Large Corporations innovate badly if left to their own devices. The attributes that make large corporates able to operate at scale effectively, mitigate against innovation. Too much bureaucracy, too many rules, and a culture of fitting in with the team make innovative action a rare event in a typical corporate. So how do companies like Cisco, Google, Apple and others produce innovative products and services?

There are a few approaches:

• Innovation by acquisition
• Corporate Venturing
• Innovation Time Off
• Joint Ventures
• Skunk Works

Innovation by Acquisition

This is a very simple approach, where corporate managers recognize that innovation is just too hard to do in the constrained corporate environment and deliberately set out to buy up innovative product companies. This may seem like an expensive approach but it works for firms like Cisco who state on their website:

“Cisco actively supplements internal development efforts with partnerships, minority investments, and acquisitions to offer customers a broad range of solutions in networking for the Internet.”

Cisco have created a machine for absorbing innovative small companies, leveraging their new ideas and incorporating them into the Cisco product set. Cisco have a track record of managing to motivate key employees of acquired companies so that they stay on working at Cisco for many years. It is quite common for leaders of acquired businesses to sell one business, integrate it into the Cisco world and then set off to do it all over again with a new venture.

Corporate Venturing

This is actually the least likely approach to be successful and large corporations retreat from Corporate Venturing proves the point. Last year, 166 corporations invested roughly $1.3 billion in startups, compared to approximately $17 billion invested by 472 corporate venture programs in 2000, according to the MoneyTree Survey conducted by PriceWaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association. In 2004, only 2% of venture capital dollars invested came from corporations, versus 7% five years ago, according to VentureOne.

Innovation Time Off (ITO)

The most well known company that uses ITO is Google, who give their Engineers 20% time off (one day a week) to work on projects that interest them. During this ITO time the Engineers are unencumbered by their day job. Marissa Mayer at Google claimed, in a speech at Stanford University, that half of Google’s new products are innovated by this route.

Joint Ventures

A joint venture is a legal framework formed between two or more parties to undertake economic activity together. Generally the parties share equity, expenses and profits. JVs are often between two large organizations but are sometimes formed between a large corporate who provides much of the finance and marketing reach with a smaller entity that has a piece of intellectual property that it wants the larger corporates help to exploit.

Large numbers of JVs fail with 60% disappearing within 5 years.

Skunk Works

Skunk Works are generally much more successful in large corporations because the spotlight is not on them. Funded and approved projects are tracked and often consigned to history because the development teams have not quite got the final problems ironed out. Skunk Works are by necessity developed on the cheap, with begged, borrowed and (often) stolen resources being utilized to deliver.

According to Steve Jobs, the Mac Computer was developed from a skunk works project! Skunk works can breed in companies where project funding is deliberately kept loose and leaky so that funds can be diverted to innovative projects.