In this article, we explore how traditional companies can engage with start-ups to realise a new formula that embraces the power of human creativity. This simultaneously enables organisations to use new technologies to innovate and develop better products and improve processes, helping them become what BCG calls a ‘bionic company’.
The growing dominance of digitally native companies and the new reality of competing in a digital environment are having major implications for traditional companies. Firstly, corporates must re-imagine their core offerings and end-to-end operations to address new online markets and reduce costs. Secondly, there is a fundamental shift towards adopting advanced technology as a core capability, and if they can’t identify, assess, and harness bleeding edge technology, industry incumbents will be unable to compete in a post-digital environment.
Becoming Bionic: How corporates can innovate effectively by partnering with startups and scaleups
A recent report by BCG illustrates the critical role of technology in achieving business goals: Over 80% of companies now indicate that accelerating their digital transformation is a strategic necessity.
Historically, enterprises accelerated their growth by performing the same activities, just at a larger scale and with increased efficiency. This served organisations well, providing industry boundaries and incumbents were relatively stable. But the sudden shock of 2020 has exposed the importance of being able to pivot and change in an agile way.
As innovation cycles become smaller, traditional models of value identification, experimentation and digital innovation have increasingly come under pressure, resulting in scattergun investments, waste, increasing complexity and technical debt. In response, companies are leveraging leading-edge third-party products to facilitate rapid innovation at scale and are looking towards start-ups and start-up technology to help make a quantum leap in digital, supercharge innovation and gain a competitive edge.
For example, Amazon’s recent acquisition of Zoox enables it to diversify its offering into autonomous ride hailing, but Zoox’s advanced autonomous driving technology could easily be applied in the future to Amazon’s last mile delivery.
At BCG, we believe that the company of the future is bionic, with humans and technology working together. To achieve its full potential, technology must be combined with the flexibility, adaptability, and comprehensive experience of humans. With a next-generation technology stack and delivery of strategies, bionic companies are able to increase innovation and reduce time to market.
Start-ups have a critical role to play in helping companies become bionic while accelerating innovation at scale. Trying to accelerate enterprise innovation at scale while using established technology can be a solution to some challenges, but success is limited by the fact that they are commodity based. Conversely, start-ups are innovative and disruptive by nature, and the ability for companies to harness start-up technology can create a lasting strategic differentiation.
The Perfect Match?
Unfortunately, effective corporate-start-up collaboration is not easy to achieve. Cumbersome processes and the lack of a clear strategy and methodology for experimenting means corporates are failing to harness the unprecedented abundance of start-up technology entering the market, and missing opportunities to create competitive advantage.
Many large corporates face compatibility problems when it comes to start-ups, but this can be addressed by applying the characteristics of a bionic company at the outset. This includes leveraging human talent, modular technology, data and AI to build personalised customer experiences. Taking this approach also improves the efficiency of operations and increase the tempo of innovation.
Technology has a big role to play in the realisation of a bionic company, and a key attribute of the bionic company is advanced Data and Digital Platforms (DDP). BCG’s DDP approach enables organisations to liberate data and accelerate critical business capabilities. It also unlocks data stored in disparate silos and legacy systems by decoupling the data layer from core transactional systems.
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Below we outline five impediments to the perfect relationship, and the bionic solutions that combine technology and people in ways that bring out the best in each other:
1. Difficulty experimenting with new technology
Legacy systems impede an organisation’s ability to innovate because they lack modern integration architectures and frameworks (such as SOA), and are not always interoperable with start-up technology built on contemporary open stacks. This makes experimentation difficult and costly. Furthermore, the skillset required to maintain legacy systems is different from the expertise required to work with start-up technology built on the latest frameworks and programming languages, creating a technology skills gap between large corporates and start-ups.
Finally, proofs of concept are disruptive to the modus-operandi of IT teams and business units because they demand focus, time and effort, detracting from other BAU priorities. As such, it may not be feasible or sustainable to conduct the many POCs required to test multiple small point start-up solutions rapidly and continuously.
But on a more modern DDP, data is decoupled and “liberated” from core systems, therefore the requirement to integrate with legacy applications that may have challenging technology stacks or esoteric integration patterns is completely removed. Integration and experimentation with start-up technology are performed easily using APIs, and leveraging the liberated data stored in the DDP data layer. Teams can then focus on testing start-up technologies and products faster, with greater ease and significantly reduced costs, enabling the scaling of experimentation.
Furthermore, because the integration occurs within a modular architecture specifically designed for composability, there is no need to modify core systems or disrupt BAU IT priorities. Finally, the DDP approach bridges a key skills gap because APIs are standardised. Therefore, knowledge of a niche technology is not locked into a closed group of individuals, and a greater proportion of developers and business personnel can experiment with start-ups.
2. Failure to link new technology to the right use case
Unless there is a sound business case, then new technology is often nothing more than a venus fly trap, because companies do not have the operational governance to ensure that an investment is exploited across all business units. For example, predictions from Gartner, released at the end of 2019, forecast cloud waste would exceed an eye-watering £14.2 billion in 2020.
And in the 2019 European Insight Intelligent Technology Index, blame is placed on the planning stage when 39 per cent of respondents revealed that a proportion of their cloud waste could be traced directly back to planning issues.
By reducing the cost and effort of integrating bleeding edge start-up technology, businesses can test out potential applications for new tech across multiple business units or use cases. This provides the chance to explore possible opportunities for value creation, walking through different scenarios until the most impactful uses are identified.
3. Structure, processes and ways of working don’t support start-up engagement
Traditional procurement is not suited to start-up engagement. Common sourcing processes favour large, established tech firms with extensive reference accounts, an army of sales engineers and well-defined use cases. Meanwhile start-up technology is filtered for a variety of reasons, for example, there is little to no presence on market research reports and too few reference accounts or case studies. Additionally, start-ups simply do not have enough staff to compete effectively, and too few personnel to credibly deliver a large-scale enterprise solution.
With a DDP approach, start-up sourcing is accelerated and Agile. Small teams can experiment with new technology to power digital products and services, using modern practices such as Human-Centred Design. This approach reduces risk and increases time to value from a start-up collaboration, delivering value early and incrementally.
4. Inability to identify and assess value
A key point of failure in corporate-start-up engagement is the scattergun investment in POCs. Just as start-ups must work hard to continually evolve and update their platform, so the value for a new technology emerges over time through trial and error. Unfortunately, many companies commonly only attempt a single-scope proof-of-concept or focus on testing technical interoperability. It is very difficult to validate a business hypothesis or prove a business case in a limited short-term POC.
Again, with a DDP approach, innovation teams can experiment with start-up technologies in multiple composable sub-systems over time, exposing key pockets of value. This approach drives innovation, while portfolios of start-up technologies can be arranged in sub-systems to create new offers, services, and business models, staving off disruption.
5. Making sense of the technology landscape
The start-up ecosystem is a minefield. In Europe alone, in 2020, €37.9bn of VC funding was raised, there were 21 IPOs, 15 new unicorns, 1,933 seed rounds and 181 VC funds raised. Behind those numbers, the start-ups were often either in the first throes of fundraising and working in the beta stage, had launched a product but not at scale, or are were accelerating a proven concept.
The sheer size and complexity of the start-up ecosystem makes it difficult to identify sustainable partners versus over-hyped innovations. And it is impractical to scan for and test start-up technology using the same tools used to source commodity technology such as an ERP, CRM or core networking infrastructure. A new approach to start-up engagement is needed.
This is where a composable start-up engagement platform and modular architecture, powered by a DDP, can address the most pressing challenges of corporate-start-up engagement.
Composability describes a system where sub-components can be arranged in multiple combinations to create new systems in response to changing requirements. Composability is not a new concept, but evolving technology and the start-up ecosystem has made adoption of composability a lot more feasible (e.g.: APIs, containerisation, deployment orchestration (Kubernetes and cloud adoption), resulting in a shift away from big monoliths to a more global start-up ecosystem.
Composability is a foundational characteristic that businesses must develop if they are to efficiently integrate with start-ups. It removes the friction from the corporate-start-up relationship by allowing organisations to introduce or replace technological components, enabling easy integration and experimentation with early start-up technology.
Bionic and DDP are clearly the ways forward for digital acceleration, and the challenges of 2021 are likely to boost their adoption. Scaling with third party products is an excellent way to rapidly innovate, while doing so at scale. However, there is still a way to go with integrating into start-ups and growth stage ecosystems.
By adapting faster than ever to market conditions and huge global challenges, companies will increasingly find that integrating start-up technology is critical when it comes to boosting innovation in the pursuit of sustainable value creation.