SPEED OF INNOVATION
Speed and innovation culture surfaced in several discussions I had with companies regarding achieving their carbon neutrality targets and creating value in the process. Understandably, this is a time to turn objectives into action
Fred van Beuningen
Jan 8, 2024
Context is essential: How resilient is your company against a carbon price and pricing of externalities in general? Do you have capital available to invest in new activities? Depending on some of these factors, you must focus on decarbonizing existing assets, or you can consider the first-mover advantage in emerging markets.
Other contextual factors include organizational, commercial, and technological competencies:
Culture: risk perception, decision-making processes, degree of open and agile innovation, senior management support
The presence of a dedicated innovation unit, innovation process, and ecosystem with clear performance metrics
Access to supply chains and customers relevant and receptive to climate-positive products and services Specific technological and scientific competencies relevant to emerging climate technologies, repurposing core competency
Timing of asset transition to capitalize on emerging markets while protecting existing assets and markets
Companies need to move from incremental to more disruptive innovation and create new growth platforms. Depending on the industry (Oil & Gas, chemicals, mining, building materials, transport, or forestry), specific threats and opportunities exist:
Consolidation and the introduction of low-carbon products
Alternative feedstocks and fuels, material substitution
High demand for products against increasingly demanding extraction
Decarbonization of existing assets and circularity
Digital transformation and alternative business models
Bio-based opportunities and sustainable land use
There are important critical internal barriers to open and disruptive innovation: origination of projects (who, why, and how to allocate resources?), funding (if the investment cycle is more than five years, who provides the funding?), and how innovation is integrated (who runs with it and is committed to a successful outcome? What does success look like?), to name a few.
Fundamentally, companies must strike a new balance between exploitation (improve the existing) and exploration (create the new), a tried and tested concept with contextual considerations and different solutions. A prevalent solution is Corporate Venture Capital (CVC), structurally a unit or more project-oriented as a contest, laboratory, or accelerator.
As with every solution to a complex problem, CVC comes with pros and cons: it can give access to new markets, technology, and talent and boost the exploration of the company; on the other hand, it introduces risks of failure (one can argue that a startup needs a certain operational maturity before engaging with large companies), the risk of a lack of control, and strategic drift. Other cons are the limitations on exits or upside and distraction from or lack of alignment with the core business. Nevertheless, CVC has become an essential strategic tool to overcome "the innovator's dilemma."
CVC units invest in independent VC funds to:
Increase access to technologies and startups, sometimes in specific themes or geographies
Leverage the competencies of funds, team, reach, experience, and ecosystem
Pursue partnership and M&A opportunities
Back to speed. Depending on the context, companies want to accelerate the decarbonization of existing supply chains and create new growth platforms in the carbon economy. Seeing more earlier will undoubtedly be helpful, as rigorous risk assessment beyond technological and economic factors and VC funds can assist in compressing timelines by creating more global visibility and simplifying the interaction between the large company and the startup.
However, go-to market speed will be determined by the internal capability of the corporation to select and integrate new technologies and business models. This capability will not only depend on "seeing more, earlier," although necessary for the first-mover advantage but also on:
Equal attention to exploration and exploitation by top management
A clear innovation vision and focus, well-aligned with the business units
Collaboration across emerging supply chains
Voice of the customer and the opportunity to serve existing customers
A seamless open innovation ecosystem with funds and other knowledge partners
Lastly, I want to stress the importance of relationships and trust. There is a reason for startups hesitating to receive corporate investments too early. Founders are passionate about what they set out to do and want to have an impact. While the startup scales up, relationship building and aligning interests are critical factors in accessing the best technologies and teams. Call me biased, but funds and CVCs can work synergistically here.
Speed is important for company growth and positioning, but also to decouple growth from emissions, adaptation, and critical challenges like keeping the ice in the Arctic.