Startups Are Big Business. Can Big Business Please Start Up?

As new technologies drive big business transformation, BCG Digital Ventures’ directors, Vanessa Wolfe-Coote and Craig Boshier, predict the next horizon of innovation will be just as much driven by big businesses as disruptive start-ups.

In this article they discuss how big businesses can jump-start their operations to become the new disruptors rather than the disrupted. The challenge for big businesses is learning how they can harness these transformations to become successful technology innovators and keep up with their recent start-up rivals.

A Tale Of Two Cities

Consider these stories. One is a familiar tale known all too well — Blockbuster’s fate following the firm’s rejection of an alliance with Netflix, and its inability to foresee the looming threat from digital media. By the time Blockbuster finally launched its own online subscription service, Netflix already had 4.2 million subscribers.

The rest is history.

Now contrast Blockbuster’s tactics with how two tech giants, Facebook and Google, work today and it is clear these firms are creating the future.

There was a very public race between the two firms to solve the classic AI challenge of Go. This game required intuition, lateral thinking and had been impossible for a computer to beat until recently. Just hours after Mark Zuckerberg announced Facebook was close to solving the problem, Google’s AI business, DeepMind, announced it had, and in doing so, Google achieved a feat thought to be over a decade away.

Technology giants are an entirely new breed of organisation, changing the way business is done, and diversifying into whole new industries.

Re-Thinking “Success”

A recent Harvard Business Review article said public companies have a one-in-three chance of being delisted in the next five years. That is a rate six times higher than company delistings 40 years ago — despite almost $1.6 trillion being spent on research and development.

Corporations are no longer enduring institutions. Neither scale nor experience guards against an early demise, and most major corporations recognise they need to become innovators in and around technology.

Of course, this is easier said than done.

Too many corporates value short-term incentives over long-term growth. Telstra chief executive, Andy Penn recently said he faced pressure from shareholders to “play it safe” rather than invest in new businesses and broader innovation initiatives in Asia.

It is clear that some businesses want to take a longer view but investors will not let them, and other businesses do not want to take a longer view because of existing internal reward structures and remuneration.

It is a common problem shared by many chief executives and leads to risk-averse and failure-intolerant cultures. Add this to long and costly funding cycles, a siloed approach to delivering products and platforms, and complex and politically charged governance structures, and it is obvious that the message for change is a hard sell.

These unfair disadvantages problematically lead to incremental innovation that happens over multiple years and fails to deliver expected returns, rather than game-changing disruption.

The Corporate Disruptor

It is not all doom and gloom. Some corporates are learning how to leverage their comparative advantages — large and loyal customer bases, established brands and funding — to disrupt themselves and expand into new markets.

There are four reasons why this will happen:

Corporations have begun to adopt a venture capitalist mindset, viewing innovation as a portfolio of investable ideas as opposed to a single product or service idea. In doing so, they view their value chains with a completely different lens, exploring how they can unpack and assemble their assets in new and meaningful ways. They are placing bets across their entire portfolio of innovation, building ambidextrous, multidisciplinary teams governed like start-ups rather than remaining encumbered by operational processes.

Senior management are acutely aware of the external innovation threat and have started to shift its mindset by embracing failure, accepting it’s part in the process — failing smart and fast to contain costs.

Corporations are starting to explore adjacencies, identifying partnerships to accelerate the speed at which ideas are turned into real, running businesses. They are establishing business models and ecosystems that are hard to copy and compete against, as well as shaping their own markets with partner networks.

A relentless customer focus is the enabler of innovation. Corporations are embracing research-led approaches, as opposed to personal bias and business casing. This allows them to focus on identifying real friction in the market to surface new growth opportunities. These same companies are developing processes to enable continual customer learning throughout the product or service lifecycle, pivoting and testing to ensure their offers meet customer and market needs as they evolve over time.

Welcome to the dawn of the corporate disruptor. It is time for big business, so please start up.

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