And this is the problem with most Corporate Venture Capital funds. The theory is sound. Invest in external innovation, mix it with our internal resources and come out with disruptive products. Execution though is way harder.
For starters, most CVC only invest in products or services that enable or improve their core offerings
. There are two reasons for this. On the one hand, it makes strategic sense to invest in sustaining innovation. If the organization can get a slight edge and surpass their competitors
, they can rip hansom profits. The problem with this though is the speed of innovation. A decade ago a sustained innovation would give the organization a five or six years lead. Nowadays competitors will erode that lead in one and a half years tops.
Bose developed their first commercial Noise Canceling Headphones prototype in 1986. While Sennheiser, the German company, produced their own Noise Canceling Headphones two years later, Bose has maintained their lead in the space for a decade. Fast forward to 2018, and you have a comprehensive set of options ranging from Bose’s top line to Sony, Sennheiser or Audio-Technica.
Therefore, while sustaining innovations can help maintain an innovation lead, their impact is becoming increasingly reduced.
The second reason why organizations focus on improving their core is that of their corporate culture. Innovating beyond the corporate narrative is tough. Individuals will see new innovative options, but will always tend to apply the existing business models to these new ideas. It happened to Xerox PARC, HP, Microsoft, IBM and many others. It’s happening with Blockchain technology and Augmented Reality too.
Building disruptive innovation requires agility, open innovation, autonomy and alternative business models. Most CVC look for sustained innovation. They perceive the viability of the projects through their existing business model lens. Worst of all, most of these CVC aren’t entirely independent of the organization. The receiving political pressures to innovate and fast. If the investments don’t have a meaningful and immediate impact on the revenue line, they’ll be ditched.
Bose Corporation is doing many things right. They’re an innovative company at heart. They’ve recognized the need to move faster. To open their innovation to the outside employing startup acquisition and investment. They’re investing beyond their core
and trying new things. They’re testing the market through customer-centric approaches like crowdfunding projects
Their newest Augmented Reality (AR) platform is a bold move. They’re betting on a disruptive technology which gives them a higher chance to disrupt the market. They’re also betting on a change of model. They’re moving away from a transaction-based model to a platform one.