Corporate Incubators in the Middle Market: Considerations for C-Level Leaders

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By Taqee Khaled

Client Engagement Director

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Earlier this month, less than a year after launch, Walmart’s technology incubator Store No. 8 acquired its third portfolio company and is chasing Amazon with ambitions to change the retail industry with AR and drones (and, quietly, cloud). Central to Walmart’s strategy is the pursuit of a revolutionary customer journey with the expedient use of homegrown and externally developed technology.

Walmart is not alone; digital transformation across industries has led to a wider adoption of in-house innovation laboratories. Although AT&T’s Foundry hardly surprises, similar forays from Chick-fil-A and Lowe’s raise eyebrows for what they each represent: non-technology-centered companies — as well as companies closer to the middle market — embracing the wholesale rationale for internal, focused innovation centers.

In-housing innovation has the advantage of immediate (and actionable) pilot opportunities paired with the potential to scale rapidly. By the same token, it can subtly lead an organization away from core strengths that made it successful in the first place. As internal technology innovation efforts continue to move into the middle market enterprise, C-level leaders pursuing technology incubators or lab-styled technology innovation should consider the following:

Pragmatic Latitude

“Working hand-in-hand has proven to be much more effective, in my career, than those skunkworks ‘go away and come up with a magic box and bring it back to the business and have them figure out how it will best fit in.’” – Scott Burns, Head of Customer Experience at Reliant Energy

In contrast to the popularized vision of what a technology incubator should consist of, the best innovation spaces are much more than trendy office space, nap pods and unlimited tacos. When a technology incubator is out of touch with the business units it was built to support — and even worse, its end users — outcomes can start to lose relevance and innovations can become unrealistic.

Avoiding this kind of ‘innovation drift’ is both politically and financially critical and can be prevented by ensuring that representatives from relevant business units are consulted and supported. It can also be thwarted by keeping the end user (and core business goals) at the forefront of every effort.

Pivot Threshold

“When a CEO announces a major initiative to foster innovation, mark your calendar. Three years later, many of these ambitious ventures will have quietly expired without an obituary.” – Scott Kirsner, Boston Globe Columnist

Internal technology incubation efforts, like the open market startups they mimic, need to undergo constant digital evolution: repeatedly improving, simplifying processes and increasing efficiencies.

In a corporate enterprise that isn’t accustomed to rapid change and adaptation, the muscle memory to hold onto an initial hypothesis or investment rationale is incredibly potent. Consequently, the threshold to justify change cannot be subject to the restrictions of the broader organization. The metrics of success and failure must be defined at the onset for rapid concept evolution to occur.

Growth and Comfort Never Coexist

“If you’re not having doubt, then you’re not pushing it hard enough, or you’re not looking at the details close enough. You need to be feeling that doubt every single day.” – Tony Fadell, Founder of Nest

Much like the need to reduce decision thresholds around business pivots, the pace of internal innovation needs to be as unbridled as possible. Corporate incubation teams should build a large backlog of concepts, testing quickly and failing as immediately as logistically feasible. If your organization is planning innovations three-to-five years out, it’s moving too slowly.

The cultural shifts required to permit nano-scale, rapid tests and related failures is typically very unsettling to the corporate enterprise in the early stages of a digital transformation journey. In these cases, especially in middle market corporations, CEO-driven innovation tends to have greater success than ‘CEO-permitted’ efforts. In either case, metrics that report on the pace of concepts’ pipeline entry, removal and advancement should be a central feature of incubator ROI.

The International Data Corporation has assessed that worldwide digital transformation spending will reach $1.7 trillion by the end of 2019. Many such spending efforts will see non-technology companies foray into the realm of incubators formerly seen only in tech settings. Regardless of a given company’s business model, the biggest challenges our middle market clients face is starting the conversation and identifying a reasonably right-sized path forward.

The Nerdery, a full spectrum strategy, experience and technology consultancy, walks side-by-side with senior leaders to best define what digital adaptation and transformation mean for them, specifically. Contact us today to start the conversation about digital transformation.

Taqee Khaled is the Director of Strategy at The Nerdery. He is based out of the Minneapolis office and leads The Nerdery’s Strategy Practice, composed of experts in experience strategy, business consulting and analysis, and strategic innovation.

Published on 02.23.18