By Julian Birkinshaw, Professor of Strategy and Entrepreneurship, London Business School
The challenge of ‘going digital’ is hardly new – many companies have been working on it for almost twenty years. But even those parts of the economy most suited to digital transformation continue to evolve in unpredictable ways, with new offerings emerging all the time. Online newspapers today include live blogs, video and interactive content; music is streamed and packaged into playlists; banking services are offered through peer-to-peer communities.
For incumbent firms, this continuing evolution presents a tricky challenge: If you know your industry is going to be transformed in surprising ways, that don’t simply involve digitising existing offerings, how can you capitalise on the opportunity? Who should you talk to about what these new offerings will look like?
One thing seems certain – you cannot do it on your own. Your employees are held back by a pre-digital worldview and for the most part they lack the skills to develop cutting-edge digital offerings. So companies are increasingly seeking ways to tap into the creative milieu of the start-up world.
One option is to buy your way in. WPP, the largest marketing services company in the world, has bought more than 400 digital businesses over the last decade, and gives them sufficient autonomy that they continue to grow. You can also try to buy in digital talent directly, though for that to work you need to give them a compelling reason to work for you.
The more ambitious approach is to work proactively with the start-up community – investing in them, working with them, and hopefully learning from them along the way.
For example, a few years back, The Irish Times launched a model called FUSION, where they welcomed around 20 new ventures into their offices to help them develop new digital offerings. It was seen as a way to get closer to the cutting-edge of innovation in the advertising industry, and to act as a culture change programme for the established business. Several of the start-ups have now become viable in their own right. Another example is Unilever’s Foundry, in which established lines of business put forward challenges that start-ups are invited to respond to. Over the last two years, they have screened bids from 4000 start-ups and have ended up building commercial tie-ups with around 40 of them. Likewise, in the financial sector, many banks such as Barclays have built accelerators to give them direct exposure to FinTech start-ups. Deloitte also grows businesses under their own brand or takes stakes in start-ups outside the firm to innovate their services portfolio.
As an incumbent firm, working with start-ups is no panacea. You still need to figure out how to scale up and leverage the ideas that come your way, and how to overcome the inertia in your own internal systems. But as a first step, it is invaluable as a way of getting to grips with the diversity of opportunities out there in the marketplace, as well as giving insight into the speed at which start-up companies move.