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Only 52 of the companies on the first Fortune 500 list have stayed there every year since 1955. According to research from Capgemini Consulting, since 2000 half of the companies to make the list have been acquired, gone bankrupt, or no longer exist.
Firms must innovate if they want to survive, but as history shows, that’s not as straightforward as it sounds.
“Companies need to make a strategic decision to innovate, and then be strategic about it,” said a senior lecturer with MIT Sloan’s Technological Innovation, Entrepreneurship, and Strategic Management group.
“That is not something you can just leave to your corporate research arm and hope that that’s going to lead to innovation,” Budden said. “It’s not something you can just leave to your M&A team, and it’s not something you can just leave to your corporate venture capital unit.”
Budden recently spoke at an MIT Industrial Liaison Program webinar on corporate innovation. He shared three mistakes companies make when trying to innovate and ways to avoid them.
1. Equating digital technologies with innovation
Budden has worked with a number of corporations and their leadership teams as a diplomatic adviser for the MIT Regional Entrepreneurship Acceleration Program, and as former British consul general to New England where he was responsible for business issues like trade and investment.
One of the biggest mistakes corporate leaders make is confusing innovation with technology, particularly digital technology, rather than starting first with the business problem they’re trying to solve.
“Innovation is facilitated by technology, but technology is just one part of the idea match between a problem and a solution,” Budden said. “The act of innovation is to work out in what way could technology solutions actually help with a real business problem.”
2. Trying for 10x innovation
Startups are designed for 10x innovation because they’re small, agile, and good at applying novel solutions to novel problems, Budden said.
For established companies, achieving 10 times over the original innovation rate is harder because they have legacy customers, legacy IT, and an existing business to consider. That means innovation is more likely to happen at a 10% scale for large corporations, and that’s OK, he said.
“If you can get a 10% innovation that leads to a 10% improvement in the cost of customer acquisition or net promoter scores or return on investment, that is meaningful in a large corporation,” Budden said. “The trick is to work out realistically what can be done in the corporate setting and don’t hope that you can do the sexy 10x ‘big I’ innovation that’s way out at the horizon.”
3. Ineffective external engagement
Another mistake corporate leaders make is thinking that just showing up to an innovation ecosystem will open the door to innovation and partnerships within that ecosystem.
To get the most out of an external partnership, corporate leaders need to think through what it is they’re strategically trying to achieve, Budden said, because “you don’t want to waste your own time and you certainly don’t want to waste the time of the startups.”
Once leaders have that strategic vision for innovation, they can turn their attention to who they want to meet and who can help them set up those meetings.
“Finding partners like MIT Corporate Relations who can actually broker the relationship with the right professors doing the right research, or the right startup that’s at the right stage that has a technology solution, is the best way to take things forward,” Budden said.
Read: 3 ways companies can continue to innovate amid global upheaval
