Innovation is a hot topic in many companies nowadays. Within the last 12 months, our team has been working extensively around the domain of corporate innovation – setting up innovation labs, accelerating product development and solving scaling issues for several client companies. Based on our experiences, we have noticed that companies struggle with similar challenges in the corporate innovation area.
We decided to dig deeper. A few months ago, we launched a study on Emerging Business challenges and recently organized a Roundtable discussion for innovation decisionmakers to get to the bottom of the challenges. The Emerging Business Study covered Finnish business leaders from corporate strategy, digital transformation and emerging business areas with representation from the industrial engineering, logistics and supply chain, machinery, paper and forest products, construction, automotive and electrical and electronic manufacturing industries.
Sharing our observations and facilitating discussions around innovation with major Finnish companies verified our assumptions and shed light to some of the key innovation challenges these companies are currently tackling – and why these challenges are worth overtaking.
Finnish leaders assess the importance of emerging business to be 8/10
Importance of emerging business for Finnish companies, Emerging Business Study, BearingPoint 2019
Based on the Emerging Business Study these are the top 3 reasons why Finnish companies are innovating:
8 out of 10 companies in the study said that emerging business is playing an important role in their corporate strategy going forward. 69% of the companies are focusing their innovation efforts on extending current business models (horizon 2 activities in illustration below).
Percentage of Finnish companies focusing on each innovation horizon, Emerging Business Study, BearingPoint 2019
According to our study, Finnish companies’ have four key targets for the emerging business area:
Most of the involved companies have found innovation labs or dedicated accelerator units to be a good way to explore new technologies and business ideas. That being said, having a dedicated innovation unit is no guarantee for success. Many respondents say that while ideating, prototyping and launching first products from innovation labs is working well, scaling these new initiatives into profitable businesses is extremely challenging. At their core, start-ups and established companies, require completely different mindsets to flourish.
Biggest challenges in emerging business for Finnish companies, Emerging Business Study, BearingPoint 2019
Based on our experience and findings from the study, here are some of the challenges Finnish companies are struggling with:
1. Insufficient skills and capabilities
Companies are lacking in lean start-up experience, skills and competences. Starting from the required speed and agility through experience in business opportunity sizing, business modeling and user-centered design methods all the way to agile development and support structures, innovation is being slowed down by capability gaps in the companies. This means that minimum viable products are not pushed out to the market as fast as they should be.
2. Lack of resources
In many occasions, innovation labs revolve around a few dedicated “project facilitators” while actual project teams are gathered from different parts of the organization around an innovative idea. This approach puts a lot of pressure to the innovation process and tools, since the innovation teams might not have previous innovation or start-up experience – or perhaps even committed work time for the new project. This often is the root cause for several other challenges around innovation.
3. Missing result orientation
Innovation projects should be thought of as internal start-ups with a clear pressure to perform and demonstrate tangible results. Too often, this is not the case. Missing result orientation comes down to two main issues: urgency and motivation.
Established companies have different clock speeds, compensation structures and support structures than true start-ups. In the startup world, founders might have all or most of their savings invested in their business idea. They have their skin in the game, and 6 months or less time to prove themselves before they run out of money. The “endless” resources and steady monthly paycheck of a comfortable corporate innovation lab just do not provide the same sense of urgency.
Motivation and incentives, too, are lacking. If there is no up-side or compensation for the innovation team to live and breathe at the pulse of the start-up, why would a corporate employee go the extra mile? The saying “you get what you pay for” is quite valid here. If your KPIs and team compensation do not encourage and demand the emerging business to move forward and grow at the speed of a start-up, but rather another business unit, how can you expect remarkable results?4
4. Conflict of interest
One of the challenges that corporate innovators are facing is the conflict of interest, especially in the scaling phase of the innovation. Many times, emerging business is getting less resources and attention from the leadership due its insignificant contribution to the topline. Also, we have noticed that some of the companies have unrealistic expectations for new business outcomes. “100M€ revenue in 3 years” is a leadership expectation we have heard too many times – even before new business concepts have even been validated with customers.
5. Inability to scale new business
Innovation labs are great for creating ideas, boosting innovating and transforming your corporate culture to be savvier in the digital world. The challenge, though, is that most of the innovation labs are too separated from the core business of the company, operating in innovation vacuums that are incapable of scaling. It seems that while the early phases of innovation are in good hands, companies are lacking an end-to-end innovation process that takes the new businesses from idea to sufficient scale. The work here should be started by defining a clear innovation strategy and guiding framework linking innovation to financial milestones and KPIs at the corporate, project and individual levels. One also has to solve resourcing and skill gap issues to start-up-like rapid scaling.
At the end of the day, our experiences suggest that innovation labs are a great way to start your transformation journey, but in order to generate long lasting business results you will need much more than a lab!
Antti Maunula, Head of Digital & Strategy, BearingPoint Finland
Sami Loikala, Head of Customer Experience and Design, BearingPoint Finland
Emma Mieskonen, Consultant, BearingPoint Finland Digital & Strategy
Emerging Business Study, BearingPoint 2019