For those of you based in the UK or generally interested in content from the BBC, you may have had a chance to watch the most recent episode from W1A, the hilarious new series about the ‘fictitious’ workings of the corporation. The part of the show from this week which stands out was when Will, the gormless, inarticulate ex-intern, comes up with a fresh, innovative idea for a new programme….which leaves his unrequited love interest at a loss for words. It’s a classic illustration of a phenomenon which we’ve probably all seen at first hand; the moment in a meeting when the least likely person comes up with the most innovative solution to the problem you’re trying to solve.
Also this week was the new edition of Peter Day’s regular programme World of Business, focused on innovation. In it, he spends time with Ben Kaufman, founder of Quirky, an invention company that provides the support, product development, design, marketing and sales platform for independent inventors with an extraordinary flow of new ideas which they have access to (4000 per week)!
Finally, an interview in the FT with Brent Saunders, CEO of Activis, about his and the pharmaceuticals sector’s extraordinary history in M&A. The comment below says a lot for what’s going on in terms of innovation in the sector.
“Actavis spends a much smaller proportion of its revenues on discovering new drugs compared with other big pharma groups, preferring instead to use its cash to buy or license medicines that are already clinically proven. Mr. Saunders ripostes that some of the most serious diseases, such as cancer, already have “hundreds of academic centres” and “thousands of venture capital-backed” companies doing discovery work.”
A number of years ago, I worked on an initiative with a large insurance company in Asia, focused on finding businesses who were regularly successful with change and innovation. As part of the process, I interviewed various senior figures from the technology sector…one of them was particularly interesting when discussing the failure to retain entrepreneurs from businesses that they’d bought. Their retention rates were diabolical, less than 50% within 6 months of the deal completing. The company had finally reached the conclusion that, rather than trying to integrate them, they’d house these individuals in a completely different building, solely with the purpose and task of networking with other ‘like minded’ individuals.
All of these examples point to a number of interesting conclusions:
- The skill set for innovation is one which may not naturally fit within a corporate environment. It’s been well documented that a key dimension to disruptive innovation is the willingness to learn through error. Making mistakes within large corporates is rarely career enhancing and taking personal risks generally is a low percentage game. Accommodating innovators is not easy…they are challenging, disruptive people who don’t necessarily fit into a collegiate / collaborative environment.
- Corporate structures within large businesses are an active block against innovation. The barriers to change are broad…inertia in the middle and an increasingly disengaged employee base. Additionally, a C suite which has a short to medium term timeframe of impact. CEO’s average tenure is now 4 years….initiatives which are truly disruptive may well span two CEOs on that basis. Cynically, why invest in an idea where I may not be the immediate beneficiary?!
- As per my blog last week, the cost of capital is currently less than the cost of innovation. It is cheaper and the outcome is more certain if you buy the innovation than if you try to develop it yourself.
As with all business cycles, the latter is going to change at some stage. Whether large corporates can respond to that is an interesting question and one which may have a bearing on success or failure.
- The power of persuasion – changing public perceptions of deals
- Transformation constipation – the new malady for corporates engaged in an orgy of transactions
Categories: cost of capital, Disruptive Innovation, Incremental innovation, Mergers & acquisitions, post acquisition integration, research and development
Tags: Activis, Brent Saunders, W1A
Ben. I think this is a great point. Creative talent requires a space to fail and test theories without the negativity that comes from more execution driven cultural mindsets. In my experience Banks are the worst at this simply because they have a culture that cannot accommodate learnings and failures, and I think this is ultimately what will make Banks diminish in the areas of Banking where innovation and creativity is most required. What Banks need to realise is that huge areas of their services do not need to be performed by Banks, and that these areas will shift sectors pretty rapidly unless they start to build this model. There was a great quote from the new CIO at Barclays recently – Banks have more data in their systems about how people live/spend than any other sector of the market – and yet the industry has show no ability at all to capitalise on this.
People also forget that at the heart of any creativity or innovation is a person’s ability to see a problem that exists. In my experience – the most creative people are the ones who are good at crystallising problems that need resolution. This takes a critical mindset – an ability to constantly challenge and assess the status quo. Again – many business environments do not like people who critique the environment – a sense that you are not loyal to the leadership, etc etc.
I would agree with the view that Innovation needs a separate environment away from the execution/gantt chart driven teams. In my mind this is often best aligned with strategy teams, as long as this teams are not just focused on building justification behind the latest acquisition or CEO’s agenda. We had a concept called a Greenhouse function many years ago at Chase Manhattan – looked at really cool innovative concepts. I seem to recall it was cut during a cost-cutting exercise – excess to requirement. Probably sums it up.
Glad to hear that it corresponds with your experience. Increasingly the challenge of working on an idea without a specific end in mind is becoming the remit of the special purpose vehicle. What’s interesting for me is when the alternative to a trade sale finally emerges…which no doubt it will…access to this route for innovation for the large corporates may also start to dry up…