New growth outside the core business is at the top of the CEO agenda for many companies in mature sectors. Our Breakthrough Incubator service is a unique and powerful model for creating and delivering new step-out businesses. Using this approach Arthur D. Little (ADL) acts as lead delivery partner in a fully externalized incubator process managing a network of other players, covering end-to-end innovation from ideation through to consumer insight, concept and product development, prototype manufacture, in-market testing, packaging development, brand development, operational and supply chain planning and launch.
Creating new step-out businesses is not easy
Many CEOs face something like the “$1billion challenge”: how do I deliver the significant growth that the markets expect? For companies in established mature businesses with low singledigit growth prospects, or where technological disruption is threatening to erode or even destroy the current business, this challenge is critical and even existential. Acquisition is clearly one route to consider, but acquiring a $1billion revenue business is extremely expensive and not without risk. Innovation is another route to growth, but creating new businesses requires ‘breakthroughs’ and is unlikely to be delivered by core R&D. Consequently many companies have created stand-alone, semi-independent breakthrough innovation teams and are using vehicles such as start-up incubators, accelerators and corporateventuring schemes. However, despite some successes, many companies are finding that these initiatives still fall short of their expectations in creating significant new business growth. For example, in our own breakthrough innovation survey1 , more than 85 percent of companies were unsatisfied with their breakthrough innovation performances. There are several reasons for this, for example:
- Failure to go beyond the prototyping stage: Many innovative prototypes falter when more thorough market/ consumer testing is conducted, or when the practicalities of large-scale material sourcing and manufacturing are properly assessed.
- Internal rejection of radical new products: Many large companies have built-in “antibodies” that hinder or reject radical new innovations, especially if they are seen as threats to the current business.
- Brand and receptivity constraints: In most B2C and some B2B businesses, brand is king. Sometimes great new innovations are killed prematurely because they don’t easily fit with the existing portfolio of brands, or because they can’t find a home within the current business unit structure.
- Lack of resources and capabilities: Often there is not enough resource availability to pursue non-core innovation, or else the company lacks the right in-house capabilities to support growing a new, non-core business.
- Scale-up risks: In many companies, concepts and prototypes can stay on hold for years, without being either properly commercialized, or finally killed off. This is often due to the level of investment required for scale-up and the perceived high residual risks, combined with reluctance to give up on a pet project.
In other words, lack of success is more often due to failures at the scale-up and commercialization stages, rather than lack of good ideas or concepts at earlier stages of the innovation cycle.