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Incubator Nation: The Rise of Immersive Collaborative Innovation

Doug Collins - Tuesday, February 10, 2015

As a consultant I have the pleasure of working with a wide swath of people across a wide swath of industries as they pursue the practice of collaborative innovation.

The front row seat to emerging, dominating, and fading trends in innovation management is mine. I enjoy the view.

Of late, I have observed amongst the enterprise clients an emerging trend that appears to be moving to dominance: externally focused incubation.

By externally focused incubation, I mean the practice by which the enterprise partners with a third party in order to co-locate their employees in a space where they can collaborate with people not directly tied to the enterprise—members of start-ups, often—who are pursuing ideas in allied fields: an immersive, in-person experience for all involved. Figure 1 shows externally focused innovation in the context of the collaborative innovation blueprint.

Figure 1: externally focused innovation in context of collaborative innovation blueprint

The third parties may include for-profit firms, university-sponsored consortia, and community-led associations. Each has its own vision and mission to fulfill in sponsoring these spaces. Figure 2, from left to right, shows the progression from the most closed, internally focused forms of engagement to the most open, externally focused forms.

Figure 2: spectrum of idea discovery spaces

Essentially with each, the enterprise in some form pays for the right for their people to participate in the incubator. To date, I have observed straight cash payments to the incubator, payments to the people working at the incubator (i.e., the people serve as de facto project consultants to the enterprise participants within the incubator), and agreements where both parties pledge to share the financial benefits of innovations they conceive together (e.g., royalties tied to licensing agreements).

The payment scheme serves as an important, tangible reflection of the incubator’s mission. Licensing agreements, which appear to be more common when university consortia serve as sponsors, signal deeper commitment, for example.

The following figure is my (early) attempt to segment the various permutations of incubator that I have seen to date (figure 3).

Figure 3: paying for externally focused incubation

What Drives Demand?

What drives what I, from my front row seat, observe to be a growing demand for externally focused incubation?

To answer this question, I turn again to the collaborative innovation blueprint, as depicted in full most recently in the Dirty Maple Flooring Company story (figure 4).

Figure 4: blueprint for collaborative innovation

From the blueprint we know that the enterprise first decides its intent on the front end of innovation (1): What question, were we to pursue it together, might lead to authentic breakthroughs?

The sponsors within the enterprise convene a community around the inquiry (2): the crowd.

During the ideation process (3), the sponsors identify the most promising ideas by horizon (4). Which ideas further the core business? Which ideas advance the emerging business the enterprise is pursuing? Which ideas represent new ventures to pursue as inquiries?

I believe that it is at this point in the ideation process—resolution—where externally focused innovation in the form of incubation delivers real value.

I observe that many enterprises are run in such a way that the principals—by design—have no free space in which to experiment. Funds that might otherwise be available for innovation are being diverted to short-term boosts such as share buybacks, which have reached a historical high.

At the same time, the enterprise must innovate to survive. Otherwise, the treasury shares, recently bought back by the enterprise, lose value. Witness Kodak. Witness McDonalds. Witness Radio Shack.

Witness every company clinging to their spot in the S&P 500.

What do to?

The Benefits of Externally Focused Incubation

The incubator offers two benefits. First, the incubator offers a relief valve by which the enterprise can pursue ideas viewed as promising, yet, for whatever reason, cannot be capably pursued within the four walls of the organization. The path from incubator to new venture, within the context of the third horizon, seems clearer and cleaner.

Reasons tend to boil down to resource constraints and the learning curve tied to grasping a full appreciation of the idea within what is perceived to be a reasonable period of time. Likewise, the ideas themselves may threaten the core business, in which case we observe a dynamic akin to that depicted by Goya in his painting Saturn Eating His Son.

Second, and on the plus side of the equation, the incubator adds value by offering the enterprise a fresh and, in some cases, more astute pair of eyes onto the true nature of the potential that the idea might hold.

Of late, for example, I observe my clients wrestling with the implications of Big Data.

What is Big Data?

If Big Data is the answer, what is the question?

Should I have a point of view on Big Data?

As a result, I find that a number of incubators, for their part, have pursued the two-pronged approach of attracting start-ups focused on exploiting Big Data and enterprises interested in exploring the same for their organizations.

Parting Thoughts—and Get to Know the NBIA

Ronald Coase said something to the effect that the enterprise, as a going concern, makes sense when it is able to lower the transactional cost of delivering value to the market, below that which individual actors could match, were they to sign the requisite number of enabling agreements to deliver same.

The Digital Age seems to be having the effect of lowering these transactional costs and, at the same time, increasing the level of overall competition, to the point where enterprises wrestle with being able to “move the needle,” wholly under their own power.

In other words, the external, macro pressures brought on by the Digital Age are beginning to cause once core functions such as R&D to “seep” outside the increasingly permeable walls of the enterprise—if not by choice, then by necessity. Von Hippel’s outlook becomes reality.

Enter the incubator as the seemingly “safe” relief valve: room to move, but by invitation, only.

For my part I will be very interested in seeing the extent to which the incubator, as an increasingly popular means of engagement and as a going concern in its own right, foretells what some have forecast as the return to a guild-based economy, consisting of much smaller firms tied by loose association to allied firms.

My sense today is that Coase’s rationale for firm creation and firm size still makes sense. The Digital Age, however, has reset the bar, causing the enterprise to have to adjust on the fly. The incubator comes along at the right time as a means for the enterprise to experiment with new ways of organizing, before the pressures of the Digital Age force its hand to do so, entirely.

Enter the Incubation Nation, at least for now.

Your thoughts? What does the rise of the incubator mean to you?

A handy resource on this topic: the National Business Incubation Association (NBIA). They hold their next conference this April in Denver. 

Comments
Michael Docherty commented on 13-Feb-2015 09:04 AM
Great post and insights Doug. Also very consistent with my view of the emerging trend of corporations co-creating with startups. In my book Collective Disruption, I present 3 models being employed by leading edge corporates. Inside-out is the model you are describing. Outside-in models of embedding entrepreneurs or even startups is another alternative. Finally Inside-in covers the corporate incubators and new business creation units being employed. Each has their advantages and their fit.

You're laying out some very interesting insights about the trend. Thanks!
Doug Collins commented on 21-Feb-2015 04:03 PM
Michael,

I value both the kind words and the insight.

Regards,
Doug

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