The economic currency of the 21st century is innovation. In our digital economy it is innovation – the intersection of new technologies with market opportunities – that provides for exponential growth opportunity and it is this growth potential that companies covet.
Innovation is coveted so highly, in fact, that some of “the most innovative” companies in the world are spending billions of dollars to acquire what they believe will be “the next big thing.”
Within the last year Facebook acquired WhatsApp for $19 Billion and Oculus for $2 Billion. Google acquired Nest for $3.2 Billion and Waze for $1 Billion. These four well-known acquisitions are just a fraction of the total deal volume within the HighTech and TechMedia sectors.
Why is it that these companies, who were once bastions of innovation themselves, are so willing to spend billions of dollars to acquire innovation?
Simply put, because innovation is hard.
Corporate America has yet to figure out how to systematize, or predictably create, innovation within the digital economy. Companies of yesteryear – like 3M, GE, and Bell Labs – once partnered with large organizations to help fuel innovation and further differentiate their products.
In the digital economy, however, innovation occurs at a much more rapid pace and requires a different mindset, investment thesis, thinking, and process.
Innovation is not about building something new. It’s about having the vision to leverage a new approach to tackle a new or existing problem in a manner that disrupts the status quo. Attaining this vision requires a combination of creativity, collaboration, technical depth and market insight.
Often, this “Aha!” moment occurs in the shower, not at a desk.
In today’s digital economy, if you are not continually innovating, you are losing your advantage and market share. Innovation is driving corporate growth and so long as this remains the case there will be a premium paid for innovation.
The question is, must we really continue to acquire existing innovation, or, can we learn to systematize innovation in ways similar to the way we systematized quality in the 80s?
I believe that within five years, high-priced acquisitions will give way to innovation partnerships similar to those of 3M, GE, and Bell Labs of yesterday. Companies will rely upon third parties who excel in innovation to create their own organic innovation and growth.
Keep your eyes open for digital innovators – such as 3Pillar Global and BCG Digital Ventures – as they evolve from innovative product development companies to pure-play digital innovators.