The Proven 10-Step Framework for Corporate Incubation in 2023 and beyond

What to expect from your corporate incubator journey

Incubators come in all shapes and sizes, with different companies adapting the strategy to meet a variety of needs. For example, some incubators are built to accelerate digital transformations, while others focus on helping companies grow beyond their core business. They can be geared towards producing spin-offs or spin-ins, and they can specialise in working with external startups or incubating internal ideas (hybrid combinations are also possible). There’s no “one size fits all” formula because each company is different, with its own unique combination of goals, needs, assets and requirements.  

While the building process changes from company to company, over the years we’ve come up with a proven approach to map out a tailored strategy. Here’s what it looks like from an eagle-eye perspective:

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As you can see from the above model, the entire process from strategy design to program run can be set-up in roughly 8 to 10 months. 

Here are a few other factors to consider before kickstarting your journey:

Programming

Corporate incubator programs tend to be flexible and on-demand due to the rapidly changing needs of a young company that is still establishing itself. While scaling a business model is a complex and challenging endeavour, it has a relatively straightforward objective. 

Duration

While each corporate incubator is unique, requiring a customised timeline, in general, the “incubation” process takes 1 to 3 years and concludes when the new company is ready to be pitched to investors or consumers. 

Return

Corporate incubators generally have full ownership of the venture, which provides them with a long-term return on investment. This is in contrast to, say, accelerators, which tend to establish partnerships or arrange some sort of equity in the venture.

Step 1: Define a purpose that aligns with your broader corporate strategy

Building a successful corporate incubator requires a clear sense of purpose that aligns with your broader corporate strategy. It’ll help keep your efforts and resources focused on the right targets. To start, envision your end goal and why your company needs an incubator e.g.:

• What’s currently working, what’s not? What’s missing?
• What knowledge and assets can you leverage to gain a competitive advantage?
• What challenges are you tackling (e.g. portfolio diversification, going digital, new revenue creation, etc.) 

Once you have a clear understanding of your purpose, you can work on defining the scope of your incubator e.g.:

• What types of startups will your incubator focus on (e.g. internal, external)?
• Will your incubator be industry-specific or broad-range?
• What is the geographic scope of your incubator's operations?
• Will your incubator be a physical space, or will it be digital?
• How will your incubator engage with the broader innovation ecosystem (e.g. universities, local startups)?

A clear purpose and scope will put you on the right path to attract the right talent, resources, and partners to support the success of your incubator.

Example: Bayer's G4A Digital Health Partnerships

Bayer's G4A (formerly Grants4Apps) aims to improve the lives of people through digital health technology. The program focuses on building long-term partnerships with startups and entrepreneurs who are working on innovative digital health solutions. This mission is completely aligned with Bayer's corporate strategy of improving people’s lives through science.

Step 2: Define your incubator’s innovation range

The second step involves identifying the type of innovation you want to pursue, e.g.:

Core Innovation

This type of innovation involves optimising existing products for existing customers. It’s the least risky of the three and is focused on improving your current products or services to better serve your customers.

Adjacent Innovation 

This type of innovation involves entering a new market by leveraging your company’s existing expertise. This type of innovation is less risky than radical innovation and enables you to capitalise on your existing strengths to expand your business.

Radical Innovation

This type of innovation is aimed at disrupting the market by developing new products or services that don’t exist yet. It’s the most ambitious type of innovation and requires significant resources, but it also has the potential to create entirely new markets and generate substantial revenue.

Defining the type of innovation you want to achieve, will enable you to develop a clear strategy and set achievable goals for your incubator. So take the time to carefully consider your options and choose the type of innovation that is best suited to your needs, assets and targets.

Example: Intel Ignite

Intel Ignite aims to support innovative startups with cutting-edge technologies that are relevant to Intel's core business. Its innovation range is focused on developing solutions that align with Intel's core business, which allows the company to remain at the forefront of technology while also fostering the growth of promising startups.

Step 3: Benchmark your incubator strategy

To successfully benchmark your incubator strategy, it's essential to first understand the ecosystem you’ll be playing in. This involves answering some of the following questions:

• What are the best practices of competitors in your industry and adjacent ones (e.g. hero cases)?
• What is your company's innovation ecosystem comprised of (e.g. other units)? How do your assets and resources flow between each entity?
• What governance models would best fit?
• Will you be building spin-ins or spin-outs? 

Answering these questions will give you a deeper understanding of your ecosystem, enabling you to find the best value space within it and leverage it effectively. 

Example: Walmart's Store No. 8

Walmart's Store No. 8 is designed to help the company stay ahead of the curve in terms of innovation and technology. As part of its benchmarking process, the incubator closely monitors the startup ecosystem to identify emerging trends and technologies. It also looks at how competitors and other retailers approach innovation and incorporates those best practices into its own strategy.

Step 4: Choosing the right incubation format and range of spin-in vs. spin-out tolerance

This step involves deciding on the range of spin-in versus spin-out tolerance of your incubator and selecting the appropriate incubation format (e.g. internal, external, or a hybrid approach). 

Example: Johnson & Johnson Innovation Centers

Johnson & Johnson (J&J) operates a network of innovation centers around the world to help nurture early-stage healthcare innovations. Its incubator, JLABS is focused on bringing external ideas into the company to develop them further (i.e. spin-ins). The spin-out tolerance is limited, keeping innovations within its own ecosystem to fully realise their full potential. This strategy has enabled J&J to create new products, services, and technologies that address unmet medical needs and improve patient outcomes.

Step 5: Design your innovation pipeline and funnel

This step involves developing a structured process for sourcing, choosing, incubating, and implementing new ideas. The pipeline should be designed to facilitate a smooth flow of ideas from the ideation stage to implementation, while the funnel should be used to validate ideas and select the most promising ones.

The layers in your pipeline and funnel will vary depending on your particular needs, but in general, they’ll look something like this:

Example: Ford X

Ford X is a moonshot incubator focused on developing new mobility solutions. The incubator has a well-defined innovation pipeline and funnel, with a process for ideation, prototyping, and testing. Ford X uses this process to develop new mobility solutions, such as electric and autonomous vehicles, and bring them to market.

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Step 6: Set your innovation metrics and incubation milestones

To track the progress of the incubator, it's essential to define a set of innovation metrics and incubation milestones. It’s also crucial to keep in mind that you’ll be managing innovation efforts, not financial returns. With that goal in mind, here are a few of the questions and KPIs you should consider:

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These should be designed to measure the progress you make toward your targets, as well as the impact of its activities on the company's overall performance. For a more detailed overview, check out our NICE metrics framework.

Example: Novartis Biome

Novartis Biome is a digital health innovation lab focused on solutions to improve patient outcomes. It works with set innovation metrics and milestones designed to ensure that startups are making progress towards their goals. Novartis Biome also provides startups with resources to help them achieve their milestones, including access to a global network of experts, data, and technologies.

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Step 7: Stakeholder mapping and governance structure

This step involves mapping the key stakeholders involved in your incubator and developing a governance structure to ensure effective decision-making and accountability. This includes identifying the roles and responsibilities of different stakeholders (e.g. the management team, the innovation team, and the incubator's external partners).

Example: Citi Venture’s Studio

Studio was launched by Citigroup to develop innovative products and services and boost economic vitality. The incubator’s governance structure ensures effective decision-making and accountability with clear roles and responsibilities for different stakeholders, the innovation team, and external partners.

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Step 8: Building a tangible and actionable roadmap

This step involves creating a detailed roadmap with a set timeline for the incubation process and a pilot stage to test the strategy before scaling it.

Your roadmap should be actionable, with clearly outlined goals, objectives, and milestones, ensuring that everyone involved in the incubation process is working towards a common goal. It should also include specific action items and deadlines that are realistic and achievable.

The exercise is beneficial in many ways, making it easier for you to anticipate challenges and roadblocks and communicate your strategy to stakeholders and investors. 

Example: Bosch Startup Harbour

Bosch Startup Harbour develops innovative solutions in mobility, industry 4.0, and energy. Its incubation roadmap includes several stages, like ideation, prototyping, pilot, and scaling. The incubator also has a clear timeline for each stage, with specific milestones and objectives that startups need to achieve to move to the next stage. The process also includes a pilot stage, where startups can test their solutions in a real-world environment and receive feedback from Bosch experts. This helps ensure solutions are market-ready before scaling.

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Step 9: Define the resources and talent commitment you need

Defining the resources and talent commitment required helps ensure that your incubator has the necessary support and expertise to achieve its strategic goals and objectives.

Attracting and retaining the right talent is key, and it can be achieved by providing the right incentive (e.g. equity) and creating a supportive environment that encourages risk-taking and experimentation. Lastly, you’ll need to ensure that your team has adequate resources and access to the funding, mentoring, and growth opportunities they need to move your incubator forward.

Example: Google Ventures (GV)

Google Ventures (GV) helps founders with innovative ideas to grow and succeed. It offers its team equity as well as bonuses for achieving specific milestones. GV has been successful in attracting and retaining top talent by creating a culture that fosters innovation and entrepreneurship. The approach has contributed to the success of ventures like Uber, Nest, and Slack.

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Step 10: Bringing the vision together and securing internal buy-in

The final step is to bring the vision of the incubator together and secure internal buy-in from all stakeholders. This involves creating a compelling narrative for the incubator and communicating its value proposition to key decision-makers within the company.

By securing buy-in from all stakeholders, you can ensure that the incubator has the necessary resources and support to succeed. This includes not only financial resources but also access to talent, expertise and the autonomy needed to operate successfully.

Example: Verizon 5G Labs

Verizon 5G Labs develops cutting-edge solutions using 5G technology. It operates in several locations around the world and provides startups with access to Verizon's 5G network, as well as technical expertise and support. 

To secure internal buy-in, Verizon 5G Labs has developed a clear and compelling narrative around the potential of 5G technology and the need to invest in its development. It also has established partnerships with other key players in the industry, helping to demonstrate the potential of 5G and building momentum around its adoption. By doing so, Verizon 5G Labs has been able to secure the necessary resources and support to successfully incubate startups and drive innovation in the 5G space.

Final Thoughts

Building a successful corporate incubator requires a clear strategy, a dedicated team, and a robust framework to guide the process. By following the steps outlined in this article, you can create an environment that fosters innovation and entrepreneurship and ultimately drives business growth.

Remember, corporate incubation is not a one-size-fits-all approach, and the framework presented here can be tailored to meet the specific needs and goals of your company. By taking the time to define your purpose, understand the ecosystem, and develop a structured process, you can create a powerful incubator that drives innovation and propels your company forward in 2023 and beyond.

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Building a customised incubation strategy enables you to leverage existing assets and take advantage of growth opportunities fast, all while expanding internal capabilities and fostering a culture of entrepreneurship. Get started today.