Why Large Organisations Struggle to Innovate
The innovator’s dilemma that Clayton Christensen identified most clearly explains the structural reason that large, successful companies systematically fail to develop the disruptive innovations that eventually displace them: the incentive structures, the resource allocation processes, and the customer orientation of the successful incumbent are all optimised for serving the existing customers better with the existing business model — and the disruptive innovation that eventually displaces the incumbent begins by serving customers and use cases that the incumbent’s existing model ignores or serves poorly.
The corporate innovation failure pattern that most consistently produces the innovation investment without the commercial outcome: the innovation theatre that performs the activities of innovation — the hackathons, the innovation labs, the design thinking workshops — without the structural changes to resource allocation, risk tolerance, and incentive design that genuine innovation requires. The large company that launches an innovation centre and then measures it against the financial returns that the core business generates has created the innovation programme that is structurally certain to produce prototypes rather than the new businesses that genuine innovation generates.
Structures That Enable Corporate Innovation
The corporate innovation structure that most effectively separates the innovation investment from the core business pressures that systematically defund and deprioritise it: the corporate venture approach that invests the innovation capital into genuinely separate entities — the internal venture, the corporate venture fund investment, or the incubated startup — that are governed, measured, and resourced according to venture investment principles rather than the core business’s financial management principles.
The ambidextrous organisation structure — the simultaneous management of the exploit (optimisation of the existing business) and the explore (development of genuinely new business opportunities) — that most effectively addresses the innovation challenge for companies that want to maintain both the performance of the core business and the innovation capability that the next business requires.
The Innovation Portfolio Approach
The corporate innovation portfolio framework that most effectively distributes the innovation investment across the three horizons: the horizon one investment in innovations that improve the core business, the horizon two investment in adjacent opportunities that extend the core business into new markets, and the horizon three investment in transformational opportunities that could become the next core business.
The innovation portfolio balance that most effectively maintains both the current business performance and the future business development: the majority of the innovation investment in horizon one (which generates the fastest return that funds the other horizons), a meaningful minority in horizon two (which generates the growth pipeline), and a smaller but not negligible allocation in horizon three (which is the only investment with the potential to produce the transformational business that the current core’s eventual maturity will require).
Building an Innovation Culture
The innovation culture characteristic that most enables the experimental, learning-oriented behaviour that genuine innovation requires: the senior leadership’s explicit normalisation of failure as the evidence of learning rather than the career risk that makes failure avoidance the rational employee strategy. The organisation whose senior leaders publicly acknowledge their own failures and celebrate the specific learnings that failed experiments produced has created the permission to experiment that innovation requires.
The innovation culture investment that most efficiently builds the experimental capability that the culture normalises: the lean experimentation methodology training that teaches the organisation’s teams how to design specific, low-cost experiments that test specific assumptions and produce specific evidence — rather than the generic innovation training that develops creativity without the specific experimental methodology that converts creative ideas into tested business opportunities.
Measuring Innovation Outcomes
The innovation measurement framework that most accurately reveals whether the innovation investment is producing commercial outcomes: the innovation pipeline metrics that track the volume and quality of opportunities at each stage of the innovation development process, combined with the business outcome metrics that track the revenue and profit from innovation-driven new businesses.
The innovation investment return calculation that most honestly assesses the corporate innovation function’s contribution: the comparison of the revenue from businesses that originated in the innovation function against the total investment made in the innovation function over the same multi-year period. The innovation function that has invested fifty million dollars over five years and has generated two hundred million dollars in new revenue has produced a four-to-one return — a calculation that most innovation functions have not performed.
