s Dilemma

26. Source: O’Connor 2006, Christensen / Raynor 2013 - First-Mover advantages are essential - Dealing with the unpredictable - Separate consideration: resources, processes, values - Dealing with performance oversupply - Creating independent organizations Overcoming the Innovator´s Dilemma © 2016 - Honeypump GmbH

28. Creating Independent Organizations Source: Christensen, 1997 Only independent organizational units can successfully develop disruptive innovations. Independent organizational units must be adapted to the size of the target market in order to (still) be able to quickly act in smaller markets, while the core business continues to handle large markets and the associated growth goals. Overcoming the Innovator´s Dilemma © 2016 - Honeypump GmbH

29. Levitz, 2013 Creating Independent Organizations Study: Only 9% of the researched established firms recover   from a disruptive attack. Out of these successful companies, all of them   have founded separate units to master disruptive technologies. No single company with an integrated approach was able to successfully fend off the disruptive attack. Overcoming the Innovator´s Dilemma © 2016 - Honeypump GmbH

30. Gilbert, Eyring, Foster, 2012 Dual Transformation / Ambidextrous Organization Overcoming the Innovator´s Dilemma Transformation A: Strategically re-positioning and adapting the core business to market requirements – what can we do better than our attackers? What do we need to give up? Why do our customers come to us? What is the true “need” associated with the brand? Transformation B: Building the future. Creating a separate business area that deals with innovations. Working according to startup methods, guidance on unexpected customer needs. © 2016 - Honeypump GmbH

31. Innovation Labs Corporate Accelerators

34. Why Should Companies Launch Innovation Centers? - Developing new products and services or proofs of concept - Designing new business models - Connecting with startups - Identifying potential partners and forging strategic relationships - Developing an innovation culture within the organization - Incubate and invest in startups - Understanding the digital customer - Evaluating and testing new technologies - Become a recognized part of innovation communities Source: Solis et al. 2015 © 2016 - Honeypump GmbH

38. Research Findings

39. - The Book and the definition of the Innovator’s Dilemma are well known to managers - They confirm the relevance of the Innovator’s Dilemma - They confirm the Influence on decisions in innovation management - Do not provide greater information on Christensen’s recommendations Innovator’s Dilemma Source: Primary data from expert interviews 2015 Research Findings © 2016 - Honeypump GmbH

40. - Pressure for change is deemed very significant - Self-critical assessment for preparing the company for changes - Many companies do not have an established digitalization strategy. Great Pressure to Change due to Digitalization Source: Primary data from expert interviews 2015 Research Findings © 2016 - Honeypump GmbH

41. - Open Innovation processes and collaborations are established in all companies - Insufficient differentiation of innovation types - Innovation Labs and Accelerators have central roles in managing innovation Innovation Management Source: Primary data from expert interviews 2015 Research Findings © 2016 - Honeypump GmbH

42. Research Findings Contradiction: - “Cultural Change” can only be implemented in an affiliated organization. - “Disruptive Innovation” can only be implemented in an independent organization. Goals of Corporate Innovation Center Source: Primary data from expert interviews 2015 , Scale of 1 (not important) to 10 (very important) © 2016 - Honeypump GmbH

43. Research Findings Implementing the Innovation Center partly contradicts the stated goals:  - No independent organizational units, mostly physical separation only - Significant potential for improvement in the area of Error Culture - Critical collaboration with existing customers - C-level support available at all companies Innovation Center Implementation Source: Primary data from expert interviews 2015 © 2016 - Honeypump GmbH

44. Research Findings Innovation Center Typology Source: Qwn research 2015 Based on the basic research, we defined 2 Innovation Center types. Both types have their authorization and can significantly contribute to improved innovative capability on the part of the companies. Research and field study shows mostly associated (type 1) innovation  center or a hybrids of both types. © 2016 - Honeypump GmbH

46. Research Findings Summary This Research confirms many of the central findings from theory and field studies. There are contradictions between theory and practice in the following aspects: ✘ The Innovation Centers’ operative Independence from the core companies is not implemented in accordance with Christensen. None of the researched Innovation Centers were an independent organization.   ✘ The definition of the established goals is not congruent in some areas with the Innovation Center’s positioning and implementation methods.   © 2016 - Honeypump GmbH

47. Do Innovation Labs and Accelerators Fail? In spite of the contradictions, most Innovation Center currently fulfill an important role in established firms’ innovation management, such as testing new processes and establishing collaborations and partnerships   (with startups, universities etc.). However, the researched Labs are not an exit from the Innovator’s Dilemma according to Christensen’s criteria. None of the researched companies have currently been able to implement a convincing strategy for developing disruptive innovations or produce specific results in the form of groundbreaking products or services. Research Findings © 2016 - Honeypump GmbH

48. Interpreting the Results Our research findings allow three different interpretations: 1. Currently associated Innovation Centers make up the foundation for additional, more consistent forms of autonomous Innovation Centers in accordance with Christensen.  2. Established Firms with their associated Innovation Centers knowingly go against Christensen’s advice and provide evidence that they are able to develop disruptive innovations with their programs - despite the aforementioned operative interdependence with the parent company.  3. Established firms knowingly focus on developing sustainable innovations and continue to leave development of disruptive approaches to startups and other technology driven companies. Research Findings © 2016 - Honeypump GmbH

49. Strategic Framework for Established Firms to Overcome the Innovator’s Dilemma: Triple Transformation

50. Triple Transformation The following three-step solution approach that we have developed   — inspired by the Dual Transformation Model – is based on the following findings: A. One-dimensional solution approaches are not able to satisfy highly complex and dynamic requirements. B. Creating an Innovation Ecosystem with clear roles and boundaries is a significant factor for success. C. The foundation for all activities is the definition of a radical Innovation Strategy. There are still significant shortcomings in most established firms with regard to this aspect. Strategic Framework for Established Companies to Overcome the Innovator’s Dilemma © 2016 - Honeypump GmbH

51. Established Firm / R&D Sustainable Innovation 1) Closed 1: Transformation of the Core Company Intrapreneurship - Strategic (re-)positioning - Purpose-definition (customer needs) - Cultural and organizational adjustment - Performance oversupply strategy - Adaptation and acceleration of existing innovation processes - Usage and promotion existing innovative potential inside the corporation via individual Intrapreneurship Programs   (e.g. Adobe Kickbox) Source: Qwn research 2015 © 2016 - Honeypump GmbH

52. Associated (Type 1) Corporate Accelerator Established Firm / R&D Partner Sustainable / Radical Innovation Associated (Type 1) Innovation Lab 2) Open 2: Associated Labs & Accelerators Intrapreneurship - Radical Opening of the innovation process   via Innovation Centers - Co-Innovation with partners, universities, competitors, startups, suppliers and customers - Exchanging knowledge, employees and resources with core companies - Establishing open / lean processes   and structures - Cultural Change: Error culture, unpredictability, exploration - Focusing on sustainable/radical innovation - Utilizing and marketing the results in the   core company Source: Qwn research 2015 © 2016 - Honeypump GmbH

53. Associated (Type 1) Corporate Accelerator Autonomous (Type 2) Innovation Center Established Firm / R&D Startups Partner Excubation Sustainable Innovation Disruptive Innovation Sustainable / Radical Innovation Associated (Type 1) Innovation Lab CEO 1) Closed 2) Open 3) Autonomous 3: Autonomous Innovation Center Intrapreneurship Source: Qwn research 2015 © 2016 - Honeypump GmbH

54. Autonomous (Type 2) Innovation Center Startups Excubation Disruptive Innovation 3) Autonomous 3: Autonomous Innovation Center - Standalone organization without any links to the core companies (except CEO) - Mission: Disruption of existing business model / Moonshot-Mission - Clear proposition for the market (MTP) - Defined long-term capitalization, no traditional business planning / reporting - No sharing of resources and employees, with core company, no visits - Individual values, processes, structures  (e.g. ExO, Lean Startup, Holacracy, Reinventing Organizations) - Development and marketing under standalone brands Source: Qwn research 2015 © 2016 - Honeypump GmbH

55. Associated (Type 1) Corporate Accelerator Autonomous (Type 2) Innovation Center Established Firm / R&D Startups Partner Excubation Sustainable Innovation Disruptive Innovation Sustainable / Radical Innovation Associated (Type 1) Innovation Lab CEO 1) Closed 2) Open 3) Autonomous Intrapreneurship Triple Transformation Modell © 2016 - Honeypump GmbH

56. © 2016 - Honeypump GmbH Manuel Funk Manuel Funk is Entrepreneur, Strategy Advisor and Futurist with over 20 years experience. His work is focused on Digital Strategy, Business Transformation, Data, Innovation & Future Management. Founder and Managing Partner of HONEYPUMP, Future & Innovation Think Tank. Founder of KNOWEAUX Applied Futures, adaptive Scenarios & Future Modelling Programs Founding Partner of katapult:NOW, a Network of Tech & Innovation Entrepreneurs About the Author Complete study and detailed sources on request. English Version: bit.ly/1oBpRhI We offer Consulting and strategic Advisory on Innovation, Labs, Accelerators, Intrapreneurship

58. FUTURE & INNOVATION Honeypump GmbH Straßburger Str. 55, 10405 Berlin www.honeypump.de Manuel Funk manuel@honeypump.de linkedin.com/in/manuelfunk @manuelfunk +49 172 4044495

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