How Corporate Spinouts Power Disruptive Innovation

Following the passing of the late Clayton Christensen, author of The Innovator’s Dilemma and Harvard Business School professor, there was lots of reflection on his legacy as the man who popularized the word “disruption” in the business community. In many ways, Christensen’s thesis that established companies struggle to innovate because their focus on process excellence and keeping current customers happy is truer than ever. Disruptive innovation usually means focusing on the future, which is unsustainable for most established organizations.

Some businesses try to break out of the trap of sustaining innovation only to find that the processes that enable them to become market leaders make truly disruptive innovation near impossible. There’s a reason startups have been the biggest disruptors over the last decade: Startups don’t have to worry about legacy customers or process excellence. This is indeed a competitive advantage startups have over their more established counterparts.

None of this means large, established organizations can’t become disruptive innovators. In fact, leading the disruption is essential if these entrenched enterprises want to maintain market dominance in the future.
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‍Tapping into internal innovation

According to a study by Kaihan Krippindorf, author, speaker, and business strategist, 73 percent of the most transformative ideas of the last three decades—mobile phones, internet, and email—came from employees working within large organizations. So why have so many people and organizations bought into the idea that large companies can’t innovate? 

There’s no denying that there are lots of smart people with great ideas employed at established enterprises. We’ve seen plenty of corporations launch expensive innovation labs that fail to yield much beyond great ideas and a fancy facility. More often, innovation labs are quarantined away from the rest of the organization and staffed with engineers rather than product developers. So even when there’s dedicated space and resources for innovation, the likelihood is that the people and ideas aren’t focused on solving problems or finding a real product-market-fit. 
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Just because ideas get stuck in the red tape of corporate bureaucracy, doesn’t mean there aren’t ways for those ideas to break free.

Building an innovation lab isn’t a bad idea, nor has it proven to be the best solution for solving the corporate innovation challenge. Rather than throwing money away, building and staffing an innovation lab, established enterprises need a mechanism for turning their best ideas into independent startups of their own. 
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Enter the corporate spinout

Just because ideas get stuck in the red tape of corporate bureaucracy, doesn’t mean there aren’t ways for those ideas to break free. One way enterprises can get out of their own way is by spinning out the best ideas into independent startups. While the parent company focuses on sustaining innovation, spinout startups can focus on disruptive innovations for the future.

And where will these ideas and these startups come from: From within the organization, of course! Not only do the employees at large organizations already have lots of ideas, but they also have expertise and insight into the big challenges facing their industries—all of which adds up to a significant unfair advantage for the organization. This untapped advantage can become the saving grace for established organizations faced with the reality of innovating or dying a slow death while scrappy startups innovate all around them.
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Resist the corporate control impulse

Of course, the temptation for larger organizations will be to impose controls and make demands on spinouts. This would be a mistake resulting in the same problems that happen with innovation labs. It’s absolutely essential for these new entities to remain independent, and for the parent company to give the startups space to breathe, experiment, and make mistakes. Likewise, these spinout organizations must be earnest in their endeavor to solve real problems and establish a sustainable business model.

Smart organizations will build an entire portfolio of these spinout organizations, knowing that some might flop hard, while others will become breakout successes. This army of corporate spinouts enables established businesses to innovate faster and lead the innovative disruption in their industries so that they can survive and thrive well into the future.