29/03/2019 What happens when, instead of competing, the Davids and Goliaths of the business world join forces?
What obstacles, constraints, difficulties or traps have to be avoided or overcome? Beyond perceived wisdom or pre-conceived thoughts, representatives of major corporations, incubators, and start-uppers in Europe, Latin America, the Middle East, and South-East Asia provided us with their insights on open innovation as it is today. Their feedback shows that, despite economic, cultural and organisational hurdles, alliances between organisations of various sizes now form the ecosystems that increasingly spawn the products, services, and solutions of tomorrow.
It seems cooperation between large and small businesses has become the new normal. Indeed, over the last 5 or 6 years, more and more large companies have started their labs. “We did it in 2014”, says Corinne Jouanny, who heads Altran’s accelerator, “with the goal of breaking silos and best meet the expectations of markets and final users. Our mission is to experiment and co-build new value propositions for our clients. Time-to-market has been significantly reduced. In the automotive industry, for example, it has shrunk by 40%. The trend is similar in other sectors, even those that are protected, such as the space industry.”
What we see here in action is a new deal that compels companies to transform and form alliances with the best, those who will help them go faster, break formerly prevailing ideas or stereotypes. “In today’s world, certainty is a thing of the past. Value now lies in disruption”, Jouanny explains.
An Iterative Process that Gives the Right to Make Mistakes
Organisations have no choice but to innovate; this will require cultural change or transformation. On one hand, they need to foster emulation, to get experts from various professional backgrounds to work together, without silos. On the other hand, they need to overcome the fear that the very idea of disruption could instil.
The whole process is both interactive and experimental. It is about going fast, prototyping, and progressing without waiting for precise specifications. In other words, learn as you go, and there is value in that alone. “It cannot be separated from the right to make mistakes. It does not cost much: when you show a digital mock-up or prototype to one of its potential final users, he or she will give you feedback on the value creation you are offering. Whatever this feedback is, you will benefit from it. It will help you move forward”, Jouanny explains.
Against Certainties and Innovation Killers
In the first stages of any innovation project, there is always a wave of optimism. Shortly after, however, skepticism tends to take over. Being an innovator means fighting against the established order. “In every organisation, you are faced with hundreds of people who will tell you that it will never work, that others will do it better, that clients will not be interested.”, Jouanny says. So that is a fact: innovation killers are many, and they are full of certainties.
Nicolas Enderlé is the founder of La Suite. He manages and plans workshops aimed at helping people and teams work together to foster the production of innovative ideas and solutions. “If you want to foster innovation,” he says, “you have to separate imagination and evaluation, to delay the assessment phase. Immediate assessment will inevitably highlight the faults and missing elements of any new idea. It might then leave an idea dead in the water, before it even gets a chance to be experimented. It is essential to plan several stages, one for imagination, one for elaboration, one for assessment.”
Corporations must understand that the innovation universe is “another world.” It is a speculative, creative, dream world, where experimentation rules. In other words, a start-up universe, and the key is to be able to build a future-oriented business model that will integrate the notions of ‘new and uncertain.’
A perfect counter-example of that is the fate of Kodak. Created in 1881 by George Eastman, a visionary engineer with a passion for photography, Kodak built its development on innovation. In technical terms, first, with a flexible transparent film; commercially, then, with the decision to give easy-to-remember and straightforward names to its products (think Kodachrome, in 1935, or Instamatic). Innovation is what made Kodak the undisputed photography and cinema world leader. In the ’80s, the firm employed more than 145,000 people all over the world. However, faced with increased competition, mainly from Japan, Kodak was unable to embrace the digital universe firmly. And even though they invented and patented the first digital camera, they somehow lacked the vision and the audacity to market it. Others did step in, and when Kodak tried to react, it was already too late. Nothing could stop the downfall of the Kodak empire. The company filed for bankruptcy in 2012.
The Kodak case clearly shows that what is primarily at stake is the ability to move from innovation to the operating phase. The trick is to be able to build bridges between those two phases and to move from one to the other seamlessly.
Beware of Start-Up Washing
For a structured organisation, successfully managing the above-mentioned move is nothing short of challenging. It requires a high amount of flexibility, which is more akin to how start-ups operate. Teams, culture, processes have to be transformed and prepared. A high level of agility is necessary to understand emerging behaviours and trends but also to quickly react to the initiatives of those who act as disruptors.
To meet the challenge, there is a simple and quick answer: if start-ups can do it, then let us call on start-ups. Then, the question becomes: how to find the best way to cooperate? Cédric Maloux, the founder of StartUp Yard, a Prague-based start-up accelerator, analyses: “Large corporations remain quite selfish. They like start-ups very much, but for their benefit. They usually understand start-ups as providers that will help them solve a problem. This ends up stalling innovation, even within the start-ups themselves. I believe that large companies should be educated and taught to respect start-ups, take them seriously and see them as genuine partners.”
From Egypt and the Middle East, Tamer Taha, founder of Yomken.com – a crowdsolving platform for industrial, environmental and societal challenges – offers a somewhat similar perspective. “Major corporations leave you with little room to manoeuvre. Some of them are not ethical enough to acknowledge your efforts, and do not understand that start-ups operate in project mode, not as mass production units. Also, as start-ups need large organisations, they find themselves in a weak position when it comes to negotiating a deal.”
Matthieu Maloux, founder of Pukka, a solution that engages staff in content creation, notes that one of the dangers is “start-up washing”. “Many companies use start-ups to appear as innovative. Setting up an internal incubator is not enough to help boost the start-up ecosystem. Neither does providing financial support, because that can trick start-ups into a somewhat false and dangerous sense of ease. There are many recent examples of French start-ups that went down, despite being heavily funded. Money can be an accelerator, but it is certainly not an end in itself. ”
Founder of Mister Doe, a Mazars-incubated start-up that uses big data to help insurance companies comply with their legal and financial requirements, Vladimir Nguekam sums it up and says start-ups also need to step up to the plate: “Start-ups that work with or are backed by major corporations cannot afford to rest on their laurels. On the contrary, they have to work twice as hard, and absolutely avoid thinking they are in a risk-free comfort zone.”
Even though too much money might be a problem in some areas, Sherif El Rakabawy, founder of Yaoota, a Cairo-based e-selling platform, says access to funding remains a major issue. “In our part of the world, funding is still fairly low. Things are getting better, but there’s still a big gap in capital supply. I believe local investors remain risk-averse. They seek fast return first, while in more mature ecosystems, such as the Silicon Valley, growth is the number one concern.”
Chile might be a few thousand kilometres from Silicon Valley, but the mindset seems pretty close. Rodrigo Sánchez Sepúlveda is the founder of MuvSmart, a company providing electric mobility solutions for logistics and car-sharing; Geraint Lacey is the founder of Agrobolt, a start-up providing the agricultural industry with hi-tech monitoring solutions. They both are incubated by Engie Factory in Santiago, Chile (a successful model later replicated in Mexico), and they both agree the return on investment is not what their incubator primarily cares about. “Engie undestands progress and developments were going to be gradual. No one knows how fast we will reach our objectives”, says Rodrigo Sánchez. “Engie has a long-term investment horizon, and aims to become a pioneer in exploring new means of transportation. Money is not the number one issue, which gives us a huge amount of freedom and flexibility.” Geraint Lacey concurs: “We can rely on Engie’s financial support. We do not need to try and convince banks that our business model is viable. Besides, both in terms of digitalisation and renewable energies, we are in perfect compliance with Engie’s strategy.”
In Asia-Pacific as well, incubating or accelerating start-ups has become commonplace. There too, large corporations play a major role. In Singapore, Amra Naidoo is Head of Community and Operations for muru-D, a Telstra-backed start-up accelerator that operates in South-East Asia and Australia. She is convinced that start-ups have a lot to gain with that kind of support. “First,” she says, “they benefit from genuine financial support. In addition, they become part of a community. In our programme, we have ten start-ups, and none of them is alone. The experience and expertise of our team members are also a huge plus, as the entrepreneurs we help and assist can take advantage of our network. Finally, Telstra’s backing and involvement provides us with significant resources, which also benefit our start-ups. They can grow with extra peace of mind.”
Matthieu Maloux also focuses on business development: “What start-ups want is to improve their product and find new markets. From this point of view, major corporations can become ideal playing fields. The trick is to meet the right people – those who want to help start-ups. Of course, start-ups have to do their jobs. They are suppliers and must deliver what they are supposed to, but I believe these types of agreements that open markets for start-ups and provide companies with innovative solutions can be mutually satisfying.” Jacques de T’Serclaes, CEO of Engie Factory in Mexico and Chile agrees. “A large corporation that decides to work with start-ups needs to know precisely what offering or solution it wants to test and on which markets they want to test it. This is how you can precisely target your potential start-up partners. Then, you need to give them access to the key people in the organisation, so they can show them their solutions or their prototypes. And then, you need to get all management structures on board. You need to take it one step at a time.”
… rather than merge and integrate
For Matthieu Maloux, this cooperative model is highly preferable to acquisitions. “If you go beyond the black and white perspective of big bad Goliath versus nice little David, you quickly realise both players need each other. This is how ecosystems are built. Not through acquisitions, that generally do not fit what start-ups want.”
Examples abound of starts-up that have been acquired by larger corporations. “Some of those start-ups, which had very successfully grown, were acquired by such American giants as Google or Microsoft. Many times, though, beyond the fact that their founders got rich, those start-ups lost their innovative spirit, as their products or solutions got absorbed into something bigger. After a couple of years, they simply became tools. Acquisitions may act as smoke screens. In reality, they tend to kill innovation and do not give large businesses a start-up-like mindset or mentality.”
Leopold Albert has founded several start-ups and now works as an independent consultant. He shares the same opinion: “I do not believe trying to integrate start-ups into larger groups is the way to go, except in specific cases- for software developers for instance. A large corporation that wants to buy and integrate a digital communications agency will make a mistake, because it is likely to break the dynamics that drive the agency. I’m favourable to the creation of synergies, much less to integration processes.”
At Deep Algo –a start-up specialising in “code mining”, i.e. extracting algorithms from existing in-house code, and making non-IT people understand their business rules-, cooperation with large companies takes the form of co-building partnerships. “We have ideas that are 80% developed. And then we finalise the remaining 20% with our clients. We test our tools with them, and get their feedback or their suggestions for improvement. Either they tell us our solution meets their expectations and we move forward, or they say it is not worth it. That is how we validate a technology or a business model,” says Xavier Lagarrigue, founder and CEO.
Open Innovation and How it is Done
Nicolas Enderlé states what he believes to be the cardinal rule of innovation: “Innovation is not a business unit. On the contrary, it is fundamentally transversal and must be collectively driven. If you hire a Chief Innovation Officer so that your teams have the necessary means, take initiatives, are encouraged to act, or become familiar with new methodologies, then I am certain you have got it right. But if your goal is to centralise all innovation projects, then I think you are making a mistake, because these projects must be driven by business units”. Sherif El Rakabawy concurs: “A C-suite manager who will simply oversee innovation will not help solve any problem. Innovation has to permeate every structure and process within the organisation. In large corporations, shareholder pressure for ever higher sales and profit might make things even more difficult.”
Not wanting to centralise, does not mean refusing to help or assist. For the founders of Deep Algo, assisting and supporting are actually indispensable. “Our people know they can share their ideas with us” says Xavier Lagarrigue. He continues: “If these ideas are good enough, we will support them. Financially, through mentoring, or even by finding the first clients. We believe our approach, which is based on giving everyone the means to develop their ideas and on letting it be known throughout the company, is already a form of open innovation. We dedicate time to question our own business, in order to move forward and stand out from competition. To us, this is open innovation. It does not need any additional rules.”
Breaking silos, having different people work together, adopting a test-and-learn mindset: whatever the model, open innovation relies on the ability to make borders porous. “You can bring products or solutions from the outside into a company’s innovation process”, says Jouanny. “You can also go in the opposite direction and de-localise innovation through the creation of a new dedicated structure or through a partnership aimed at targeting new markets.”
Jacqui Hocking, co-founder of VSStory, a Singapore-based start-up specialised in strategic storytelling, sums it up: “Open innovation is just collaboration; it’s a network, it’s data. If you have open innovation, it means you’re open to different pieces coming together. Open innovation is the link in the relationship between all the components in your ecosystem. When you can bring all these components together, break silos and work with your clients or even your competitors, then the best ideas emerge.”
A cultural revolution?
In all cases, we are talking about a form of cultural revolution, rooted in the firm belief that the future belongs to those that will be able to adapt to new market environments and to the emerging needs of their clients and consumers. Amir Barsoum, CEO and Founder of Vezeeta, the leading digital healthcare start-up in the Middle-East and North Africa, is convinced this revolution has to happen, because “there is no innovation per se in large corporations,” he says. “I do not think large sized companies are able to innovate. They can accept innovation, buy it out, scale it up to the next stage. But I strongly feel they cannot create it.” Gilles Babinet, France’s Digital Champion for the EU may not go that far, but he believes in the need for corporate transformation: “A company that decides to work with a start-up needs to be willing to change its culture and have a middle-term perspective.”
Believing all will happen in the blink of an eye is indeed one of the most commonly made mistakes. “Innovation requires work, energy, time”, Jouanny says. “Pasteur used to say it was 5% inspiration and 95% sweat. Between an idea and a product or a service, there must be lots of interim targets. There will be failures and achievements. In-depth transformations take time. You need to both be agile and have a strategic vision, to both have a long-term perspective and reshape your model.” Nothing would be worse than a strict pyramid or compartmentalised scheme, in which the business model would be carved in stone. “Open innovation often means you have to simultaneously build your product or solution, your business model and the business plan that will help you market your product or solution”, Jouanny adds. “This does not mean you should not be thorough, suggest hypotheses and give yourself the means to verify them, but I believe it implies being able to build hybrid models, systems and cooperation schemes”.
Whether one thinks movies (from Who framed Roger Rabbit to Avatar), music (and how mixing gospel and rhythm’n’blues gave birth to soul music), or the automotive industry, hybridisation has always been a potent driver for innovation. But, over the last few years, the search for disruption has made it even more crucial to devise and implement platforms and processes that integrate different kinds of scientific expertise and mixed technologies. The phenomenon will only amplify in the near future. In our day and age, when it comes to innovation, it clearly appears succeeding will increasingly depend on sharing. For start-ups all over the world, this is great news. For corporations, it’s a new era.