Doing Better at Doing Good

Doing Better: Triangle companies use internal innovation labs to drive growth

CorrespondentsFebruary 1, 2014 

If you’re like us, looking at your cellphone bill each month inevitably makes you think, “surely, this could be cheaper.” Yet the incumbent mobile carriers have had a lock on the market, until recently.

Leveraging Wi-Fi technology and working with a national carrier to provide backup cellphone service, Republic Wireless has cracked the code to provide a cut-rate plan for your mobile phone. Last November, it rolled out its service with Motorola’s MotoX 4G smartphone – and sales are skyrocketing.

It’s an awesome startup story. The twist? It was incubated within Bandwidth, a 14-year-old company based in the Triangle.

Trying to avoid what Harvard Business School professor Clay Christensen famously coined the “Innovator’s Dilemma,” a growing number of companies are creating internal innovation labs to foster entrepreneurial thinking and launch new ventures.

There are several advantages to these innovation efforts. They help recruit and retain high-quality entrepreneurial talent while infusing the overall corporate culture with a sense of possibility and creativity. They promote ideas that would normally be stifled by traditional business practices but might blossom in a protected environment. And they can create new engines of revenue growth for the parent company.

Labs not without risk

However, they are not without risk. Innovation labs can be a significant distraction from the company’s core business lines. They take money to set up and divert resources from proven business lines. Those not working within the lab may grow resentful that time, resources, and attention are being showered on the shiny new thing while they continue to toil away in the trenches.

Take the example of GM and Saturn. Initially conceived by GM executives, Saturn was launched in 1985 as a “different kind of car company” and operated outside the GM conglomerate. It had its own assembly plant and workforce, unique car models, a separate retailer network, and brand recognition for “no-haggle” pricing.

By 1994, Saturn was the third best-selling car in the United States and consistently got high rankings for customer satisfaction. Moreover, Saturn’s 9,000 employees – most of whom came from other GM plants – are credited with creating a transformative workplace culture committed to being world-class.

Yet in 2009, the Saturn brand was discontinued. What happened? While some blame an overly ambitious growth plan and high cost structure, many credit Saturn’s demise with GM’s mishandling of its innovative startup.

When it launched Saturn, GM funneled $5 billion into the company and told all other divisions they didn’t have money to upgrade existing models – leading to deep resentment within the rank and file. This was exacerbated by a unique labor agreement within Saturn that permitted profit-sharing and job flexibility – leading to strained relations with GM’s labor union, the United Auto Workers.

Significant internal pressure and an apparent lack of executive management resolve led to breaking up Saturn and integrating it back into GM in 2004 – spelling the beginning of the end.

Entrepreneurial hotbed

For “intrapreneurial” startups to thrive, a few conditions need to be in place.

The new venture needs to be allowed to create a unique culture and distinctive business practices. At the same time, it has to be able to take advantage of the resources, smarts and experience from the parent company – a significant competitive advantage over traditional startups. Further, appropriate growth and profitability expectations need to be set. Accountability is critical but not at the sacrifice of the “lean startup” mentality. There needs to be room for trial and error.

Senior management can maintain a cooperative environment by promoting collaboration and replenishing resources in the base company if the startup significantly drains them.

Building on Republic Wireless’ success, Bandwidth has launched Bandwidth Labs to foster innovative solutions inside and outside the company – facilitated by a recently announced relationship with startup hub American Underground. It also hosts “Big Ideas Weeks” during which anyone in the company can pitch a new idea with the chance of being funded.

Seventh Generation, a leading environmentally friendly household products company, recently announced the launch of its social venture arm Seventh Generation Ventures to be housed within the entrepreneurial co-working space, HQ Raleigh (which Christopher helped start).

Blue Cross and Blue Shield of North Carolina is curating innovative solutions through its “Launch Pad,” and Duke Energy is backing the Charlotte-based clean energy accelerator CLT Joules while incubating its own internal startup ventures. The list goes on.

North Carolina is on the move as an entrepreneurial hotbed. It would be great to see more of our larger companies add fuel to the fire with their intrapreneurial efforts.

Christopher Gergen is CEO of Forward Impact, a fellow in Innovation and Entrepreneurship at Duke University, and author of “Life Entrepreneurs: Ordinary People Creating Extraordinary Lives.” Stephen Martin, a director at the nonprofit Center for Creative Leadership, blogs at www.messyquest.com. They can be reached at authors@bullcityforward.org and followed on Twitter through @cgergen.

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