In-house innovation funds need firm guiding hand

Many companies prefer investing externally for innovation, but setting aside funds for employees to develop their ideas can work if a balance is struck between staff autonomy and corporate control.
Written by Ellyne Phneah, Contributor
Setting aside funds for employees to develop their ideas can work if a balance is struck between staff autonomy and corporate control.

The setting up of internal capital for employees to embark on innovative projects are not too popular these days, but for companies which do encourage such initiatives, there are tangible rewards to be reaped as long as employees are given the appropriate direction and focus.

Michael Yoshikami, CEO and founder of Destination Wealth Management (DWM), said such internal catalyst funds have long been a part of companies based in United States' Silicon Valley. The funds provide employees with the opportunity to create products and services in a venture-capital environment, but within the company they work for which is beneficial for both parties.

Asian companies are following suit. India's IT services giant Mahindra Satyam, for example, announced last November its US$50 million seed fund for its staff to "start the next Facebook or Skype". It believed this would not just drive innovation but help attract and retain talent too.

That said, the popularity of such internal catalyst funds are diminishing in popularity, noted Yoshikami. As companies tighten controls in the workplace, more are focusing employees' time on specific tasks in accordance with their business directions and goals, he explained.

Yahoo is a good example of this, he pointed out. CEO Marissa Mayer had earlier decreed that employees will have to turn up at office for work and telecommuting is no longer advocated, while also stating that company-driven projects should be their focus and not independent activities.

Dennis Phua, executive director of Azione Capital, said for such companies, investing in external venture capital activities would be a better fit. Even though this might require them to commit additional manpower and resources to work with third-party companies, this will reduce internal politics and friction associated with the implementation of innovation funds for employees, he said. Benefits there, but parameters needed

Yoshikami advised companies not to overlook the benefits of setting up internal catalyst funds completely. Given the right focus to ensure projects are productive and executable, this is still a viable method to drive innovation within the organization, he said.

Companies should make sure employees are spending their time on projects which are not merely interesting but may provide rewards for the company in the future, he added. "A catalyst fund is not simply about providing opportunity for creativity but designed to add to the company's bottom line on a long-term basis."

Pearson Education, for example, has an internal catalyst fund whereby any employee with a good idea and is able to pitch it well, wins the opportunity to utilize the capital. The employee is allowed to select the best people in-house to aid him in developing the idea and, if successful, the entire team gets the due recognition and reward, said Frank Koo, president of solutions and qualifications at Pearson Education Asia-Pacific.

The fund has "inspired several fantastic innovations internally", a company spokesperson told ZDNet Asia, but declined to elaborate further as the program is still under review.

Phua said the challenge lies in providing sufficient employee autonomy without losing corporate control over the final product. Arrangements such as establishing first rights to participate in development and joint marketing should help establish the right parameters for such innovations to flourish, he advised.

Companies can also partner an innovation specialist to look at organizational areas that facilitate natural innovation from employees, he added.

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