Think about this. The Global Entrepreneurship Monitor Report (2016) indicates that twenty-two percent (22%) of people across sixty-four economies intend to start a business within the next three years. That includes everyone in your organisation. Instead of them leaving and setting up independently, this milieu of entrepreneurial talent can be given space to flourish through corporate incubation.
The term incubator conjures up images of a cozy, safe and secure environment for the young to flourish. As they grow, they leave this protective environment and step out into the world. We apply this concept to start-ups too. Since their introduction in the late 1950s, incubators have become synonymous with the innovation system; providing a supportive milieu for fledgling start-ups. In exploring new ways to innovate, organisations have adopted the concept, originally devised as a municipal stimulus measure, for internal gain. Now corporate incubators enable organisations to mirror the start-up community by sharing a dedicated innovative space for the commercialisation of ideas. This sits well with today’s workforce who favour work environments focused on creating something they value, in building connections, and a strong community.
An Internal Innovation Hub: The corporate incubator works as a dynamic, internal entrepreneurial ecosystem, supporting entrepreneurial talent through funding, mentoring, and a dedicated space to work. Through marrying the agility of a start-up with the resource and knowledge base of a larger organisation, innovative ideas are captured and transformed into commercial value. It is a win-win situation. Employees find a ready outlet for their entrepreneurial talent, whilst organisations tap into new sources of innovation and new product development. Through stimulating an agile, customer-focused environment, organisations gain quicker return on investment and quicker time to market.
A key to the success of this model is visible buy-in from senior management. This includes setting in place a means to celebrate and show case incubated projects through regular exhibitions and organisation-wide communications. From the organisation’s perspective it is important to consider the value derived from investing in a corporate incubator; but the odds are in their favour. A UK Nesta Report (2011) indicates that the survival rate of incubator firms is eighty-five percent (85%); a rate way above that for stand-alone start-ups. In determining the types of projects supported, senior management must be clear on the strategic mission of the corporate incubator. Advocates consider them a strategic investment that will guarantee the future sustainability of the company.
Further, senior management should consider the strategic fit between projects and the company’s core competencies. Whilst a radically unaligned idea may spread risk, a project that fits the core competences of the organisation will be less costly to implement and will provide a new means to exploit the firm’s existing resources and skills.
From an incubatee’s perspective, failure to thrive must be tolerated as a normal part of the start-up process. Many of the ventures will not pay off or will fail. Incubatees need autonomy from traditional organisational structures, politics and culture and the authority to call on resources and talent as and when needed. This includes access to an internal funding mechanism to resource the project’s proof of concept and commercialization.
Corporate Venturing or Corporate Incubation?
There are two broad types of corporate incubators, those that leverage internal innovation (inside-out) and those focused on accessing external innovation (outside -in).
The outside-in model integrates external knowledge and innovation from customers, researchers, and scientists. Notably the Gamechanger Programme of Shell searches for start-ups with innovatory and disruptive ideas in the energy space. IBM’s First of a Kind (FOAK) Programme enables IBM scientists to collaborate with early adopter clients to test new ideas and new technologies for key strategic markets.
The inside-out model brings internal talent together, leveraging their knowledge and expertise in new ways. Key actors include the idea creators and project champions themselves, internal mentors, technical and business experts. Making use of organizational talent provides a fresh reallocation of resources during down time or periods of slack in the business. Through an internal mentoring programme for instance, talent from expert fields such as marketing and sales are at hand to advise, and provide quick access to the organisation’s sophisticated marketing and communications system.
A Competitive Advantage for the Organisation: The benefits to the organisation are manifold. New sources of competitive advantage can be created, stretching the company’s reach in markets and disrupting industries.
13 good reasons why an organization should create a corporate incubator:
- Diversify portfolio of products/services
- Gain new sources of competitive advantage through innovation
- Attract and retain entrepreneurial talent
- Create a spirit and corporate culture of entrepreneurship
- Use vacant space and facilities
- Controlled investment opportunity
- Nurture and unleash internal entrepreneurial talent
- Leverage internal knowledge in new ways through mentoring, training, and networking with corporate incubatees
- Internal knowledge and technology transfer
- Reduce time-to-market for new product commercialization
- Extend strategic vision of the Organisation
- Accelerate business growth and development
- Spill-over effect across workforce.
From the incubatee’s perspective, the corporate incubator offers a structure and a space to collaborate on new projects of value to the organization. This structure provides interesting benefits to incubatees. They can behave entrepreneurially, without many of the financial or resourcing risks of early start-ups.
Today, more than ever, organisations are challenged to find structures that enable them to remain agile and leverage the full value of their available talent. In mirroring the start-up culture and behavior, corporate incubators provide a means to capture the way people want to work whilst simultaneously providing organisations with a new outlet for innovation.
What Companies Should Do to Foster Innovation: Companies can start investing in innovation by:
- Specialising on sectors or projects (Specialize on specific sectors or projects to ensure knowledge build-up and cross -fertilisation of ideas and talent)
- Setting up a reward system that values and celebrates innovatory endeavor
- Educating employees about the Company’s innovation ecosystem
- Highlighting the Company’s innovation projects regularly
- Encouraging internal mentoring of innovatory projects (Encourage employees at all levels to leverage their skills and expertise in new ways through internal mentoring of innovatory projects)
- Having a clear business model and timeline for projects
- Facilitating knowledge sharing across the Organisation and with key incubator partners
- Aligning innovation projects with the company’s strategic mission
- Exploring new outlets for innovation through the power of data analytics
A corporate incubator structure offers a real opportunity for organisations to reinvigorate their internal talent’s interest and engagement with the entrepreneurial world. By doing so, they create a spirit of enterprise, a zeitgeist of innovation, with plenty of new opportunities for value creation.
Clare Gately is PhD Associate Professor of Practice in Entrepreneurship & Co-Director of MSc. in Entrepreneurship at EDHEC Business School