How the industry can overhaul its current innovation infrastructure and fortify its leadership position for decades to come.
For decades, U.S. auto manufacturers have focused on making safer, incremental changes to vehicles to hit sales benchmarks vs. thinking several steps ahead. Today’s reality is that the next generation of automotive winners will be determined by things such as electric vehicle range and rapid recharge, not how many ways a truck’s tailgate can fold or how many cupholders it has.
Increasingly, auto executives seem to understand this imperative. Just look at the diversity and scope of bets being placed by the likes of General Motors, Ford Motor Co. and BMW. But the jury is still out on whether all this spending will pay off. When companies place large innovation bets, the critical determinant of success is not as closely tied to the size of investment as one might think. It’s about how the company innovates.
Wellspring research in 2021 showed there are four key innovation practices common among companies that significantly outperform industry peers — including companies in the automotive sector. Among these is a preference for aligning innovation goals almost equally toward short-, mid- and long-term value creation.
This is a significant break from the past, when 70 percent of innovation efforts were focused on incremental or “Horizon 1” innovations. In fact, our research clearly demonstrated that the fastest-growing corporations strategically invest substantial effort, energy and resources into longer-term innovations with the potential to change their industry.
Many auto companies believe they are placing strategic innovation bets. They understand they need to be more open to innovations and they have been investing in external startups and emerging technologies. The problem is that company leadership then declares victory and waits for the spoils to materialize. The vast majority of companies fumble their execution of those bets and waste the investment.
In recent years, the U.S. automotive industry has often tried to “buy innovation” by spending large sums to acquire splashy startups. Yet too many in the industry still rely almost exclusively on traditional mergers and acquisitions. In most cases, these habits are out of step with what acquired startups need to generate strategic value. Acknowledging this problem, other companies err in the opposite direction by leaving their newly acquired businesses adrift.
The typical approach to innovation partnering also leads to a string of missed opportunities. Most big companies pursue external innovation by heading straight for the most prestigious university research programs or the buzziest startups. The problem is that these “usual suspects” represent a small minority of all the R&D and innovation underway. Without systematically scanning the external environment to build a distinctive network of innovation partnerships, most companies fail to locate the most promising technology breakthroughs and up-and-coming research programs until it’s too late.
The most innovative corporations avoid these pitfalls by building dedicated technology scouting and innovation venturing teams at the corporate level. Among the fastest-growing large companies, 62 percent have full-time technology scouting teams (vs. 32 percent of everyone else) and 41 percent rely on ventures teams as a primary funding mechanism for new innovations (vs. 22 percent of everyone else).
To perform at peak capacity, scouting and ventures teams work together to bring the highest-potential startups and technologies in contact with internal innovation efforts. Then, they work with business and product groups to help the company leverage these assets as strategic growth levers.
