THE BLOG

What Is a Corporate Incubator, and Why Is it a Bad Idea?

01/13/2014 05:12 EST | Updated 03/15/2014 05:59 EDT

As innovation moves to the forefront of corporate agendas, corporations are attempting to capture the competitive advantages that result from innovation. While many believe that innovation can be captured with existing organizational processes, these are actually a severe impediment to innovation.

A number of key reasons that corporate incubators are poor at developing innovative products include:

(1) Lack of Clearly Defined Goals

(2) Wrong Incubator Personnel

(3) Lack of C-Level Support and Direction

(4) Lack of a Clearly Defined Strategy

(5) Lack of Critical Infrastructure

Lack of Clearly Defined Goals

The biggest problem in any organization is their lack of clearly defined goals. This is particularly problematic for innovative organizations. A significant startup problem is their short-term focus, one that is driven by necessity. Unfortunately, startup immaturity is compounded when corporate incubators lack consistent short, medium and long term goals. For corporate incubators to truly help startups succeed, they must ensure their goals are sufficiently aligned internally.

Corporate incubators can also suffer from severe cases of multiple personality disorders, particularly when it comes to goal alignment. This is due to a number of factors, including:

(1) Multiple decision makers: When a corporate incubator lacks coherent consensus, this damages the ability of both the startup and the corporate incubator to achieve their goals.

(2) Multiple and conflicting objectives: Multiple viewpoints leave the organization in disarray. Not only do they create organizational chaos, but they waste precious resources.

(3) Operational paralysis: Repetitive re-done work wastefully idles resources due to an inability to concretely set consistent goals.

Wrong Incubator Personnel

Startups and innovation are not based on process. They are based on individual talent and the overall startup ecosystem. As such, it is critical to get the right people to ignite and sustain the innovative drive required. Unfortunately, the focus on process means that the wrong types of people are put in charge of corporate incubation efforts.

There is a mismatch between skills needed and sought out by corporate incubators. For the most part, corporate individuals require the following characteristics to excel in the corporate environment:

(1) Patience: Climbing the corporate ladder means dealing with the time honored tradition of "paying your dues" before being allowed to advance to next level.

(2) Process Engagement: While standardization works for normal business processes, they do not work for unusual business processes.

(3) Politics: "Corporate politics" are antithetical to startups, particularly if they are developing a revolutionary idea.

Lack of C-Level Support & Direction

Shifting C-level support is another major issue with which corporate incubators must contend. The capability of these corporate incubators is impeded through the lack of C-level support and direction in a number of critical ways, including:

(a) A lack of either a short-term or medium-term strategy prevents startups from reaching their full potential and prevents the corporate incubator from attracting the best startups.

(b) Changing strategic focus every year prevents a corporate incubator from truly leveraging startup benefits.

(c) Constant changes in direction or support make it virtually impossible for the corporate incubator to develop expertise in specific fields that can potentially benefit the corporate parent.

Lack of a Clearly Defined Strategy

Another significant challenge for a corporate incubator is the fact that they lack a clearly defined strategy that ties back to the corporate parent. The corporate parent can implement a number of highly diverse strategies for the corporate incubator, including:

(a) Being a corporate research hub: A legacy of many older corporations is that they have significant research and development labs that excel at primary research.

(b) Nurturing startups: Startups need an environment where they can feel they are not constrained by existing corporate processes and are capable of freely taking risks such as in an incubator environment like Y Combinator.

(c) Fostering an innovative culture: Many corporations have started using corporate incubators to plant the seeds of cultural change.

(d) Funnelling new products and services: Many corporations believe that by interacting with the startup community, it provides them with the foresight to potentially see future trends.

Unfortunately, corporations have a tendency to "mix and match" approaches which inevitably lead to a lack of strategic and operational effectiveness. This inefficiency is primarily a result of a number of myths:

(a) Personnel characteristics required are interchangeable: While the general personal characteristics required for any corporate incubator employee are someone who is smart, flexible and future-oriented, the specific characteristics required differ depending on the type of approach being implemented.

(b) Processes required are interchangeable: There is a mistaken belief that the processes required for corporate incubators are interchangeable. A research-oriented corporate innovation centre dedicated to primary research requires significantly different processes versus a corporate incubator dedicated to developing new product and service lines.

Lack of Critical Infrastructure

Infrastructure requirements may differ depending on the strategic vision of the corporate incubator, but it is critical that these entities have sufficient infrastructure in place to grow. Infrastructure here goes well beyond its traditional definition and extends into the basic elements of corporate incubators, including:

(a) Mentors: A critical component of startup-oriented corporate incubators is the need for mentors who can provide battle tested experience with building and growing a startup.

(b) Independent Advisory Board: Another critical component of corporate incubators is the need for an independent advisory board with the right expertise to provide relevant and practical advice free from corporate political interference.

The sad reality concerning many of today's corporation incubators is that they have more than one of the above-mentioned fatal flaws deeply rooted as part of their strategy. This is concretely demonstrated through the continuing lacklustre results attributed to corporate incubators that currently exist.

For corporate incubators to become a beneficial part of the global innovation ecosystem, it is necessary to address the above-mentioned core issues. Without correcting the foundational problems of existing corporate incubators, not only are corporate parents wasting valuable resources, but they are destroying enthusiasm of innovation in general.