More than two weeks trying to sign up for unemployment by phone.
Breakdowns in supply chains for masks, ventilators, and toilet paper.
Rampant cyber-security breaches.
Challenges sharing medical records.
These are just the tip of the iceberg. Issues in our critical infrastructure, from transportation and logistics to communications to utilities, have become glaringly obvious during the COVID-19 pandemic. Unfortunately, many families and businesses will be gravely impacted, but this is a much-needed wake-up call.
Many of our systems and processes continue to be manual and paper-based. They are fraught with inefficiencies. Lack of visibility and integrity prevents timely, quality decisions. It also comes at a time with growing environmental and sustainability concerns.
Governments have announced multi-trillion-dollar programs to fill the void in critical infrastructure. Venture capitalists, including Marc Andreessen, have called for the rapid build out of much needed physical infrastructure. The American Society of Civil Engineers’ (ASCE) current grade for U.S. infrastructure is a D+, estimating that the country needs to spend about $4.5 trillion by 2025 to improve the entirety of its infrastructure.
Size Confers More Power Than Ever
Some innovation to make this infrastructure improvement possible will come from startups. But the reality of today’s economy is that size confers more power than ever, rather than less. Much of the needed innovation and change required must emanate from the domain expertise within corporations, industrial enterprises or existing institutions who have responsibility for these assets.
Over the last 30 years, my partner at New Urbana, George Thomas and I (most notably at IBM and Nextel respectively), have experienced this first hand developing in-house innovation programs, deploying large-scale public and private sector initiatives as well as creating, scaling, and exiting multiple early and growth-stage ventures.
The innovation status quo within institutions is badly broken. A recent study by Accenture reported that 93% of executives “know their industry will be disrupted at some point in the next five years, only 20% feel they’re highly prepared to address it.” Digital transformations, and enterprise IoT projects (even funded new technology ventures) continue to fail at consistently high rates (50-90%).
Enterprises are hampered by business unit profit and loss constraints, inflexible business models and cultural overhead. Many also lack the skills and resources or the right balance of efficiency and agility to effectively innovate. Many lose key employees (and intellectual capital) because they do not have growth and entrepreneurial opportunities. An increasing number of institutions are trying to adapt a venture capital model, by investing in startups themselves.
But the growth in corporate venture capital (CVC) has not been a panacea. According to the folks at Sloan MIT Review, most fizzle out after a few years and never achieve the desired financial or strategic outcomes.
Institutional challenges are caused by an excess of institutional control and an inability to scale up innovations, according to a June 2019 report by McKinsey & Co. The consultancy also found companies hinder the development of their start-ups and limit entrepreneurs’ freedom to make decisions.
Far too often, industrial enterprises effectively waste significant portions of innovation R&D and end-up overpaying for later-stage ventures and reacquiring lost talent at a premium.
“Many large companies simply do not have the right balance between efficiency and agility. As a result, they are not flexible enough to incorporate innovations before the opportunity disappears,” according to Josemaria Siota of IESE Business School´s Entrepreneurship and Innovation Center at the University of Navarra in Barcelona. Siota has found that larger companies find it difficult to innovate, with less than 25% reporting valued outcomes.
Recognizing the limitations of the status quo, we need to engage others in a bigger tent. Industry domain, academia, government, technology and venture development experts must come together in a constructive manner that does not get bogged down in bureaucracy and theoretic science projects. Besides the mega-urban centers, democratizing access to solutions independent of geography is key.
For societies and businesses to thrive, they must have safe, resilient and sustainable communications, transportation infrastructure, utilities (power, water, waste) and affordable construction and management of the built environment and urban landscape. However these types of solutions cross traditional technology boundaries. It requires people, process and insights across software, hardware, and networks that are secure and scalable and can leverage the latest data science technology.
The impetus most likely needs to come from within enterprises and institutions responsible for the design, construction, and operation of our critical infrastructure. They will need to go beyond their current boundaries. Engaging dedicated innovation experts, experienced entrepreneurs, and broad ecosystem relationships that can apply best practices and insights from adjacent industries, applied science and venture financing.
If done correctly, this approach should programmatically address many of the top reasons for innovation failures while continuously reducing the risks that have become obvious in the wake of the pandemic.
Collaborative application of organizational, functional, and technology best practices can also accelerate secure, scalable development while minimizing technical debt. Ultimately, “living” co-innovation hubs could continuously curate new solutions and sustainable venture development.
The Rise Of Venture Studios
Venture studios, entities within institutions and corporations, have demonstrated that programmatically tackling the people (experience), process (best practices), technology (secure, scalable, manageable), access (relationships and information) challenges can drive significantly more effective venture development. According to Global Startup Studio Network, exit rates of elite-studio born portfolio companies are higher than the average series D venture investment.
To directly impact the lifecycle management of critical infrastructure from design to operations, innovations in material science (circular economy waste to value opportunities) along with solutions that combine best-in-class, software, data science, IoT sensors, and communication networks are critical to ensure the desired outcomes. Opportunities can range from sensors to improve the management of microgrids, water supplies, and waste management to on-demand private wireless networks to improve the management of people, supplies and equipment at construction sites to improving the energy efficiency of commercial buildings.
By combining the recent success of venture studios with problem first domain expertise, working directly with a co-innovation “village” to drive venture development prioritization, the path to achieve economic, environmental and economic outcome value is a less rocky one.
So in one of the darkest hours in history, we need to shine a light toward more effective innovation. To help ensure cost-effective and efficient use of the pending, much-needed funding, new approaches, such as co-innovation, should enable more resilient and sustainable lifecycle management of our critical infrastructure.
Michael Riemer is general partner of New Urbana.
