E-213-E

October 2020
This document is an authorized copy for the course ASEAN Global Leadership Program - SRW&Co taught by prof. Prats, Julia at IESE B.S.

The Challenges of Corporate Innovation

Antonio Dávila
Joost Korver

Gina, the Global Innovation Director at a multinational company, was attending the annual
leadership meeting for all directors. She had been appointed to her new position just six months
before, in order to implement the innovation mandate that the management board of the
company had set out a year ago. These had been busy months, discovering what the job really
meant, understanding the role of innovation at the company, learning about alternatives to the
design and implementation of an innovation strategy and building the initial team.
Yet, in this strategically important meeting, and after three days of discussing the strategy for
the coming years, innovation was not mentioned even once. Gina was surprised, since over the
last six months she had seen so many interesting technologies, so many creative startups, so
many established companies challenged by new business models and so many people exploring
new approaches to create value. It shocked her how the directors were not even considering
how these forces could affect their businesses.
Innovation had been part of the company’s thinking for some time. But it had become more
critical to the organization a few years earlier when the CEO, in a speech to senior leaders, put
innovation and sustainability at the center of the strategy. The company was known for its deep,
decentralized structure, and it was currently up to each business to develop innovation in its
own way.
As she looked back on the last six months, Gina recalled the original objectives set for her new
department:
 Launch at least three multi-country (at least three countries) innovations per year from
Y+1 onwards and five from Y+3 onwards.
 Launch at least two transformational innovations by Y+3.

This case was prepared by Professor Antonio Dávila and Joost Korver, external collaborator. October 2020.
IESE cases are designed to promote class discussion rather than to illustrate effective or ineffective management of a given
situation.
This case was written with the support of the Seat Chair of Innovation, IESE.

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Last edited: 3/11/20

 E-213-E The Challenges of Corporate Innovation

 By Y+3, achieve 2% of gross profit from products/services that were not offered by the
firm in Y-2 from core/adjacent projects and excluding transformational projects.
This document is an authorized copy for the course ASEAN Global Leadership Program - SRW&Co taught by prof. Prats, Julia at IESE B.S.

 By 2020, achieve €20m cost savings via process innovations.

Several issues came to Gina’s mind after the leadership meeting. She saw her main challenge
was getting the commitment to innovation at a company with a solid and profitable business
model with interesting opportunities to grow organically and through acquisitions, and a
strategy of reducing costs through integration.
Business unit managers focused on day-to-day operations and reducing costs. Would they
support innovation and its longer-term payoff? Most of the innovation effort and resources had
to come from business units. Would they allocate their best people to innovation projects?
Should the company add an innovation dimension to incentives? If so, what should the company
define as innovation versus improvement, and how should this be measured? What should the
role of the GIT be? And finally, should the team go deep into a few countries or go wide to align
the entire organization?

Why Innovate
Gina faced a situation that has become frequent across corporates. Top directors sense that the
way they have been managing their organizations is no longer valid. It is not that there is more
uncertainty – the world has always been uncertain on the social, economic, and political fronts.
However, the type of uncertainty has changed. Today, myriad technologies – from data processing
and communication, to materials, machine-human interfaces and biotechnology – are shaking the
foundations of markets. The growth of Asia means several billion people are coming up with new
business models grounded on a different set of values and view of the world.
In Gina’s company, the original push for innovation went back a few years to when the top
directors came together to listen to speakers from Singularity University talk for two days about
the future: what the world could look like, potential disruptions and the need to innovate. Top
management got the idea — lots of industries had been disrupted, so companies had to disrupt
themselves. Even if businesses were currently well-positioned to go forward, they needed to
devote attention to creating new growth platforms.
While the message was clear, the “how” was not. The company was not designed to take on this
new challenge. It was a company intensely focused on day-to-day operations. It was entrepreneurial,
but not innovative. Managers were good at putting in the effort when they saw the opportunity, but
they lacked the discipline of innovation. Being entrepreneurial centered on the initiative of a few
people who spotted opportunities and then drove the rest of the organization to work hard on
making them successful. It was dependent on a few. The management was completely geared to
execution, which had been the driver of success in stable environments.

First Steps Toward Becoming Innovative

Much like many other companies, the first effort to address the need for innovation was a
strategy report. The management board outlined six themes:
1. amazing customer experience
2. seamless processes

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3. differentiated products and services

4. new business models and channels
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5. sustainability
6. lower costs
An internal survey found people eager to develop these capabilities. The report concluded that
the company could take a leading position to disrupt its markets.
The report was no different from the reports that first emerge at many corporates. They outline
the opportunities available out there in the business landscape and management truly believes
that the company has the capabilities to capture them. The next step is getting it done.
The original thought of the company’s management board was to create an Innovation Lab to
work on new technologies such as IoT (Internet of Things) and artificial intelligence, projects that
would transform the company. This approach can be traced back to the mid-20th century, when
corporates created powerful research departments like Bell Labs. Companies such as Facebook
or Google use this solution and have created large groups working on emerging technologies.
However, the company reconsidered this initial idea and decided to also develop innovation
capabilities across their existing businesses. Innovation would be structural and systematic, in
order to also encompass business model innovation. An Innovation Board, including the CEO
and COO, would meet at least quarterly to oversee implementation. A Global Innovation Team
(GIT) was created. The board developed an initial strategy with the following guidelines:
 The innovation portfolio would include: core (Horizon 1), adjacent (Horizon 2) and
transformational (Horizon 3), with a 70/20/10 resource allocation.
 Resources would come from the business units for core innovation, equally split between
business units and corporate for adjacent, and from corporate for transformational.
 Business units would be in charge of core innovation, consistent with the decentralized
culture of the company.
 The innovation process would include: scanning for ideas, deciding on which ideas to
pursue and executing on innovation projects.
 Innovation would focus on certain areas that the Innovation Board defined.
 The company had to create a culture of innovation, in which failure was seen as a
learning opportunity, for example.
This organizational structure is a common first solution to the challenge of innovation. In an
effort to push innovation down through the organization, this becomes the responsibility of line
managers. Moreover, the company created an Innovation Department to address three issues:
1. Management of opportunities that do not fit business units
2. Provide business units with the capabilities to be innovative
3. Help business units identify opportunities in the market

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The first issue raised further issues: who identifies opportunities? Can a team of five to 10 people
scan all opportunities? How does the company perform due diligence on opportunities? How
does the company manage these opportunities? Should the company have a corporate venture
This document is an authorized copy for the course ASEAN Global Leadership Program - SRW&Co taught by prof. Prats, Julia at IESE B.S.

fund? An incubator? Who should it partner with? How will opportunities that end up being
successful be integrated back into the company?
The second issue also raised further questions: What are innovation capabilities? Business units
have been innovating on their own, what are these new innovation capabilities? How should
they be developed across business units? Should the Innovation Department be a training
department? Once these capabilities have been “taught,” what happens next? Should the
Innovation Department be an internal consulting department? What service does it provide?
The third issue also required further elaboration: Should the Innovation Department be scouting
for startups that address challenges that business units face? If so, to what extent does working
with startups address the original objectives of the company? Should the Innovation Department
collaborate with other corporates for joint projects? Should the Innovation Department do market
research? Should it jointly run design thinking projects?

The Role of the Innovation Department

The GIT started with two people and €30 million for five years. Within 3 months, the group had
grown to five people, a mixture of internal and externally recruited people with real corporate
innovation experience. The team inherited two aspects present in the initial design of the
innovation effort: an Innovation Lab and spreading innovation management practices across
the organization. The first meeting of the Innovation Board approved two already existing global
programs with funding from the team that were aligned with the concept of an Innovation Lab.
One of them had a large R&D component, yet intended to enhance existing businesses. The
other project was related to a robotics technology already present in other industries.
As soon as the core innovation team was in place, it had its first lean startup sprint —five days
around the concept of a lean start up, added with team-bonding exercises. By the end of the
sprint, the team members with limited innovation experience realized that having an innovation
mentality involved a new management paradigm. They recognized how many times they had
jumped from a problem to a solution; how often they had talked to customers, just to confirm
their own solution, rather than open up to the customers’ actual needs; how many times they
had been constrained by assumptions they did not even know they had; and how frequently
they had wasted resources, ignoring the potential of low-resolution prototypes.
The structure of the GIT centered on five global innovation managers and four innovation
champions. Champions were located across business units reporting to the country, but
informally to the team. The idea was to test the concepts and activities in those businesses
before taking them to the wider organization. Moreover, Innovation Ambassadors were created
– employees at business units who were trained in innovation methodologies, which enabled
them to manage innovation projects.
The team saw as its role to:
 Adapt best-in-class innovation methodologies, developing innovation skills at the
business units, ensuring the consistency of innovation processes across business units,
and creating a common innovation culture.

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 Lead interactions with outside parties to access technologies and methods required for
innovation at the company. The GIT spent significant effort networking with startups,
incubators, academics, and innovation agencies to identify new skills and methodologies
This document is an authorized copy for the course ASEAN Global Leadership Program - SRW&Co taught by prof. Prats, Julia at IESE B.S.

as well as innovation opportunities. Then, the GIT facilitated the interaction of these
parties with the three structures created at the business unit level: local innovation
teams, innovation champions, and ambassadors.
 Select and manage software tools for managing innovation across the portfolio of
projects. These tools were the management infrastructure to execute the various
innovation processes from idea generation and management to the execution of
innovation projects.
 Provide support across the three types of projects. For Horizon 1 projects, the team
provided advice in applying innovation methodologies and a cross-country perspective
to avoid duplicities. It facilitated Horizon 2 projects; in addition to tools and
methodologies, the team connected the project to external partners and internal
stakeholders, and provided a global perspective and financial support for the pilot phase.
In Horizon 3 projects, the team provided a global perspective, engaged multi-country
teams, facilitated sprints and provided resources and funding from the concept phase.
At this point, the Innovation Team had a “job description” not too different from the ones that
typical innovation departments have. They are in charge of spreading a set of tools and
methodologies associated with innovation, such as design thinking or lean startup methodologies.
They take on an educational, training and consulting role.
They also take on the role of interacting with external parties. Being “open” is an important piece
of the innovation toolkit and the department takes on the role of interacting with outside parties
from startups all the way to universities and research centers.
Startups are usually an attractive way to do open innovation because it provides visibility to the
innovation department. Another way to gain visibility is training on innovation methodologies
through joint projects. Interacting with startups initially involves the following activities
(from less to more commitment):
 Hackathons — groups of people (internal and external) come together for a few days to
develop a prototype of an idea.
 Startup competition—the company organizes a competition for startups around an
acceleration program that lasts a few months.
 Incubator/accelerator —ideas or startups are brought into an internal program in order
to work on them for a few months to evaluate feasibility and reach. These programs last
a few months.
 Venture client — the company identifies other startups to collaborate with business units
to reach a purchase order. The venture client already requires business unit involvement.
 Excubator — collaborate with external firms that take ideas from the company and
develop them as independent startups. Sometimes the employees who originally had
the idea are given time to join the startup.

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 Corporate venture fund — the company invests in startups with a dedicated fund or
directly from its balance sheet. This is the highest level of commitment before an
acquisition.
This document is an authorized copy for the course ASEAN Global Leadership Program - SRW&Co taught by prof. Prats, Julia at IESE B.S.

Typically, innovation departments run the first two initiatives to gain visibility early on.

Executing Innovation
The GIT wondered whether it should have a role in sensing markets and trends or, alternatively,
the Innovation Board should explicitly define where to look and the team would focus on those
themes. Markets and technologies were dynamic and the team could add value tracking these
dynamics, yet it was unclear how to address this function.
However, the team chose to focus on spreading an innovation mentality for enabling core and
adjacent innovation throughout the company. Targeting business units came from the fact that
the company had come up short identifying and executing enough Horizon 1 projects. The
Innovation Board believed that there was significant value in motivating employees to develop
and share ideas and have them use the right methodologies for transforming ideas into value.
The team decided to focus on Horizon 1 and four business units that had already responded to
the earlier message of the board and hired innovation officers. For instance, one of the business
units organized an innovation caravan across the country with 20 half-day visits to sites and
regions, inviting about 20 employees to explain the innovation movement and listen to their
ideas.
The team ran workshops on design thinking with real life experience, having participants go and
gather information from users. It also worked within existing innovation projects to adapt
and align their methods to the general innovation framework. For instance, it helped a business
unit to identify the depth of an issue that had been bothering management. Interviewing and
watching customers led to the conclusion that these concerns were not widespread but were
actually limited to just two specific segments. The project identified completely different sets of
issues that had been unknown to the company until then.
For Horizon 1 projects, the team brought a common approach to innovation and global
perspective. Being aware of all Horizon 1 projects across the group made the team a great
resource for sharing ideas and innovations across the company.
Innovation Ambassadors, through their informal links, helped improve the consistency of
innovation management across business units. Yet, the challenge remained to convincingly
communicate the value of these efforts to all the business units in an environment of shrinking
margins. The business units needed to understand why they had to cut costs, while headquarters
were adding people and investing in innovation.
The creation of the GIT raised important issues. First, if top management had signaled that
innovation was important going forward because of the changes in technologies and markets,
shouldn’t the Innovation Department focus on understanding these changes? Should it be
closely observing and running experiments to inform the strategy of the company? Second, if
business units were in charge of innovation, should the Innovation Department become a
competency center to help them innovate? If so, how should it spread these competencies?
Should it run training programs and hackathons around the world? Should it become a best-
practice consultant to specific projects? If the Innovation Board identified a weak pipeline of
Horizon 1 innovation, how can the Innovation Department solve this issue? Third, how does the

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Innovation Department make sure that innovation capabilities are absorbed and used? Training
and workshops are one-off events: are these initiatives enough to change a culture? How do we
make sure that business units implement innovation processes? How do we ensure that business
This document is an authorized copy for the course ASEAN Global Leadership Program - SRW&Co taught by prof. Prats, Julia at IESE B.S.

units understand the importance of innovation, when the quarterly profit pressure is so intense?

Managing Innovation Projects

Generating ideas is critical for nurturing the innovation process. So the GIT created an easy way
for people to submit ideas and for the crowd to evaluate them, as well as generate relationships
with external innovators. It also ran idea-generation sessions. The network of Innovation
Ambassadors across the company worked together with idea generators to improve the quality
of ideas. Still, idea generation was a challenge: how can the team motivate people to submit
ideas, as well as how provide feedback that would encourage more ideas?
A rotating group of assessors evaluated ideas against the existing portfolio using predetermined
value and complexity criteria, while the Innovation Board decided on the weights to those
criteria. Projects were ranked in a matrix. If they were deemed interesting, a project team,
supervisory structure and funding were put in place. Horizon 1 and 2 projects went through a
stage-gate process.
The GIT relied heavily on design thinking, lean startup, agile and business model canvas
methodologies. Many of these principles were new to most colleagues. The team grouped
methodologies around five areas: customer and problem discovery, capturing customer insights,
prototyping and testing assumptions, business design, and design sprints. The team emphasized
customer discovery using tools such as interviews, ethnographies, desk research and surveys,
with the goal of learning as fast as feasible. Customer insights relied on value proposition and
customer journey canvases. Prototyping built upon experiment and validation canvases, using
low-reliability prototypes. Business design relied on the business model canvas methodology to
iterate the potential solution. The sprint methodology supported fast cycles through these
phases. Most of the enabling effort of the team with business units involved spreading these
methodologies, while supporting specific projects and offering training opportunities.

Challenges Ahead
After six months, Gina explicitly took a step back to evaluate the challenges ahead:
 Leaders still did not see innovation as part of the strategy. Also weaker-than- planned
financial performance put pressure on the short term. The four original business units
saw the value of the GIT as bringing a common language to Horizon 1 projects, teaching
innovation methodologies across the organization, and helping in executing Horizon
3 projects. Gina believed that these four business units had become much more sensitive
to customer needs and to prototyping.
 Gina wondered how to further incorporate innovation into the culture of the
organization; how to engage people in idea generation and participate in innovation
projects. The main challenge was reaching many of the thousands of colleagues around
the globe and engaging them on the innovation journey, while adapting methodologies
to the various cultures and work habits of each business unit proved to be a challenge.
The quick wins had been relatively small Horizon 1 projects executed using agile

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principles, yet these efforts had to scale. Portfolio coordination was also in its beginning,
and needed to scale to have a consistent cross-country innovation strategy.
This document is an authorized copy for the course ASEAN Global Leadership Program - SRW&Co taught by prof. Prats, Julia at IESE B.S.

 Over time, the team had to turn its attention to Horizon 3 projects. First, the team had
to put together an innovation thesis in order for the Innovation Board to support them.
Those projects were the ones that would disrupt existing businesses and create growth
platforms. The first question was how to stimulate these out-of-the-box ideas. Could
these ideas be further stimulated through external (startup) collaborations, hackathons,
idea challenges and corporate venturing? For those ideas going forward, how should the
project team come together? How should the company attract top talent from business
units and outside to engage in these high-risk projects? How would business units react?
Should they team up with venture builders of external incubators? In terms of
organization, should they reinforce the original idea of an Innovation Lab, which would
act as an incubator in a separate location? Should they take the key topics from the
innovation challenge and set out startup scouting exercises? How should the lean
startup and design thinking methodologies be adapted to Horizon 3 projects?
As Gina considered these questions, she wondered how to create the internal momentum to
realize her original mandate.

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