Innovator’s dilemma: Coca-Cola is using its existing assets to co-create start-ups

Clayton Christensen’s 1997 book ‘The Innovator’s Dilemma’ argues that companies that put too much emphasis on their existing customers’ needs and fail to adopt to new technologies and adapt to new business models will eventually fall behind.

It’s a concept that speaks to the crux of the problem that many companies that have been around for decades are currently facing. A number of companies across a number of industries are struggling to understand how they can compete with new-age digital-first start-ups, when they are tied to a number of existing investments in infrastructure, assets and resources.

These investments limit their agility and their creativity. Old processes and the lack of ability to ‘see outside of the box’ mean that they lose out to new entrants that can very quickly eat away at their business.

Just look at Uber, Netflix or Amazon. These are prime examples.

A few months ago I went to a talk about how ‘traditional’ companies with established business models could counter this ‘innovators dilemma’. For the life of me I can’t remember the spokesperson’s name or which company they are from, so apologies. But what they said stuck with me. The idea was: what if these companies could use their existing resources and assets to be nimble and compete with the start-ups?

I remember thinking at the time that this made sense to a certain extent. Some of these companies have an incredible amount of resource at their fingertips: brand, people, capital, distribution networks. Could this not be used in new ways to compete?

However, I struggled to see a model that allowed for agility and the execution of new models using these assets. I hadn’t seen any examples of this working in practice.

But today at Adobe’s Design Advantage Forum I got the opportunity to listen to a talk by Coca-Cola’s VP of Innovation, David Butler. Coca-Cola is a perfect example of a ‘traditional’ pre-digital company. Set up in 1944 it has dominated the drinks market, across a number of segments, for decades.

And although it may not be obvious how digital could impact a market where the product is so physical, Butler explained that Coca-Cola has put a fair bit of effort into solving this ‘innovator’s dilemma’. And I think he could be on to something. He said:

So if you’re a big company, what do you do about it? [If you look at] FedEx, there are 50 start-ups looking at how they can compete in FedEx’s space and how they can attack their business. If you’re a company and you’re FedEx, what do you do about that? Are they done? Of course not. So what do you do?

Usually there are three models that big companies can use to get ahead in this type of scenario.

Butler outlined that companies have traditionally taken the following three routes:

1. Acquired start-ups - which he said can be “expensive”.
2. Create accelerators or incubators. Butler said that the problem with this is that they tend to have a timeframe attached to them - “speed dating, meet a lot of people but you don’t get very far.”
3. To act like a start-up. Butler said that this is the hardest, but the best model. Retrain your whole base to act like entrepreneurs. He admitted that this is “very difficult and time consuming”.

What can be done?

Butler explained that when he was hired a couple of years ago, this was his job. To solve the innovators dilemma. No small task. He said:

I was trying to find a way to do this, find a model to effectively do this. We stepped back and thought, what if we could co-create start-ups? Coca-cola literally creating and designing new companies with founders. We have lots of assets, we have brands, we have one of the largest distribution networks in the world, we have resources, we have people. What if we could leverage all this and co-create new start-ups and early stage companies with founders?

This is exactly the idea I heard being talked about earlier on in the year. Rather than acquiring or creating start-ups, which then quickly become ‘Coca-Cola’ in nature and lose their innovation, co-create them and invest. Give them the assets and resources to beat their competitors, whilst solving your industry problems, all the while taking a cut. Butler said:

That’s what we’ve done. What we do is focus on big industry challenges; challenges that face our company and also the entire industry that we’re in.

When the founders are ready, we can open up our assets and relationships. We can call Taylor Swift just as easily as we can call the CEO of Walmart. If you’re a founder, that sounds cool, but how do you do that? We can give you access.

In the last year we have launched 12 start-ups this way, using this co-creation model.

One example of this is Wonolo. Coca-Cola is part-owner in the start-up, which solves its real-time stocking problems. For example, if a customer sees that he or she has taken the last of a can of drink from the shelf of a local store, he or she can alert Wonolo and the stock can be refilled within an hour. This is something that Coca-Cola would love to do, but doesn’t have the agility. Butler said:

If one of our products isn’t on the shelf it’s a big problem for us. We can’t sell it and the consumer can’t buy it. We decided to work with some experienced founders that have been there and done that, entrepreneurs that have been there and done that. They know how to design a product, take it to market and build a team.

What if there was an on-demand model to fill that shelf? What if you could restock that shelf an hour after it was empty? The challenge with that is that is that is almost impossible for a company the size of Coca-Cola, we can’t operate at that kind of speed. But they can. What they did was they designed an on-demand staffing model that focused on our challenge.

It’s an agnostic, independent company outside of Coca-Cola, but we use them and we are investors and co-creators with them. We use Wonolo for many different things and we see an asset return on this investment.

Think about it

Butler’s argument is compelling. When you think about the assets and resources available to a multi-

national corporate, it seems counter-intuitive to think that these couldn’t be used to compete with a start-up in Silicon Valley that has two founders and a website/app.

He argues that more companies should be thinking along these lines. Be a part of your company’s problem. It may cannibalise your business now, but it could save you in the long run. He said:

Think about this model. Imagine what you could do with your assets? For me personally, I think this is the next wave of innovation. I see this as a huge new wave of innovation.

We know we are not making a lot of things in terms of innovation, but [they] help us come up with a model to do the kind of innovation we are not doing. We have people in our R&D teams working on the things that we know how to do, but it’s about those business models that we don’t know anything about. Digital technologies are changing daily and are almost impossible to put into a business plan.