Setting up innovation outposts in global technology clusters, such as Silicon Valley, Boston, and Tel Aviv, is highly popular among Fortune 500 corporations. The logic is that if you are present where new trends, ideas, talents and startups are generated you might be able to recognize and assimilate them into your firm’s innovation pipeline. But too many innovation outposts remain isolated from their firms. To get real value from them, companies need to do two things simultaneously. First, they need a “sense and capture” approach in the outpost itself, so that insights from the local area can be absorbed. Second, they must set up “integration and propagation” processes to make sure that all that value is transferred back and properly used by the wider firm.
In March 1848 San Francisco newspaperman Samuel Brannan announced that gold had been found in California. In the gold rush that followed, more than 300,000 people headed to the area to make their fortunes. Over 150 years later, there’s still a gold rush in California — now re-located to Silicon Valley. Even organizations that remain headquartered in other cities have set up innovation outposts there in the hope that high-tech silicon dust will rub off on them.
Setting up innovation outposts in global technology clusters, such as Silicon Valley, Boston, and Tel Aviv, is highly popular among Fortune 500 corporations. The logic is that if you are present where new trends, ideas, talents, and start-ups are generated you might be able to recognize and assimilate them into your firm’s innovation pipeline. And, of course, it looks cool — both inside the organization and to outsiders.
Persuaded by such logic, companies agree to make the investment and set up their innovation centers. People are relocated or hired locally to staff the outpost. It’s expensive, but you agree to pay an innovation premium because you appreciate that in innovation clusters the search for talent is fierce.
Unfortunately, all these grand ambitions and substantial investments are likely to have limited returns. Being close to the action doesn’t guarantee a piece of the action. My experience suggests that outposts fail for a variety of reasons. Perhaps the most frequent is the isolation of the outposts and their detachment from the rest of the company. So, even if the outposts manage to absorb local value they usually fail to propagate it back to the organization, which means they fail on the ultimate reason for their existence.
Consider a European energy company that decided to open an innovation outpost in Silicon Valley a number of years ago. It started by sending out a few high potential young employees for scouting and networking. They received generous expat remuneration packages and the tremendous opportunity to create their own social capital by meeting entrepreneurs and venture capitalists and being exposed to the frontier of ideas and technologies. They worked with little coordination and control from HQ. Unhindered, they quickly amassed valuable social capital through an array of personal and professional relationships, as well as local intelligence and insights. For the employees involved, this was a huge opportunity.
But for the organization? There were no processes and systems in place to integrate the outpost team with the company HQ and the rest of the organization. That meant that although the outpost team had struck gold, there was no means of sharing it among the rest of the firm. The company risked losing the value it had invested to create. And, indeed, that is what happened. Some of the outpost team were hired by local companies or joined startups. Most of the absorbed knowledge — local contacts and relationships, intelligence, insights, and so on — left with them. The company no longer has any operations at all in Silicon Valley.
To make innovation outposts work successfully, companies need to do two things simultaneously. First, they need a “sense and capture” approach in the outpost itself. Second, they must set up “integration and propagation” processes to make sure that all that value is transferred back and properly used by the wider firm.
In my experience with large multinationals the typical pitfall is to overlook the second element, the integration and propagation model. Frequently, this is not even designed, much less implemented. Without one, all the social capital, ideas, intelligence and opportunities of the outpost are not fully leveraged by the company. This is one of the main reasons why many initiatives fall short of expectations and fail to deliver the excepted returns.
An integration and propagation model should address three objectives:
- Map out local relationships. Mapping the local team’s network makes social capital relationships explicit and avoids the risk that it stays with the local team. As an analogy, think of sales and marketing and the rise of CRM. Among other reasons, companies build CRM systems to avoid contacts, histories, and networks of relationships leaving the company together with the salesperson.
- Propagate intelligence and insights. Detect, capture, evaluate, and channel the intelligence and insights from the innovation cluster through the organization. The tacit knowledge should be codified and shared through formal processes and protocols to avoid the risk that valuable information absorbed by the outpost doesn’t reach the mothership. For example, the outposts of a pharma company develop and distribute a company-wide newsletter of the latest trends and news from the hotspot. A utility company has set up a community of people on the intranet with conversations triggered and moderated by the outpost team on the latest trends and intelligence from the outpost.
- Speed up corporate deal making processes. When the outpost scouts a potential deal — a research, licensing, startup investment, or M&A — there must be processes to integrate the local opportunity with the company’s existing deal processes. The flow and speed of decision making must be reviewed as typically decisions need to be made much faster in a hyper-competitive environment such as an innovation cluster. Otherwise, a company runs the risk of missing opportunities due to delays caused by standard corporate processes. Shortcuts and priority lanes must be thought of. Accountabilities, transfer protocols, and decision bodies must be reviewed and properly designed to capture value on locally sourced deals.
Amidst the hype and enthusiasm about having an outpost, CEOs and Chief Innovation Officers must look for ways to create a return on investment, not just a return on coolness. If companies want to reap the benefits for their innovation pipeline it is not enough to send a few smart employees overseas and wait for the magic to happen. They need to think carefully and strategically about how to shape and implement a two-sided model, in which integration and propagation is key. Otherwise, they may just find themselves sitting by as the next gold rush happens.