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Big Corporations Set to Outshine Startups in 'Fourth Era of Innovation'

August 16, 2012

4 Min Read
Big Corporations Set to Outshine Startups in 'Fourth Era of Innovation'

Pioneering startups have often been credited with pushing the boundaries of medtech innovation for the past several decades. And while medical device powerhouses such as Medtronic and Boston Scientific have also been instrumental in developing progressive technologies, they often look to the little guys for both inspiration and acquisition potential. But a paradigm shift could be on the horizon as major corporations--not VC-backed startups--usher in an impending 'fourth era of innovation' that could impact a plethora of industries, including the medical device industry, according to a recent piece in the Harvard Business Review.

In "The New Corporate Garage," author Scott D. Anthony argues that, with the exception of Apple, many major corporations have historically been too constrained by their size and bureaucratic nature to be at the forefront of innovation. Instead, nimble and creative entrepreneurs have blazed the trails for exciting, influential new technologies. However, the changing climate may be ripe for a role reversal, Anthony suggests. He speculates that we're on the cusp of the 'fourth era of innovation,' characterized by the vision of entrepreneurs within major companies that leverage available resources, scale, and agility to develop revolutionary solutions to global challenges.

"Three trends are behind this shift," Anthony states. "First, the increasing ease and decreasing cost of innovation mean that startups now face the same short-term pressures that have constrained innovation at large companies; as soon as a young company gets a whiff of success, it has to race against dozens of copycats. Second, large companies, taking a page from startup strategy, are embracing open innovation and less hierarchical management and are integrating entrepreneurial behaviors with their existing capabilities. And third, although innovation has historically been product- and service-oriented, it increasingly involves creating business models that tap big companies' unique strengths."

To illustrate the shifting business and innovation climate, Anthony highlights several examples, including the Healthy Heart for All initiative from Medtronic. Launched with the intent to bring low-cost pacemaker technology to underserved patients in India, the program entailed setting up camps to screen patients, communicating data to remote doctors, and partnering with a local company to produce India's first financing plan for medical devices, according to Anthony.

Although the program's success has been modest to date, it has been deemed promising and plans exist to scale up and expand efforts. Perhaps the most noteworthy aspect of the program, however, is that it exemplifies the use of business model innovation to tap into new markets and opportunities rather than technological innovation. This methodology, including the fact that the program was spearheaded by entrepreneurial-spirited 'corporate catalyst' Keyne Monson who launched the initiative without a direct report, is representative of fourth-era innovation, Anthony says.

"Medtronic mixed the entrepreneurial approach of a third-era VC-backed startup with the unique capabilities once housed in second-era corporate labs," he writes. "It's easy to bemoan the stifling bureaucracies that characterize some large companies. But giants like Medtronic have hard-to-replicate advantages over startups."

"[A startup] could mimic pieces of Medtronic's approach, such as the diagnostic camps and a financing plan," Anthony further opines. "But it would have to either build a new pacemaker and seek regulatory approval, which would take years, if not decades, or partner with an established pacemaker manufacturer. It would struggle to get meetings with local doctors with whom Medtronic already has deep relationships. And, of course, it would have to learn how to operate in India, a notoriously complex market. Medtronic simply has capabilities, experience, relationships, expertise, and resources that entrepreneurs don't."

And while not all corporate environments are conducive to such entrepreneurial mindsets and innovation, the ones that do offer a depth of resources that are simply unattainable to startups. Anthony identifies these key advantages of large corporations compared with startups:

  • Global infrastructure

  • Strong brand reputation

  • Partner relationships

  • Scientific knowledge

  • Experience with regulators

  • Process excellence

Anthony's article is a good read and brings up some significant food for thought. His proposed fourth era of innovation is certainly a principle that seems feasible for the medical device industry, especially in light of increasing globalization and emerging challenges. Medtech startups, after all, have struggled in recent years as risk-averse venture capital firms have shied away from early-stage funding and perceived challenges within the stringent regulatory environment. In addition, the impending medical device tax potentially further threatens startups' and small companies' livelihoods. The debate rages on, after all, that the current climate is stifling medical device innovation, so it seems reasonable that innovation could change in definition and shift back to the stables of the major medical device manufacturers, granted they provide a supportive environment in which innovation of all kinds can thrive.

But that's a big if, according to Anthony. "For catalysts to flourish, companies need to embrace open innovation, approach innovation systematically, simplify and decentralize decision-making mechanisms, and be learning-focused and failure-tolerant. Beyond that, they need to make the pursuit of transformative innovation a purpose-driven activity."

Who do you think will be at the helm of medtech innovation in coming years? Let us know in the poll below. --Shana Leonard

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