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Innovate or die? The rise of intrapreneurship

In the face of growing competition from start-ups, big business has long liked to talk the talk about the importance of innovation. For some companies, though, walking the walk is proving tough.

Coca-Cola, Nike and Tesco are just some of the corporate giants at the Web Summit tech conference in Dublin this week, pushing their efforts to innovate and keep up with the tech-savvy new kids on the block.

One of the buzzwords being bandied about at the exhibition halls is "intrapreneurship"—whereby employees of a big company are given the freedom to behave like entrepreneurs despite the corporate environment.

Big business and start-ups meet at the Web Summit in Dublin
Tristan Fewings | Getty Images
Big business and start-ups meet at the Web Summit in Dublin

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Companies that have launched intrapreneurship programs include Vodafone, IBM, Coca-Cola and German insurance giant Allianz. In the U.K., Tesco's innovation division, Tesco Labs, is separate to its head office and "works in a perpetual start-up phase".

'Afraid of dying'

Carsten Kolbek, co-founder of Rainmaking, a company that helps drive internal innovation, has identified the two main reasons behind big corporations jumping on board the intrapreneurship train.

"First, they're afraid of dying – or even being taken over by a start-up," he told CNBC. "Second, they know they know to develop new revenue streams, and for that you need innovation."

But although there's a lot of effort – and money – being pumped into these efforts, there are some major hurdles that big business needs to overcome to make it work.

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One problem is a potential lack of return, according to Andre Spicer, professor of organizational behaviour at Cass Business School, City University, London.

"Generally intrapreneurship divisions are set up when there's a desire for innovation from the top, but after a few years they start asking where the return on their investment is," he told CNBC.

"The division's budget has to be closely guarded because they might not be successful immediately."

'Every company needs scale and agility'

Coca-Cola was one of the companies that tried adopting the intrapreneurship model – only to find it didn't work.

"There are certain things that prohibit the kind of growth you need as a start-up that just cannot happen in corporate structures," David Butler, VP of Innovation at Coca-Cola, told CNBC in Dublin.

Coke's strategy now is to work with the entrepreneurs.

"What we're doing now is model 2.0. We changed direction – now the start-ups are completely independent," Butler said.

In October 2013, the company created its Founders Platform which brings entrepreneurs "into the Coca-Cola system". They receive seed funding from the company, which initially receives no equity or IP in return, making it different to other corporate "accelerators".

"Every company needs scale and agility," Butler said. "Start-ups have nothing but agility but are desperate for scale. What do big companies have? We have nothing but scale – but we need agility. Finding that connection is key."

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To boost its chances of success, Coke only works with entrepreneurs with proven track records. "This is absolutely key for us," Butler said. He highlighted that over the last year, 26 start-ups had been created within Coke's program, and 10 were still going strong.

'A big problem'

Kolbek argues that the term intrapreneurship was "a bit misused" by companies who liked the idea but often failed to create a start-up environment.

"It's a big problem. They're restricted by the same HR rules, they can't give employees stock options, all the software has to be approved by IT… that hugely restrictive," he said.

Instead, he argued that internal innovation divisions should be able to make independent decisions, avoid procurement policies and attract the best employees by offering shares in the entity.

Spicer stressed the importance of innovation divisions have a different culture, but also links back to the company proper.

"Sometimes these teams develop great ideas but there's no way for them to be integrated into the larger company," he warned.

- By CNBC's Katrina Bishop in Dublin