While the last decade saw small digital start-ups usurp the power of long established companies in multiple sectors, the next ten years should see traditional corporates disrupt markets themselves.
But if they are to succeed, our largest companies will have to transform the way they work with the entrepreneurs and small companies who will provide much of the innovative flair they sorely need. New evidence suggests they may not pull off that change. As a result, up to GBP 40 billion of additional revenue could be at stake in the UK.
Corporations have been tapping smaller companies long before the latest digital revolution. They provided funds, established incubators and set up accelerators. This approach continues but largely on the terms of large companies and often on their premises. While these forms of collaboration must remain part of the mix, they are no longer sustainable in isolation. The digital economy demands a new form of open, digital collaboration that takes place on more equal terms with entrepreneurs. More importantly, it requires a shift from bilateral to multilateral forms of partnership.
A new approach to innovation
The good news is that companies the world over appreciate the need to change. In an Accenture study of over 1,000 small enterprises and 1,000 corporates across the G20 economies, there is a clear shift in preference away from corporate venture funds as models towards joint innovation. That’s particularly clear in the UK. Instead of merely funding start-ups and keeping their distance from the innovation process, larger companies seem inclined to actively participate, genuinely pooling ideas, assets and intellectual property to develop new solutions with entrepreneurs.
The bad news is, that for all their commitment to work together, large and small companies rarely see eye to eye. It’s a matter of culture. Large companies are more enthusiastic to collaborate than are entrepreneurs, according to research. But all too often, they do not know how to integrate their “walled-off” research into more open environments. They flatter themselves in thinking they are enterprising. Three-quarters say that their employees are sufficiently entrepreneurial; yet, of the entrepreneurs who worked in a large company previously, 71 percent left because they could not be entrepreneurial there.
No wonder that entrepreneurs are more reticent to expose their ideas to larger organizations. They believe the benefits are skewed in favour of big companies. They think collaborations are less successful than do their larger counterparts. Only a quarter of entrepreneurs currently working with larger companies believe those organizations are committed to supporting the start-ups’ growth.
Overcoming cultural misalignment
Addressing this cultural misalignment is crucial. Consider that 52 percent of the Fortune 500 companies have disappeared since 2000, either through takeover or failure. The lifecycle of winning products and services is getting shorter. And the disruptive models that shattered the dominance of the old guard demand a degree of agility that eludes most large companies.
In place of traditional campus innovation which is largely pre-determined, large companies will be better off pursuing more open ended collaborations with a range of players from multiple sectors. This has to take place in a broader ecosystem that they do not control, an ecosystem that pursues a range of solutions and in which the uncertain rewards will be shared more widely.
Digital technology will enable these ecosystems by bringing disparate parties together. Accenture’s Digital Collaboration Index shows that, if companies were to reach the levels of digital collaboration achieved by the top twenty percent of performers, they could see revenues increase significantly. In aggregate, this could result in an overall boost to UK GDP of GBP40bn. Globally, the size of the prize is $1.5 trillion.
Governments have a role to play. Clearly, tax incentives, intellectual property regulations and financing structures come high on the list of policies businesses demand. The UK has a good record. For example, it has established a range of fintech accelerator programmes in London that bring start-ups and large financial institutions together. It has the highest number of billion dollar start-ups created in Europe since 2000. It has a good angel funding network and healthy regulation to encourage sustainable crowdfunding. The UK government is offering some of its grants to a “group of universities” rather than to a single university to encourage collaboration. One area that start-ups and innovators continue to express frustration about is the access to high levels of technology skills, including those they would like to source from abroad.
The change that is required is primarily one of mindset and culture within large companies. To win in markets in which industry borders are evaporating, large corporates need open their own borders. To disrupt rather than be disrupted, they need to take greater risks. And to create more relevant innovations, they must participate in ecosystems rather than control them. The intent is there. Entrepreneurs are willing to play their part. But for large companies, taking the radical organizational and cultural journey will be the toughest challenge of all.
Samad Masood leads Open Innovation at Accenture in the UK & Ireland.