Most large companies take a similar approach to corporate innovation, running it out of centralized innovation groups. But companies in China, both domestic and foreign, are much more likely to turn to market-facing sources of innovation, including customers, competitors, and front-line employees. China's fast growth is producing a disproportionately large share of new customers for many industries, which demands an orientation toward generating ideas closer to customers to drive more market-led innovation.

Forging partnerships and investing in startups for new technologies can help companies catch up with rivals, but it doesn't always give them a competitive advantage. Most would do better to rethink their innovation systems. They must treat external innovation as a way of balancing and broadening their portfolios, not as a substitute for internal innovation. Only then will they be able to execute the transformations that will allow them to win the digital future.