From Budget Battles to Breakthroughs: The Case for CAPEX-Funded Innovation

Why Most Corporate Innovation Teams Don’t Transform Businesses

For decades, corporations have relied on dedicated innovation teams to secure their futures, tasking them with identifying and developing new growth opportunities. These teams are expected to drive transformation—think seismic shifts like Netflix moving from DVDs to streaming or IBM pivoting from hardware to services.

Yet, despite widespread efforts, not a single major corporation has achieved true business model transformation through this approach. At best, innovation teams deliver incremental improvements or adjacent innovations that strengthen existing operations but rarely disrupt or completely transform the industry. The question isn’t just why this happens but why the same ineffective strategies persist.

One major issue lies in how innovation is funded. Most corporations allocate innovation budgets through operating expenses (OPEX), an approach suited for predictable, short-term activities, not for bold, uncertain ventures. True transformation requires a shift to a capital expenditure (CAPEX) mindset—one that aligns with the long-term horizons and higher risks of disruptive innovation.

Why Funding Corporate Innovation Through OPEX Sets It Up to Fail

OPEX budgets are designed to optimize the efficiency and execution of a company’s existing business. This works well for established processes like marketing, supply chain improvements, or incremental product upgrades. However, applying the same metrics and financial discipline to innovation imposes limitations that undermine the potential for transformative outcomes.

Key Challenges of Using OPEX for Innovation:

1. Short-Term Focus: OPEX budgets prioritize activities with clear, immediate returns, stifling the uncertain and exploratory nature of disruptive innovation.
2. Budget Competition: Innovation projects must compete with other short-term priorities, like cost-cutting initiatives or sales campaigns, which have more tangible, predictable results.
3. Efficiency Over Experimentation: OPEX funding rewards operational efficiency, discouraging the trial-and-error processes required for breakthroughs.

For example, when a bold innovation project is evaluated against a traditional metric like ROI, it often loses out to more conventional initiatives with guaranteed payoffs. This creates a cycle where transformative ideas never get the time and resources they need to succeed.

How CAPEX Unlocks Transformative Innovation

Treating innovation as a CAPEX activity, on the other hand, reframes it as a long-term investment. Just as companies fund factories, infrastructure, or acquisitions through CAPEX, disruptive innovation can benefit from patient capital designed to mature over time.

The Advantages of CAPEX for Innovation:

• Long-Term Vision: CAPEX funding isn’t tied to quarterly earnings or short-term KPIs, allowing innovation projects to mature at their own pace.
• Budget Stability: Unlike OPEX, which can be trimmed to meet immediate cost-saving targets, CAPEX budgets are often locked in and shielded from operational fluctuations.
• Encouraging Risk-Taking: CAPEX signals a commitment to strategic bets, fostering an environment where exploration and experimentation are encouraged.

Shifting to CAPEX allows corporations to allocate resources in a way that aligns with the inherently uncertain and long-horizon nature of transformative innovation.

Solving the Challenge with Shift Actions: External Ventures and Bespoke Venture Studios

At Shift Actions, we specialize in building external ventures and bespoke venture studios tailored to a corporation’s strategic goals. These approaches create focused, agile ecosystems supported by patient capital, enabling organizations to explore bold, disruptive opportunities while mitigating the risks to their core operations.

External Ventures

Establishing independent ventures outside the core corporate structure is one of the most effective ways to ensure the success of transformative innovation. These ventures:

• Operate Independently: Freed from the constraints of corporate bureaucracy, external ventures can pivot quickly, take calculated risks, and focus solely on their growth objectives.
• Attract Talent and Partners: These ventures often appeal to entrepreneurial talent and strategic partners who align with the venture’s risk-reward profile.
• De-risk the Core Business: By separating transformative projects from the parent company’s operations, corporations can minimize the impact of failures while retaining the upside of successful ventures.

Bespoke Venture Studios with Single-LP Funds

Shift Actions designs bespoke venture studios supported by single-LP funds. Unlike traditional accelerators or venture clienting models, bespoke venture studios are purpose-built to align with the parent corporation’s long-term strategy, offering end-to-end support for ideating, building, and scaling new ventures.

How Shift Actions’ Venture Studios Work:

1. Structured Ideation: We generate, validate, and refine business ideas systematically, ensuring they align with the corporation’s strategic priorities.
2. Execution Excellence: With dedicated teams and resources, our studios focus on launching and scaling ventures efficiently and effectively.
3. Leveraging Single-LP Funds: A single-LP fund, exclusively financed by the parent company, provides a steady flow of CAPEX funding, ensuring alignment and sustained commitment.

Key Differentiators:

• Tailored Strategic Alignment: Unlike off-the-shelf accelerators, Shift Actions designs studios that directly support a corporation’s unique objectives and markets.
• Ownership and Control: Single-LP funding enables corporations to retain ownership and decision-making authority while leveraging the studio’s agility.
• Scalability: Our venture studios can develop multiple ventures simultaneously, creating a diversified portfolio that spreads risk and increases the likelihood of success.

How Shift Actions Differs from Venture Clienting or Accelerators

While venture clienting and off-the-shelf accelerators can provide value, they often fall short in enabling true transformation. Shift Actions takes a different approach:

1. Focus on Ownership: Instead of simply sourcing external startups, we help corporations build and own their ventures, ensuring alignment with strategic goals.
2. Custom-Built Ecosystems: Our bespoke studios are designed to deliver tailored solutions, not generic frameworks.
3. Deep Integration: Ventures built with Shift Actions can seamlessly integrate into a corporation’s strategic roadmap, creating lasting impact beyond proof-of-concept stages.

Practical Steps to Transition Innovation from OPEX to CAPEX

If your organization is ready to rethink its funding models, here are practical steps to ensure a successful transition:

1. Assess Current Innovation Portfolios: Classify ongoing initiatives as incremental, adjacent, or transformational. Focus CAPEX resources on the latter, where the potential impact is highest.
2. Create Distinct Funding Pools: Separate budgets for sustaining innovation (OPEX) and disruptive innovation (CAPEX). This ensures that long-term projects aren’t competing with operational priorities.
3. Partner with Shift Actions: Leverage our expertise in external ventures and bespoke venture studios to systematically build ventures aligned with your strategic objectives.
4. Develop New Metrics: Replace short-term KPIs with metrics that reflect the value of learning, market potential, and future revenue streams.
5. Invest in Governance: Establish nimble decision-making structures tailored to the needs of CAPEX-funded initiatives.
6. Equip Your Teams: Provide innovation teams with the autonomy, incentives, and resources to manage high-risk, high-reward projects.

A Roadmap for the Future

The shift from OPEX to CAPEX in corporate innovation isn’t just a budgeting exercise—it’s a strategic reorientation. By partnering with Shift Actions, organizations can leverage external ventures and bespoke venture studios to transcend incremental improvements and achieve transformative growth.

This approach empowers corporations to embrace bold innovation while maintaining control and alignment with long-term goals. The result? Industry leadership, resilience in the face of disruption, and sustained growth.

Call to Action

At Shift Actions, we don’t just talk about innovation—we build it. With expertise in designing and executing external ventures and bespoke venture studios, we help corporations unlock their potential. Contact us to explore how CAPEX-backed innovation can shape your organization’s future.