Key Take-aways from this article:
- No company has all the competencies - Corporate-Startup collaboration has never been so crucial, especially in digital and high-tech sectors
- Studies have shown innovation operations to have a positive impact on performance, yet corporations often struggle to innovate due to many barriers that are entrenched within the company's operations and structures
- The biggest barriers making collaboration harder are: Speed in the decision-making process (risk aversion), poor coordination of the collaboration, cultural issues, contracts & negotiation, initiation of the relationship, alignment of goals within the corporation and trust
- Tips for Corporations
What's hindering the collaboration?
The collaboration between corporates, startups and scaling businesses has never been so crucial. Innovation is the key to sustained corporate success. Innovative companies grow twice as fast as non-innovators. More and more corporations are choosing to collaborate with startups because the corporate nature makes the internal innovation difficult. This is especially true in the digital and high-tech sectors where the rate of innovation is very fast. Companies’ competitive advantages are increasingly determined by their ability to establish and maintain collaboration with other, more agile partners, because lets face it – no company has all the competencies it needs. Most startup-corporate collaboration can be seen as type of an open innovation operations that studies have shown to have a positive impact on the companies’ performance. Yet large corporations often struggle to innovate due to the many barriers that are entrenched within the company’s structures and operations. In our next articles we will be discussing different structural barriers that corporations in our experience have when collaborating with startups and solutions to break down these barriers.
Partnerships, procurement, investments and acquisition are activities that can be difficult for corporations to undertake, but can produce the biggest positive impacts for scale-ups, hence more guidance is needed at the corporate and startup end. Larger companies are often better at incremental innovations and incumbent technology. What they’re not so good at, is creating and implementing disruptive technologies, which can in fact replace their existing standards obsolete. It comes more natural to the larger companies to favor incremental improvement to the radical change, which is what many startups represent. Studies suggest that incremental innovations cover nearly 90% of a larger corporation’s innovation activity, when in fact, the smaller minority of radical innovations create the most profit.
Another hindering is the mechanism of innovation that is required. Some corporations are more hesitant to take the risk of opening their company to external innovation. It’s true that in some cases internal R&D is enough to fulfill the company’s need and over-relying on outsourced innovation can, potentially, decrease profitability. All in all, collaboration with startups alters the risk profile of a company, replacing technical risks with partnership risks and introducing new ones. Another thing adding to the pile for corporations can be the fact that the upside of the collaboration is often unclear and hard to measure. Measuring return on investment for startup collaboration and innovation in general is often difficult. There isn’t much economic data, so quantifying the benefits of working together is very hard, which makes it difficult for executives to justify these types of programs or projects to their managers and other stakeholders. Another problem can of course be the lack of awareness and know-how about how to initiate the relationship, which holds back the fruitful collaboration.
Here are a few of the biggest challenges between startup-corporation collaboration according to Nesta's research:
When a company wants to work with startups there are often both expected and unexpected barriers which prevent effective collaboration. Some of these factors that create barriers are easily recognisable, such as trust, mutual interest and the imbalance of power. According to previous research and our own experience the biggest ”roadblocks” to effective collaboration, however, are often internal and related to issues of strategy, structure, organizational culture or internal processes. Issues may also stem from relational (alignment of goals for instance) and transactional issues when there is unclarity about how to deal responsibilities among the team and the departments. However, the greatest challenge is the mismatch in speed. Long cycle times and slow decision-making on the corporate side makes it very hard to synchronize operations with dynamic and agile startups. The second biggest challenge is poor coordination & communication, the changing of contact points and unclear processes. Contractual issues such as protracted negotiation and the company’s cultural problems bring challenges to the collaboration as well.
Common internal barriers:
Good news is that these internal barriers are issues within the company and can thus be changed from within. External barriers such as legislation, and relational factors are extrinsic factors that might be outside the firm’s control.
Startups and scale-ups also face their own internal barriers, typically stemming from limited resources, inexperience and maybe even a misconception of corporates. In our next blog posts we will be focusing on the internal corporate barriers and suggesting some solutions for each barrier.