Corporate Innovation in the Fifth Era

Book Preface

It was a beautiful Napa Valley day in 2009 with the sun beating down on the grapevines as far as the eye could see. We had been invited to speak at a forum of 25 or so corporate venture executives from America’s leading companies hosted by Silicon Valley Bank. The topic was emerging trends in corporate innovation. We were the session after lunch—the slot when everyone is full of lunch and feeling more like having a nap than listening to another speaker.

Best then to start with questions to get their participation.

1. Over the next decade where will the most important innovations in your industry come from?
a. Your own company
b. Your own industry
c. Outside your industry
2. What percentage of your innovation spend is internal vs. external— people and capital?
3. What percentage of your innovation spend focuses beyond your industry?

This seems to work and the attendees become engaged in the topic. No one believes their company will be the disruptive innovator, and instead, the group is split equally between those who believe the disruptors will be from within versus from outside their industries. Most of the group says their companies are spending between 70% and 90% of their innovation resources (people and capital) internally and that these corporate venture teams get a fraction of the total corporate resources to spend externally. But almost none of that is being spent beyond the narrow defines of their industry. No one is scouting from truly disruptive innovations attacking from beyond their industry. Here’s the bottom line that emerges: corporate resources are not aligned with the likely sources of disruptive innovation—even when the corporate strategy is saying that innovation is the most important priority on the CEO’s agenda, as it is at all of these companies.

The message of our book is that we are living in a time of dramatic transition between the Industrial Era and a new Fifth Era being driven by the Digital Revolution, Biotechnology Revolution, and a host of other disruptive technologies—more than the world has ever seen at work at one time – that will transform the way humans exist on the planet. Enormous value is already being created in this transition by companies in many industries that are able to leverage these new technologies to create powerful products and services that customers relate to and value. Enormous value is also being lost as existing companies are superseded and are not able to regain their position with customers. The stakes are high on corporate innovation and are only getting higher. The most important strategic question in most industries is how to leverage new technologies to increase relevance to customers, efficiency and competitiveness in a rapidly changing world and how to avoid being displaced. And we are immersed in a transformation that is only just beginning.

Jumping forward to 2015 and we are conducting another corporate innovation forum, this time to leaders of some of the largest banks in the world who have come to the heart of Silicon Valley to learn. We ask the same questions. We get the same answers as in 2009. Six years have gone by, and we have seen little change at the macro-level in how many of the world’s largest companies are approaching corporate innovation. Meanwhile, in the same timeframe the world’s most innovative companies are surging ahead, obsessed with delivering value to their customers and with how new technologies can be harnessed to accomplish that. Many companies that didn’t exist in 2009 are now household names and have multibillion-dollar valuations.

For 30 years, we have lived and worked in the US – mostly in Silicon Valley, first coming from London and Yorkshire in the UK as young professionals to pursue MBAs at Harvard and Stanford Universities, then working as management consultants at McKinsey & Company, AT Kearney, Monitor Group, and Booz & Company. Following that, we took on corporate roles as SVP Global Strategy and Marketing at Gap Inc. and as Chief Financial Officer at Barclays Global Investors, the world’s largest institutional investment management firm. More recently, we also did stints in private equity and venture capital as venture partner and private equity general partner at Monitor Ventures and Belvedere Capital respectively. Over the last 20 years, we have transitioned to becoming board directors and advisors to fast growth private companies as well as larger public companies that are working hard to stay relevant, as well as angel investors in dozens of early stage companies.

During these years we have become immersed in innovation and entrepreneurialism. We have helped large corporations become better at innovation, we have invested in and supported start-ups that have launched disruptive innovations, and we have advised countries and regions on being in the flow of innovation. We are surrounded by many of the most remarkable disruptions of our time and by the exhilarating new digital world that is being built around us. And because of our work and location, we have been fortunate to be able to observe at close quarters the practices of many of the world’s innovation leaders and to witness the incredible value creation that has resulted.

In writing this book we have attempted to synthesize the lessons we have learned about operating at the frontier of innovation – lessons from companies such as Alphabet/Google, Amazon.com (Amazon), Apple, Facebook, and Microsoft – and also from many other innovators we have been fortunate to work with as advisors, investors, board directors and employees. Almost all of the examples we cite are from our personal experience – although in some cases we have added secondary research and cases studies where we have found it useful to do so. We have condensed these lessons into a new approach to corporate innovation that we believe is better suited to the Fifth Era.

This book outlines the nature of the transition we are in from the Fourth to the Fifth Era and describes many of the disruptive innovations and the impact they are having. We show why a new approach to corporate innovation is required and we outline many of the most important steps that should be taken by those responsible for driving innovation in their firms.

The book provides insights into how the most valuable companies in the world are fueling their success with a new corporate innovation approach, and it also demonstrates the substantial risks of not embracing this new era comprehensively – the companies losing economic value most quickly are among those who most need the lessons provided in this book. We wrote this book to be relevant for everyone who is responsible for the innovation processes of their company or organization – as a senior executive, board director, advisor, and also for everyone working in an organization that is striving to stay relevant in a rapidly changing world.

This book should also give food for thought to others in the innovation and entrepreneurship ecosystem – universities, think tanks, capital providers, governments, service providers, advisors and many others. We hope you enjoy reading it and we wish you the best as you strive to help your organizations thrive and prosper in the Fifth Era.

Matthew C. Le Merle
Alison Davis
Tiburon, California, USA