The Myths of Corporate Innovation-Part 2

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This article was previously published in FastCompany, and is reprinted with permission.

When my kids were young, their favorite TV show was Myth Busters, the popular series with the mission of either proving or disproving conventional wisdom. In this series of articles, I am setting out to do the same for some of the popular beliefs about corporate innovation.

Previously, I took on the myth that corporates cannot innovate. Now, I want to examine the view that corporations can only innovate when they hire entrepreneurs to lead new ventures. The craze for “entrepreneurs-in-residence” has taken this myth to new heights.

In my experience, successful corporate innovators are typically longtime employees or insiders—not outsiders with an “entrepreneurial mindset.” Let me explain why with an anecdote.

Sarah was a former colleague of mine hired to create a new venture inside a large financial institution. Her background as a part-time entrepreneur, former consultant, and successful manager made her ideal for a corporate innovation assignment. At first, everyone at the new company was helpful and supportive. But as soon as she needed help, everything changed. Instead of helping her access resources, her previously friendly colleagues insisted she abide by corporate policies and processes. Her team began making a virtue of being different, developing a bunker mentality, and turning their backs on the established business. In the end, Sarah failed. She was isolated and rejected by the corporate system.

Sarah’s experience is not unusual. Several years ago, we interviewed a group of Corporate Explorers—entrepreneurial-minded managers who build businesses outside of the established corporate rules—and found that those hired from the outside were most likely to fail.

Most talked about how hard it is to get help from others inside the organization when you are doing something new and different. The IT rules, hiring practices, and procurement processes that you need changed all become insurmountable barriers that consume your time. In our research, two-thirds of the Corporate Explorers hired from outside left their jobs within three years.

Contrast this with the profile of successful Corporate Explorers: Kriztian Kurtisz at UNIQA Insurance has been with the company for fifteen years, Jim Peck was with LexisNexis for over a decade before starting what became a $2 billion risk analytics business, and Balaji Bondili was with Deloitte for eight years before he started the Pixel business that is reinventing the professional services industry.

These insiders face the same corporate antibodies as the outsiders like Sarah. You cannot run to the CEO every time you need to break procurement rules to run a quick experiment. What’s different is that insiders have social capital in the organization to overcome any obstacles. They know how to get things done, who to call, and have favors to call in.

The other big advantage is that the insider has a track record. As one CEO said to me recently when trying to account for the underperformance of a new venture, “I cannot tell whether the idea is wrong or if it is the leader we hired to run it.” He had no data for isolating the performance of a person from that of the business. That makes the Corporate Explorer particularly vulnerable when they hit problems—which all new ventures do. They become easy targets for those who want to shut down the effort.

Sometimes, this is even a deliberate choice. One HR manager told me that they had decided to hire the leader for a new venture unit externally because, “That way, if it does not work, we have not lost anything.” The outsider is more expendable than the valued, high-potential manager.

Appointing a Corporate Explorer from existing talent is not a guarantee of success, and hiring externally does not mean certain failure. The answer is not insiders or outsiders, it’s both/and.

New ventures benefit enormously from an injection of external talent. There are also opportunities to balance insiders and outsiders in the founding team. At the heart of many successful entrepreneur-led companies is a dynamic duo who balance one another’s strengths and weaknesses. Think of Steve Jobs and Tim Cook at Apple, Sergey Brin and Larry Page at Google, or Jerry Yang and David Filo at Yahoo!

The point is that the odds of success favor the insider, not the outsider, with a track record of operating in small, independent firms. Leaders like Krisztian Kurtisz and Balaji Bondili are “passionate explorers,” but they are also members of a social network. They share the history, folklore, and language of the corporation. If your mission is reinvention, this helps you to manage the antibodies that are ready to reject change.

I have no doubt that many entrepreneurs-in-residence bring value to the organizations that they join. They have an important role to play in many corporate venture studios, like that run by the Japanese firm NEC. What I question is whether this is the best route for ideating, incubating, and scaling new corporate growth ventures. I even think that this may be a fad that will pass when leaders realize it has no correlation with success.

We need to stop perpetuating the belief that without entrepreneurs, corporates cannot innovate. The facts don’t support the myth!

Read Part 1 of this series here.