Should we innovate internally or buy innovations?
The business world is changing as fast as technological advances. When new players uberize the market with new business models, the leaders of our large companies have difficulty innovating so quickly.
One of the figures published in the survey carried out by E&Y «Dealing in a digital worldShows us that 67% of companies now prefer to buy technology companies to meet the challenges of this new economy.
This choice is explained by several elements:
A lack of confidence in one’s own business to meet the challenges
Our executive committees no longer have this confidence in their R&D teams. And it is somewhat logical, the operational directors were recruited for their quality and their ability to execute. To maintain the competitiveness and profitability of companies, they are required to produce more and more with ever less resources, which excludes a culture of risk or technological disruption.
Each large company also has its directors to set up the “major programs”. But the success rate of these programs / projects remains very low, so low that we dare not talk about it. The site Unanet.com announces that 90% of the projects do not have the expected success and that only 39% of the programs are really implemented. The same goes for the launch of new products. The cabinet Nielsen has shown through its various surveys and publications that 75% of new products do not stay on the market for a year due to lack of economic results. How is it possible to spend so much money on market research, design, industrialization, marketing campaigns and recruiting the best people and in the end fail.
With such feedback, it makes sense that the management committees of our companies are moving outward.
First axis: find good partners
Our companies have been working for decades through partnerships, alliances or joint ventures. But here too, when it comes to alliances close to production, distribution … everything goes well but as soon as we approach the development of a brand new product, the acquisition of a new market, the success rate drops again.
For research programs, cooperation with research centers must involve projects lasting 2 to 4 years, much too slow to respond to the rapid innovation cycles of competitors. In addition, internal procedures make projects quickly time-consuming incompatible with the agile mode of competitors.
Should we therefore buy innovation?
Even though, according to the E&Y publication, two-thirds of companies say they want to go through company acquisitions to set up their digital conversion, I am convinced that most companies are ill-prepared.
Already, before launching your purchases, you have to define the creation of a real digital transformation strategy. Unfortunately, there are very few innovation strategists who dare to recommend the difference. Most firms offer extensions to an existing offering or to expand the market. By taking very little risk, this attitude makes it possible to sign in the continuity of new missions. But their recommendations do not make a difference in a market where new competitors are always going faster. In addition, it must be noted that the new world that is disrupting our businesses is activated via ecosystems. How many experts in innovative ecosystems do we have in France?
It should be noted that our companies have excellent purchasing departments but they do not necessarily have this experience in the acquisition of innovative companies (including the famous start-ups). When the purchase goes through, onboarding is difficult and risks the same failure rate as internal programs.
To successfully purchase innovation, our companies must learn to:
Evaluate the cost of internal R&D vis-à-vis a purchase of the innovation.
Integrate new generation innovation consultants and masters in ecosystem design into the strategic board!
Getting started to know how to buy startups via internal buyers or via firms connected to innovation ecosystems. Without understanding the assessment process, the cost of integration and the long-term outlook, it is impossible to define the right price to pay. In addition, with an increasing number of buying companies, we risk creating a new dot-com bubble.
Even if all of its new solutions are supposedly “scalable” and “easily integrated”, there is still a very significant cost involved in industrializing the technology purchased. To ensure the required quality of execution, the solutions purchased must run at a much higher rate.
The very good publication of E&Y gives food for thought on how we should respond to the digital transformation of our companies. We must combine our internal capacities to develop new products / services and the establishment of purchasing services with innovation.
And we have to act quickly because our competitors have already started their digital transformation.
Combining engineering training at Insead, an entrepreneurial spirit and experiences in France and internationally, Erik Van Rompay is a leading expert on innovation in Europe.
With five years at Walt Disney Imagineering to his credit, he worked on the realization of several industrial projects for Ford Motors, Volvo, Daf Trucks and Rolls Royce, as well as the creation of 5 start-ups. This experience allowed him to master all the issues from the start-up to the large industrial group.