The Acceleration of Disruption: Technology’s Impact on Markets and Economy

The disruptive influence of technology on markets and the economy is not a recent occurrence. Joseph Schumpeter, a highly influential economist of the 20th century, highlighted this in his seminal 1942 book, stating, “New technologies lead to regular phases of disruptive creation, changing existing market patterns.” Today, this phenomenon is even more evident, with technological innovation rapidly impacting various sectors. Startups and major tech companies like Amazon, Apple, and Uber are disrupting established companies.

The entry of these agile competitors intensifies competition, leading to the decline of those who fail to adapt. A graph since 1960 illustrates a declining trend in the average lifespan of major US companies (S&P 500), dropping from 60 to 20 years. We anticipate this trend to persist, resulting in swifter growths and declines due to technological innovation.

“Successful adaptation to changing environments typically involves learning from exploratory initiatives (March, 1991).” To counter these threats, companies are exploring open innovation initiatives, particularly through corporate venturing teams.

Factors Driving Innovation Acceleration

The acceleration of innovation can be attributed to several factors. Firstly, easier access to technology, driven by reductions in the cost of computing, storage, and networking resources. This has enabled startups to leverage technology that was previously beyond their reach, termed as the democratization of technology.

Secondly, the internet and smartphones enable startups to reach a global customer base that was previously inaccessible or required an extensive physical presence. Technology has levelled the playing field for startups and established corporations alike.

Thirdly, the increasing interconnectivity of devices, coupled with the addition of AI capabilities, generates a vast amount of valuable data. The Internet of Things (IoT) is rapidly expanding, with trillions of new devices expected to come online, transforming various aspects of daily life, bolstered by the adoption of 5G.

Moreover, the growth of Software as a Service (SAAS) businesses and the lean startup methodology have expedited change. This methodology significantly reduces product development times by adopting a minimum viable product approach, unlike traditional long development cycles that focused on perfecting the product before launch.

Empirical evidence, as shown by Henry Chesbrough, a professor at UC Berkeley and the originator of the term “Open Innovation,” supports the democratization of technology. Research indicates a substantial increase in R&D spending by startups relative to large corporations, demonstrating the shift in the innovation landscape.

This confluence of factors has created the perfect storm, characterized by shorter technology and product life cycles, intense global competition, and a broader spectrum of technology. Incumbent companies in traditionally slow-changing industries are being drawn into this storm by disruptive startups and technology giants. These entrants are revolutionizing industries through innovative business models and rapid transformations.

Corporate Venturing: Embracing Startups as an Opportunity

Corporate venturing, broadly defined as initiatives by corporations to leverage the potential of technology startups, has evolved over the years. The origin of corporate venturing can be traced back to the 20th century when conglomerates sought opportunities for growth, diversification, and synergies.

In the current era, the last five years have witnessed a notable increase in corporate venturing teams globally. These teams are deploying more capital and participating in a significant portion of VC-backed deals. Companies without such teams are contemplating their establishment, raising critical questions on how to approach this strategy.

Strategizing Corporate Venturing

Defining an organization’s corporate venturing strategy necessitates a comprehensive understanding of objectives and organizational limitations. Corporates must invest time in understanding their internal dynamics, including their readiness to engage with external, innovative startups. Factors such as management and employee acceptance, risk aversion, and failure tolerance must be evaluated.

Significant impact on a company’s bottom line through corporate venturing is unlikely in the short term. Hence, a long-term commitment is crucial to realize the benefits and achieve a return on investment. The strategic approach to corporate venturing should align with the organization’s unique circumstances, ensuring sustainable growth and adaptation in the evolving technological landscape.