By Rob Parker, Senior Portfolio Manager, and Alex Diaz, Executive Vice President, Global Occupier Services
We live in an age of disruptive innovation – more than 50% of today’s S&P 500 companies face replacement within 10 years. Established industries and incumbent corporations across the world have seen agile, technology-enabled startups revolutionize their markets. How can today’s industry leaders fight to stay ahead against small, fast and smart competitors?
Disrupt Or Be Disrupted
American business guru Clayton M. Christensen coined the term disruptive innovation during the late 1990s. Since then, there has been a demise of industry incumbents who have been out-manoeuvred by new technology and business models. Corporations are focused on avoiding the mistakes that killed giants such as Kodak and Blockbuster to ensure they are not pushed out by innovators like Uber and Airbnb.
Christensen also identified the ‘Innovator’s Dilemma,’ a problem that many large and established companies face. When making healthy profits today, the incentives are stacked
against adopting new technologies or business models that could disrupt the established business. The result is that scale and embedded risk aversion can prevent agility to changing markets and competitors. Whilst investment in research and development can achieve incremental change, it is essential to have an awareness of disruptive threats and the right organizational structure in place to respond to fundamental innovations in the market.
If You Can’t Beat Them, Join Them
Outside the corporate environment, we are seeing the entrepreneurialism of startup ecosystems producing the fastest pace of innovation. A growing number of major corporations are looking to harness that potential by creating corporate incubator programs and innovation spaces. These spaces can be used to identify and develop new opportunities outside an organization’s existing operational structures. In such, an ‘ambidextrous organization,’ find successful ideas from experimentation.
For incumbent organizations, the incubator should focus on the organization’s area of business – i.e. banking group DBS running a FinTech accelerator. The corporate incubator can then leverage the resources of the organization and harness the agility, technology, and creativity of startups in order to future proof the business strategy by gaining access to new competitive advantages.
There is a compelling proposition for startups too.
By working with a large corporation, the startup gains access to domain expertise, networks, distribution channels, customers, mentoring from employees, physical workspace, and possibly also investment and capital.
Unsurprisingly then, the range of industries where corporations have initiated their own incubator scheme is hugely diverse. It ranges from the traditional technology company, IBM; to the aircraft manufacturer, Airbus; to the healthcare provider, BUPA; as well as the telecommunications operator Telefónica – to name just a few.
A Space For Innovation
Every organization has different goals for their corporate incubator program and these will feed into the approach that is adopted for delivering the program.
For smaller incubator programs, the sponsor may either bring the startup teams into their offices directly – perhaps designating an area for those on the program – or provide rented space within a co-working facility with embedded corporate employees there as mentors.
Where a larger or permanent incubator program is planned, corporations have invested in creating designated incubator spaces, often within major offices or HQs. Partnering with a delivery operator is common, utilizing their expertise to run the space and provide events and networks. The incubators often utilize a co-working style, with open-plan as well as
private rooms having proven popular to foster collaboration. As corporate incubators focus on a particular market segment, the benefits of sector agglomeration in a single space is key for driving innovation based on the ‘random collision’ theory.
However leaders in this field recommend avoiding ‘innovation theatre,’ shunning the decorations associated with some startup work spaces (bean bags, indoor slides, and football tables) for a practical workplace to nurture collaboration. The corporate incubator space needs to be flexible to different configurations and agile methodologies, whilst having high quality amenities and excellent connectivity.
A New Challenge For Corporate Real Estate
The appetite for corporate incubators seems to show no sign of slowing. When a corporate incubator is proposed, corporate real estate leaders need to be highly engaged with the business in order to enable the right space and management to be implemented.
Re-configurations of existing offices may be necessary, or the acquisition of new space – ideally in proximity to current office hubs. Partnerships are likely to be required with the operator and refitting of existing offices is usually needed to create a suitable workplace. Access to and from the incubator will need controls – without preventing the intended permeability of staff into the space – and IT should balance easy-of-use with data security by maintaining corporate network access for employees but providing a separate network for incubator companies.
Rob Parker is Senior Portfolio Manager in Cushman & Wakefield’s Global Occupier Services team, based in Singapore. Rob works with major corporate clients and writes on emerging technologies and digital disruption, including blockchain and the gig economy.
Alex Diaz is the executive Vice President, Enterprise Solutions for the Global Occupier Services team at Cushman & Wakefield.