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Disruptive innovation is catching on

But while big firms have the resources, they must first have a long-term outlook, adopt new metrics and learn to embrace failure, say observers

Disruption - a radical change in an industry or business - is so sought after these days that even large, established corporations want in.


DISRUPTION - a radical change in an industry or business - is so sought after these days that even large, established corporations want in. As many as 120 of them have committed to launch startup accelerator or incubation programmes of their own, in a bid to generate innovation or unlock growth opportunities they might never have otherwise noticed.

But observers aren't so sure, pointing out that an overhaul in mindset and KPIs (key performance indicators) must first happen. Moreover, the best engagement model for different industries and geographies is still emerging, they say.

Globally, Microsoft, Disney, Wells Fargo, Kaplan, BBC Worldwide and Bayer have launched some form of startup support programme. Here in Singapore, Singtel, DBS, Coca-Cola and Singapore Press Holdings (SPH) too have got into the game.

"It depends on your definition. Some are frankly just mentorship programmes with vague offers to provide money to startups - that might actually end up being the corporation's biggest competitors - in return for their ideas or business model," said Hugh Mason, co-founder of Singapore-based accelerator JFDI.Asia. Others do it to expose their managers to new ways of thinking, fulfil corporate social responsibility ambitions, or as one government-linked corporation executive told Mr Mason, "distract everyone from the uncomfortable truth that numbers are flatlining; it's wayang for the analysts".

Modern corporations face a huge dilemma, said Mr Mason. While they need to defend and optimise their existing revenue lines ("Think SPH and classified advertising"), they are aware that if they do not destroy those revenue lines first, someone else will do it for them.

"And history suggests that that's very likely to happen. Kodak, Nokia and ResearchInMotion (now BlackBerry) have crashed and burned because they got disrupted."

The trouble, said Mr Mason, is that things that are going to disrupt a big corporation today will come zooming from nothing to billion-dollar ventures in a very short time, especially in the digital space.

"It's about reacting fast inside a corporation. (But) anyone who tries to run a disruptive innovation unit that creates a great idea soon finds that there are a lot of powerful executives with KPIs to hit the next quarter who see these ideas as at best a distraction, or at worst a threat. So they either ignore them or pee on them from a great height until they go away."

Otherwise, big corporations are actually "awesome machines" for scaling up something that already works, with the ability to throw resources behind projects in a way that no startup can match, Mr Mason said.

Amy Bonsall, design director at innovation and design consulting firm IDEO Singapore, agreed: "Big corporations have an enormous amount of potential and resources to drive disruption. But they often unwittingly handicap themselves before they even get out of the gate."

For instance, measuring fundamentally new initiatives in the same way one evaluates existing products is almost certain to snuff out new ideas, she said. The established and venture parts of a corporation will have radically different ways of working and approaching the market, she added. KPIs and processes - which are usually structured around the organisation's core offerings - can be irrelevant or sometimes even harmful to the development of a new venture.

Nurturing new ventures thus requires a "deliberate" startup ecosystem: mentorship, funding, novel measurement methods and an iterative design approach that allows the venture team to fail, learn and iterate so as to keep up with consumer needs and the competition, she said.

Corporations should find ways to protect and nurture fledgling ideas rather than judge them too quickly. Some of the most fruitful startup economies have created ways to embrace failure, she said. "So in Singapore, corporations might ask how they can celebrate and learn from failure, rather than guard against it."

Moreover, they should do their research and see how they fit into the existing ecosystem where there are probably already active players and see what kind of partnerships can be established, said Markus Gnirck, co-founder of Startupbootcamp FinTech. "A closed-minded approach that only serves the motivations of the corporation doesn't reflect the openness of the entrepreneurial community," he added.

Corporations should also set out clearly their long-term vision for such programmes before embarking, said Debbie Yong, who founded online gourmet platform under the Ideas@SPH incubation programme.

For instance, who owns the intellectual property (IP) rights for the startup, and for how long? According to Ms Yong, most employers own the IP rights of their employees' work, but to have the corporation own the IP rights of a startup beyond the incubation period may hinder the startup from getting future investors or an eventual buyer.

California-based venture capitalist Tim Draper reckoned that corporate-backed startup teams of five work best, and that an incubation time of at least three years is required: to develop the product, engage customers, properly build a company and see results. "It may even take five years before you know if you've got a winner."

Said JFDI's Mr Mason: "Nonetheless, it's excellent that we are trying out such schemes in Singapore because it's perhaps one of the few stable places where we can give them enough time to take root. Culture doesn't change quickly and while we have done a great job talking the talk about being a Smart Nation etc, now we have the slog of walking the walk to make it happen." But it might take some 20 years to really show results, he noted. "People forget that all the shine of Silicon Valley was seeded in the 1950s and 60s by government spending on transistors and integrated circuits. Most of the wealth there now comes from those roots."