Today’s most pressing challenge for CEOs in diverse industries is that of coping entrepreneurially with the disruption being wrought by high-velocity technological advancements such as the digitization of economic activity and the convergence of previously distinct technologies. (How many predicted that the once-largest mobile phone company in the world, Nokia, would be disrupted by a computer company?)
Broadly speaking, CEOs who are vigilant to the need for continuous and rapid innovation have a two-pronged approach to foster entrepreneurship: from an internal perspective, they seek to promote intrapreneurship (that is, entrepreneurial efforts such as developing new products by existing employees) and investment in external entities, in some cases new ventures, often through minority stakes as a means of scanning the environment for new technological developments relevant to the corporation’s strategy.
These efforts, which certainly have their uses, are insufficient because they tend to fall short in respect of accessing novel knowledge speedily. Intrapreneurship, by definition, involves internal employees whose skillset may reflect what the corporation already knows. Investment in startups often entails minority stakes and therefore an arm’s-length engagement that is not particularly conducive to speedy fine-grained knowledge exchange. Yet, the high velocity of change in the technological environment warrants greater urgency in accessing novel knowledge from external firms – without necessarily having to control them.
Key questions CEOs should be thinking about are: How can we systematically partner with relevant innovative startups (before they disrupt us)? How can we synergize the impact of startup partnering with our other existing initiatives such as intrapreneurship and investing in external firms? How can we tap startup-rich knowledge pools around the world?
The solution entails a three-fold strategy:
First, corporations must develop capabilities and practices for systematic partnering with relevant innovative startups. An important facet of this is clarifying synergies between the corporation and startup-partners (for instance, distinguishing between product-building by the startup on top of the corporation’s underlying platform technology versus solution-building by the startup to address pain points of the corporation).
Another aspect is creating interfaces that make partnering more user-friendly for the startup through the availability of designated “startup engagement managers” who represent a first port of call to startups and run well-defined practices such as boot camps, accelerators and go-to-market programmes.
Finally, a key element of systematic partnering is cultivating exemplars (success stories of startup partnerships) that serve as an inspiration for startups to partner with the corporation – which is likely to be competing with other corporations for the hearts and minds of innovative startups.
Second, corporations must harness value from their startup partnering in conjunction with their other entrepreneurial efforts such as intrapreneurship or investment in promising firms. While the limitations of initiatives pertaining to intrapreneurship and investment should be recognized, these are still of value to corporations. And, this value can be magnified through synergies with partnering initiatives targeted at startups. For instance, a partner-startup’s new technology might be usefully integrated with a new idea emanating through an intrapreneurship programme to provide genuine novelty to the resultant innovative output. Or, partner-startups could be proactively viewed as prospective targets of investment – which means that invested startups will have more intimacy with the corporation than if they were merely the recipient of arm’s- length investments.
Unfortunately, however, accomplishing such synergies is easier said than done because these initiatives are often carried out within organizational siloes by managers who don’t always talk to each other because of the organizational structure, or turf wars. What are required are boundary-spanning managers who are incentivized to nurture links across these initiatives.
Third, corporations must adopt a global mindset and adapt startup partnering practices to different contexts around the world. Of note are the differences between advanced and emerging markets. Corporations in advanced economies would be missing a trick if they overlooked the exciting innovation coming out of emerging markets – long seen as sources of low-cost labour with copycat firms. However, engaging with the small but distinct minority of startups interested in developing genuine intellectual property in markets like China and India will need modified partnering practices. For instance, corporations may have to work harder at partner screening to compensate for the lack of reliable benchmarking standards. As another example, corporations will typically have to build closer government ties to leverage policy efforts targeted at startups that have a heightened impact in such markets.
In conclusion, partnering with startups may have a cool ring to it, but doing it well calls for genuine commitment and considerable diligence. But the payoff will be worth it – unlike some of your disrupted competitors, you’ll live to tell the tale.
About the author
Dr. Shameen Prashantham is Associate Professor of International Business and Strategy at CEIBS. Prior to that, he worked at Nottingham University Business School China from 2011 and 2015 as Associate Professor in International Business & Strategy. He is the author of Born Globals, Networks and the Large Multinational Enterprise: Insights from Bangalore and Beyond (Routledge, 2015).
This is an excerpt from Strategy@Work, a Brightline and Thinkers50 collaboration bringing together the very best thinking and insights in the field of strategy and beyond.