Large corporates challenged by Digital Startups

Large corporates in today’s business world need an increasing ability to innovate. But this is easier said than done: in today’s world with continuous digital disruption and innovation large corporations face two significant challenges:

Large corporates need to swim in innovation pool
Large corporates need to swim in innovation pool

Firstly these large corporations are notoriously bad in creating new businesses from within their own organisation. The reason for this inability is that most larger firms are unwilling or unable to stage an investment over time with a certain ruthlessness to really accelerate or (on the other side of the spectrum) abandon a project once started in the middle of its progress. This association with potential failure in an environment, normally driven by success stories, simply doesn’t fit the image of the successful career path of a corporate employee. An intrinsic blocker to start innovation: who wants to risk his or her career and leave the ‘safe’ track, as risk is a certain companion in all innovation.

The second challenge has to do with more and more digital disruptors that are challenging the space of products and services the large corporates have owned for many years. Larger companies usually fail to innovate or provide enough incentives for their own staff for innovation, hence the disruptor comes up with an idea or innovation. Today, it is vital for a corporate to identify these threats let alone establish partnerships with these ‘intruders’.

Often a larger corporation faces two choices when challenged by external disruption: either embrace this innovation, which in the true sense of disruption leads to lower prices and therefore lower profits for existing players. Alternatively the established player can avoid the new entrant and risk to no longer be in this market later. The real task is when to start taking some of these new kids on the block serious, there is no easy answer.

So one strategy which is left demands for acquisition

Large corporations as a last resort can buy disruptors for exactly their own inability of having missed out on innovation, most often in their own field of expertise. Such acquisition helps to leverage infrastructure such as manufacturing or distribution capacity and most often the financial strength of larger corporates helps speed up projects in successful startups. But then there are the risks of integration: good examples for professional integration are rare, most of the founders actually leave within a few years, some within months or weeks after selling to the bigger firm. So how can corporates avoid the trap that innovators leave their company, especially when these people are needed for the ongoing innovation process within the large firm.

In this blog we will assess some of the current strategies large corporates pursue to tackle the challenges above. We will start with some of the European power houses such as Siemens, Deutsche Bahn or Daimler Benz, as much as we will check on disruptive examples from the Silicon Valley – here the big disruptors such as UBER or Airbnb seem to be setting the pace for global disruption. There are success stories happening in local markets or even globally and they all have one thing in common: in our impression, the time has come for larger organisations to strike back. How and in what format this happens, we will write about in the coming weeks in our new blog section ‘large corporations strike back’.

Michael Brecht