ORGANISATIONAL COLLABORATION: PART 2

written by Seugnet Van den Berg and Bruce Adrain

Survival for large organisations in the future will depend on their ability to collaborate with startups. Large corporates have an established customer base but they struggle with the agility and innovation of startups that are able to respond quickly to market trends. Organisations should not view this as competition, but rather see a collaborative ecosystem where both sides are stakeholders, resulting in economic stability and sustainability.

A collaborative ecosystem can be complicated to establish as it may consist of a variety of collaborators and organisations being represented. The key is to pool resources and create value for more than the individual collaborators. Collaborators in the ecosystem are not selected for their size or financial contribution but rather for the value that they can contribute to the collaboration. All stakeholders should understand that the required outcome is to create sustainability for the startups within the ecosystem. By enabling the startup to be sustainable the required agility and innovation is “built” into the ecosystem enabling success for the large organisation and the startup. The ecosystem should not be built in a linear, prescriptive, or contrived fashion but rather an organic evolution amongst the right players.

The ecosystem will comprise of a combination of collaborating organisations, each with a different role. Traditional large corporates, Venture capital organisations, Hubs (incubators or accelerators), and Fintechs or Startups.

Large Corporates

The traditional large corporates such as financial institutions and insurance companies understand the urgency to innovate and to stay relevant. They understand the limitations of their own company culture, size, and attitudinal legacy while recognising the importance of technology, customer centricity, and collaboration. In some cases, seemingly opposing large companies are part of the same ecosystem. Companies with complementary offerings, like banks, life insurers, and short-term insurers can form part of the ecosystems. In many cases management consulting firms, also contribute to the same ecosystem.

The goal of traditional organisations is to bring the start-up fintech community closer while accessing their “head space” and innovation capabilities and ensuring that they are sustainable. If the start-ups are healthy the ecosystems stand a better chance of surviving and protecting the stakeholders. It is a bit like creating a healthy immune system that protects the body against “invaders”. Large corporates contribute from a non-financial and financial perspective to the ecosystems as they provide business context and real business challenges for the start-ups to tackle while providing funds for the venture capitalist to invest in the start-ups. They may also provide funds to the hubs - as independent bodies. The intent here is not to provide funds to solve their own business challenges but to make the start-ups sustainable and protect the ecosystem.

Venture Capital

Venture Capital role players get their funds from amongst others, traditional organisations, who maintain two degrees of separation from the startups and do not intervene. The Venture capitalist organisations, in turn, invest in selected startups to provide them with the seed money to either take development further or sustain the business whilst they build their client base. They invest for the long term (seven to ten years) and once they have invested they aim to unlock maximum synergy between their ventures and the large corporates. This type of venture capital fund provides the option to own the disruptors or startups in their space and grow new offerings.

Hubs

The role of the hubs is an interesting one. Hubs are usually independent, not-for-profit organisations with the objective to foster and accelerate startups. They get their funds from larger traditional corporations, venture capitalists, or government sponsorship. The aim here is to identify, select and support startups growth and sustainability. Hubs can take two different but complementary forms – as an incubator or an accelerator.

Incubator Hubs

• The incubator is a nurturing, space where startups that have potential and are scalable are given the right direction. Business sustainability and getting a solution to market takes precedence over solving a specific business problem for a larger traditional organisation. The incubator hub provides a community, physical space, support, programs, events, advice, and infrastructure to startups. Collaboration and sharing is a pre-requisite for all of those in the hub. Trust is the currency by which one operates in these environments. Incubator hubs frequently act as funnels for accelerator hubs.

Accelerator Hubs

• Accelerator hubs are more focused on commercialisation and are frequently organised around industry e.g. fintech hubs. They are an independent and trusted partner to all stakeholders in the ecosystem. Start-ups are usually selected for their ability to solve a specific business challenge for a larger organisation. They work on this business challenge in a collaborative and cocreative setup with the large corporate. Peer learning is an important element between start-ups in the hub. Synergies between start-ups provide additional opportunities for disrupting and investors provide funds for the accelerators to invest in methods, processes, and venues. Partnerships with academic institutions and programs like design thinking form part of the exposure and context created by the hub.

In residency

• Another version of the accelerator hub but with closer ties to the large corporates is an “in-house residency”. This takes place between a specific corporate and fintech company and is usually with a defined business challenge as a starting point. The fintech has access to systems, facilities, and expertise from the large corporate. By creating these close ties, whilst still allowing the fintech to keep its own identity, the ability to create technology-led solutions for the industry is supported in a different way

Start-ups

Start-ups are those fledgling businesses that move closest to the trends in the markets and have a viable solution or product that needs to be developed. Their size and mindset allow them to act as agile disruptors in the market space. Their challenge is to commercialise their offering and to scale their business. The rest of the ecosystem provides them with the opportunity to do so and makes them sustainable in the process.

Major barriers to the organisational ecosystem collaboration include:

• Establishing an ecosystem is difficult – people in the large corporate ivory towers need to realise that there are individuals on the other side that operate from a different knowledge base and different organisational basis.

• Organisational culture is a barrier as many large corporates operate off the assumption that size and legacy alone will ensure their survival.

• Strategic intent and alignment in many cases result in large corporates failing to see how this type of collaboration relates to executing strategy. The traditional approach is to either do it in-house or to appoint consulting houses to assist with the execution of the strategy. The ecosystem’s way of solving this has completely different results. Prioritisation and linear predictive resolutions to business problems are done in a different way, which on the surface can present as a loss of control.

• Greed - yes plain greed. The temptation to take and not to create value for more than the individual collaborators.

• Funding from multiple sources to make it sustainable. Co-funding seems to be a problem as many large corporates want to own the entire ecosystem and be the only one that benefits. This allows them to retain control and ultimate decision-making power.

• Trust is a prerequisite for a healthy ecosystem. A major barrier is when one or more of the role players within the ecosystem operate from a mindset of “taking” as opposed to giving.

• Fear of failure – many large corporations are afraid to try something new because of the reputational risk if it should fail. They operate out of the mindset that something must work 100% the first time around. If an experiment fails, the first port of call is to apportion blame and not to internalise the lessons learned, and to try again.