Why Companies Struggle with Innovation

Explore the Challenges of Innovating Internally

1/30/20247 min read

Innovation is crucial for the long-term success and growth of any organization. However, many organizations find it incredibly challenging to foster a culture and allocate resources for innovation. In this blog post, we discuss the reasons why companies fail to innovate within their organization and explore the benefits of hiring an external innovation team.

The Difficulty of Dedicating an Innovation Team

Innovation requires a collective effort from all levels of an organization. It cannot be achieved by a single visionary or a small team alone. Instead, it requires the active participation and collaboration of employees across different departments. When an innovation team is created, it is crucial that the parent company provides adequate support while allowing the team to innovate without internal barriers. However, companies often struggle to create such an environment of open communication, cross-functional collaboration, and the sharing of ideas. Hierarchical structures, rigid processes, and a fear of failure can stifle creativity and hinder innovation efforts. Internal innovation also requires a significant commitment of time, resources, and personnel.

Dedicating a specialized team for innovation might appear as a luxury exclusively for larger enterprises, yet the reality is that innovation is essential for all businesses to maintain their relevance and competitive edge in the current marketplace. For smaller firms, faced with constraints in budget and staffing, the idea of reserving a group solely for innovation endeavors presents a significant challenge.

At Worthwhile Venture Studio, this scenario is a common observation. Small organizations recognize the necessity of innovation for business growth. Yet often, the responsibility for internal innovation falls on the CEO, who is already burdened with their primary business duties and operates as a solitary figure. The task of innovating under these circumstances can seem overwhelming and nearly unattainable when undertaken alone, despite the clear understanding of its importance.

In larger organizations, we have seen them face their own unique set of challenges. The sheer size and complexity of these companies can sometimes lead to bureaucratic hurdles, making it difficult to maintain the agility and quick decision-making that effective innovation often requires. Additionally, there can be a tendency towards risk aversion in larger companies, as the stakes are higher for any new venture that might disrupt existing revenue streams.

Operational Drift

Another reason why companies fail to innovate is the lack of emphasis on innovation in their strategic planning. Many organizations focus primarily on short-term goals and immediate profitability, rather than investing in long-term innovation initiatives. This situation is referred to as "operational drift" and occurs when a company becomes overly consumed by day-to-day operational or tactical activities, such as routine administrative tasks, managing daily operations, or firefighting immediate issues. As a result, the organization may neglect or deprioritize strategic planning and long-term thinking. This mindset can lead to missed opportunities and a failure to adapt to changing market dynamics.

Imagine a technology startup initially focused on developing cutting-edge software products for a niche market. Their strategy was built around innovation, creating unique solutions that addressed specific customer pain points. However, as time passed, they began to experience operational drift due to various factors such as rapid growth, customer requests, talent attrition, and market pressures. As a result, the startup shifted away from their initial innovation-focused strategy and found itself struggling to maintain the same level of innovation and competitive advantage. Their products and services became less unique, and they began to lose market share to more innovative competitors.

Team Dynamics

Building a successful innovation team requires not only the right individuals but also the right mix of skills, personalities, and expertise. Companies often struggle to assemble a team that possesses the necessary technical knowledge, creativity, and a deep understanding of the market they operate in.

In addition, fostering a culture of innovation within the organization is essential. Without a supportive environment that encourages risk-taking and embraces failure as a learning opportunity, even the most talented team may struggle to innovate.

During Idea Bootcamp at Worthwhile Venture Studio, we encourage each of our clients to pause and sincerely evaluate how ready their organization is to embark on a new venture. One critical piece we ask is, "Have you assembled the right kind of team to take on this venture?" Does the team possess the necessary traits, risk appetite, and skill sets? These questions should be answered before any initiating of the innovation process. If the team is not aligned, even with an exceptional idea, the likelihood of the venture failing significantly increases.

The Benefits of Hiring an External Innovation Team

What if your company is in this situation? What if your organization recognizes the need for innovation but is unsure about where to begin? You might have some financial resources at your disposal, but time is a limited commodity. Is there a viable solution to this common challenge among organizations? One potential answer lies in engaging an external innovation team. Opting for external innovation brings forth numerous benefits compared to attempting to manage it internally.

Faster Innovation

When evaluating "Time to Market" (TTM), which is the time it takes to develop an idea into a marketable product or service, we see that larger companies often have a longer TTM. This is due to their more complex decision-making processes and a general tendency to avoid risks. Smaller companies also tend to experience longer TTM, usually because they lack certain expertise or resources.

External innovation teams, however, are specialized in their field and bring fresh perspectives and expertise to the table. They can quickly identify opportunities, develop innovative solutions, and execute faster than an internal team. This agility allows organizations to stay ahead of the competition and adapt to changing market demands more efficiently. Additionally, it's important to recognize that a prolonged innovation process typically leads to higher costs for companies.

Access to a Diverse Skill Set

External innovation teams often consist of individuals with diverse backgrounds and expertise. By leveraging this diverse skill set, organizations can tap into a broader range of ideas and approaches. This diversity fosters creativity and promotes out-of-the-box thinking, leading to breakthrough innovations.

It's essential to understand that a successful external team should possess a broad range of expertise across various innovation domains. At Worthwhile Venture Studio, our team is purposefully equipped with a diverse set of skills necessary for launching ventures. This encompasses areas such as fundraising, engineering, business strategy, customer research, legal formation, UI/UX design, financial projections, operations, and human resources. We understand that innovation is more than just a technology plan.

Cost-Effectiveness

Hiring external innovation teams offers a cost-effective alternative to building an internal team. This approach allows companies to bypass significant overhead expenses such as recruiting, training, and maintaining a full-time innovation staff. In addition, external teams usually operate on a project-by-project basis, which provides flexibility for organizations to adjust their innovation initiatives, scaling up or down based on current needs and budget constraints.

External teams also bring specialized expertise and fresh perspectives that might be absent internally, potentially leading to more innovative and effective solutions. This can translate into better use of resources and a higher return on investment. External teams have the advantage of being able to iterate quickly to changing market conditions or project requirements, without the long-term commitments associated with hiring a permanent staff. These teams often come equipped with their own tools and methodologies, reducing the need for additional investments in technology or training from the hiring company. This model not only saves on direct costs but also accelerates the innovation process, potentially leading to faster market entry and a competitive edge.

Objective Perspective

An external innovation team brings an objective perspective to the table. They are not bound by internal politics, biases, or preconceived notions, enabling them to challenge the status quo and identify opportunities that may have been overlooked by internal teams.

Primary Focus on Current Business

Hiring an external innovation team addresses a common concern for many companies: the fear of overextending their internal resources and losing focus on their core business activities. This strategy allows the internal teams to remain dedicated to their primary roles and responsibilities, ensuring the ongoing success and stability of day-to-day operations.

By outsourcing innovation, companies can alleviate the stress and risk associated with venturing into unfamiliar territories or diverting crucial resources away from their main business areas. It offers a safety net by allowing the company to explore new ideas and technologies without the potential disruptions or distractions that can come with managing these projects in-house.

This strategic move can ensure that the organization continues to excel in its primary market while also capitalizing on the fresh, innovative insights and solutions provided by the external team. This balance of maintaining core business focus while fostering innovation is crucial for long-term growth and competitiveness in rapidly evolving markets.

Conclusion

Innovation is a critical component of organizational success, but many companies struggle to foster a culture of innovation internally. The challenges of dedicating an innovation team, the focus on short-term planning, and the need for the right mix of talent can hinder innovation efforts. However, hiring external innovation teams offers a viable alternative, providing organizations with faster innovation, access to diverse skill sets, cost-effectiveness, objective perspectives, and the ability to focus on core competencies. By embracing external innovation, companies can overcome the hurdles and unlock the potential for transformative growth.

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