How do leading companies innovate and what are the keys to driving innovation successfully

1. Shani Shoham
Shani@2020.vc

2. CORPOATE INNOVATION IN A NUTSHELL
1 The Importance of Innovation
Markets change. Enterprises should challenge status quo to sustain and grow.
2 How Innovation Has Changed
Cycles are shorten. Barriers are lower.
3 How Leading Corporations Innovate
eBay, Linkedin, Verizon, Safeway and others
4 Why Corporations Struggle with Innovation?
Culture, employees, processes, short term focus and uncertainty
5 Key Success to Internal or External Innovation
Build a portfolio to mitigate risk

3. THE IMPORTANCE OF INNOVATION - RIM
MARKETS CHANGE. CRUCIAL FOR COMPANIES TO SUSTAIN
AND GROW
Markets are dynamic. Organizations need to constantly challenge status-quo to sustain
and grow. The ones that don’t – decline.
Case 1: RIM – From 40% to a 5% market share in two years

4. THE IMPORTANCE OF INNOVATION - KODAK
MARKETS CHANGE. CRUCIAL FOR COMPANIES TO SUSTAIN
AND GROW
Markets are dynamic. Organizations need to constantly challenge status-quo to sustain
and grow. The ones that don’t – decline.
Case 2: KODAK – From $14B in Revenues to bankruptcy in 7 years
Even though Kodak invented the digital camera (1975), they started their product
transformation only when digital cameras became a commodity, driving profits down.
Kodak – Net sales and units Film rolls sold Cameras sold

5. HOW INNOVATION HAS CHANGED IN RECENT YEARS
SHORTER CYCLES DRIVEN BY LOWER BARRIERS
• Lower R&D cost
• Many of today’s functionalities are software based rather than hardware,
reducing dramatically testing and production cost.
• Developing code is not a barrier. Many of today’s developers have no formal
education. Anyone can learn how to code.
• Updates can be launched and tested in matter of seconds.
• Lower sales and marketing cost
• Distribution is done online at a friction of the historical cost.
• The globe is borderless and people are more mobile, supporting adoption of
products globally (e.g iPhone’s adotion in China).
• Products can be tests in matter of weeks vs. months and years historically.
Microsoft used to launch new versions of windows every 3-5 years
Apple/Google launch new versions of iOS/Android every few months
Zynga launches new versions of FarmVille every 22 minutes
5-10 years cycles shrunk to 2-5 years on average
2020.VCV

6. HOW ARE LEADING COMPANIES DRIVING INNOVATION
INTERNALLY AND EXTERNALLY
R&D Internal 80/20 Internal Innovation Corporate M&A
labs Competitions Centers VCs
IBM X X
Juniper X X X
Networks
Cisco X X X X
Systems
Walmart X X
Safeway X
Yahoo! X X
eBay X X
Google X X X X X
Facebook X X X
AT&T
Verizon X X X
Microsoft X X
X – used recently X – Have been used at various times X – eliminated

7. HOW ARE LEADING COMPANIEW DRIVING INNOVATION
INTERNALLY AND EXTERNALLY
R&D Internal 80/20 Internal Innovation Corporate M&A
labs Competitions Centers VCs
Samsung X X X X
Qualcomm X X
Broadcom X X
Comcast X X
Capital One X
JP Chase X
NTT X X
Telefonica X X X X
Singtel X X X
B&N X
LinkedIn X X X
SAP X X X
X – used recently X – Have been used at various times X – eliminated

8. WHY INTERNAL INNOVATION CAN’T KEEP UP
Short term focus
Most enterprises are focused on delivering the next quarter.
New businesses are initially small. They don’t get attention or budget, given a company
focus on its core businesses and their magnitude.
Corporations fail to embrace risk
New businesses are high risk. Corporations like certainty and tend to be risk-adverse.
Failure is a stigma.
Employees and culture
Entrepreneurs shy away from large enterprises. Different skill-sets are required to build a
new business vs. manage an existing one (big mis-conception in enterprises)
Most employees’ resist change.
Processes
Decisions in enterprises take time and often require multi-party consencus.
Internal structure stalls market insights
Most companies’ front line is focused on sales. Many times market insights flow back to the
HQ in retrospective.
Incentives/Upside
No upside for employees who take risk. Paycheck is secure regardless of success.

9. NEW APPROACH TO TODAY’S INNOVATION
EXTERNAL INNOVATION. PORTFOLIO APPROACH
Short cycles and ever-changing markets require:
1. Focus on quick commercialization (vs. long R&D cycles) and hypothesis driven
innovation.
2. For many industries, tapping into external innovation (companies are often limited by
the amount of “bets” they can take).
3. Hire executives that value innovation.
Companies have to build a portfolio of innovation to diversify and mitigate risk
The choice of innovating internally or externally is a factor of:
1. Your company’s DNA – DNA is hard to change.
2. To what extent there is external innovation in your sector.
3. Startups require capital/resources and distribution – can you provide that? Note that
the strategic value is hard to sell and even harder to realize.
4. How quickly your market is changing.

10. EXTERNAL AND INTERNAL INNOVATION – KEY FACTORS
AUTONOMY, HIRING AND SHORT EXPERIMENTS
Internal innovation– Act like a startup
1. Measure that independently and not as part as part of the company’s overall
performance.
2. Hire entrepreneurs.
3. Give the new business autonomy and executive sponsorship.
4. Little overhead in terms of employees, meetings etc. If a 4-5 people startup can build
a new business, so can you.
External Innovation – Autonomy and people are key
1. Hire externally or partner – Most companies place corporate Executives but
corporate Executives and entrepreneurs are different “beasts”.
2. Be ready to pay a premium financially.
3. Develop a methodology for quickly realizing the strategic value.
4. Give the organization autonomy – The decision makers in most corporate VCs are
done by the BU managers, leading to long decision cycles and frustration on both
parties.

11. LEAVING YOU WITH FINAL THOUGHT
DISRUPTIVE INNOVATION AND EXTERNAL INNOVATION
Why the following disruptive companies weren’t established by industry incumbents?
AIRBNB – From 0 to $1.3B Target audience wasn’t considered an attractive
valuation in 4 years (*) one.
Wasn’t invented by hospitality
veterans
ZIPCAR - $1B IPO Out of the box thinking – New business model.
Wasn’t invented by the rental
companies
Spotify - ~$4B valuation (*) Concerns about business cannibalization.
Wasn’t invented by the label
companies
Square – Over $2B valuation (*) Taking risk and questioning status quo by industry
Wasn’t invented by credit card outsiders.
companies
* estimated

12. Shani Shoham
shani@2020.vc
Twitter: @shohams
http://shanishoham.wordpress.com
Shani Shoham
Shani@2020.vc