The networks of big companies and startups have never been so interconnected. How are they evolving and how will they work together in the future? Muriel Monteiro, Partner at BearingPoint, outlines some key factors of this new-built economy.
Is working with startups a fashion phenomenon or is it going to last?The digital revolution is transforming industries one after another, whether it be media, music, video games, distribution, agriculture... The banking sector is obviously targeted and has no other choice but to react when facing innovative startups that tackle all or at part of its value chain. From Weelo to Younited Credit via Transferwise or Anaxago, GAFA and Fin Tech are disrupting the banking world. Traditional institutions are often compared to plodding elephants overtaken by responsive 'greyhound' startups. But if you believe that banks will let themselves be reduced to mere administrators of 'core banking systems', think again as you under-assess their specific strengths, from their client base and multi-channel sales distribution network to their immediate investment capacity to deploy assets and generate disruption themselves. The Fintech tsunami is therefore not a threat but rather an opportunity for banks to cooperate in order to expand their client relationship and transform themselves.
"A diversity of experience and skills fosters creativity and disruptive services."
What should be expected from this partnership?Very often corporate giants aim to become less complex, more agile and to take on new ideas. What is at stake is enhancing digital client relationships, and developing a steady and iterative stream of innovation. A recent study shows that the top 100 biggest companies in the Forbes ranking are twice as involved with startups (64%) as the bottom 100 in the ranking (32%). Banks have fallen behind as only 64% work with startups vs. 94% firms from the pharmaceutical sector and 85% from the telecom industry1. Gains from such partnerships are a known fact... but solely if big companies can manage to work with startups in the long term, bearing in mind that they are so different in every way.
What is the best way for big firms to work with startups?We observe several types of partnerships with startups. We have registered five or six, from skills-based support to buyout and ventures, including awards or hackathons and the launch of private incubators. 25% of the biggest international firms have set up acceleration or incubation programmes. BNP Paribas got off to an early start with the launch of L'Atelier then the WAI (We Are Innovation) and Innovation departments. Barclays teamed up with Techstars, Credit Agricole launched their 'Innovation Village' network worldwide. There is no such thing as 'one size fits all': the action plan must be tailor-made to each opportunity according to various criteria such as expected gains from the partnership, available resources to be devoted and required skillsets from all parties.
For bankers, one of the key factors of success is to have the broadest view and not limit it to Fin Tech and InsurTech. Who would have thought that Shazam's algorithm would make it possible to detect Alzheimer's disease by listening to patients, or detect a bus breakdown by listening to its engine? A diversity of experience and skills fosters creativity and disruptive services.
What are the pitfalls for these partnerships?Two worlds with radically different cultures makes it very difficult for them to work together successfully. On the one hand, startups may not find the value proposition offered by big groups attractive enough. Long decision-making processes and slow action often discourage them as they need short-term cash and wish to maintain their integrity, agility and innovation capability.
On the other hand, big groups see startups as not sustainable enough, fearing they will disappear before project development is finalised. As for hackathons or intrapreneurship, their economic impact takes time to materialise. The 'Return On Investment' assessment should take into account the 'Risk Of Ignoring' and missing out on a critical turn for companies.
"Businesses aim to transform themselves into aggregators (rather than being aggregated themselves)."
What is the future for these partnerships with startups?Those involved are still looking for the best answers. Buying out a startup can rapidly kill it. But limiting oneself to mere idea contests will fail to generate services that can be rapidly industrialized within the robust but 'muddle' information systems owned by big firms' . In this era of collaborative economy and service platforms, many CEOs expect that these platforms will be the 'must-have' link between businesses. We oversee a solution in the acquisition of a base or platform to host an ecosystem of partners, distribute multi-partner offers, manage their invoicing and commission all parties involved. Banks benefit from a huge client base and trust, they can investigate offering a suite of services (aggregation and beyond core banking) to assist retail and corporate clients.
BearingPoint has been investing for the last five years in a solution enabling companies to aggregate digital services in a fast and customised way, whether internally or externally – such as a travel offer providing car-sharing via a partner, as well as luggage delivery and train tickets.
Philipps Healthcare also established partnerships (with Salesforce, Alibaba Alicloud) to speed up the launch of a platform (the Healthsuite solution) which facilitates data transfers between patients and hospitals and enables external developers (startups but also others) to create new services for their own markets. One can also mention the technological multi-services payment platform launched by Carrefour and BNP Paribas designed to include startups.
Businesses aim to transform themselves into 'aggregators' (rather than being aggregated themselves), monetizing these services and providing sophisticated marketing, thereby avoiding disintermediation.
Any advice for the big groups already on board and working extensively with startups?The key is to speed up their internal transformation as they will only be able to absorb external innovation after they have proven capable of adjusting their internal culture and working methods. Such processes take much longer and are much more complex than opening out to the outside world. Placing Open Innovation at the heart of their strategy allows for considerable internal transformation leverage. It enables the development of intrapreneurship, collaborative and digital work methods, shorter decision-making processes and more transversal management with coach- or mentor-managers.
We currently have clients who are rethinking their corporate strategy by setting up executive workshops over a '4 hours/4-days/4-weeks' format. This method inspired from hackathon methods enables teams to rapidly identify and test new strategic pillars for the firm directly in the field. Other firms like Danone or GE support their staff to develop and incubate innovative ideas within 'spin-offs' by joining an incubator for a few months.
"The right to fail must win its spurs again."Another thing that teams can learn from startups is the art of 'pivoting', as groping around in the dark and failing is part of the process of finding the winning model. For instance Criteo applies the Machine Learning method to advertising to practice offsite retargeting. It first started with a B2C offer then switched to a B2B-in-the-Cloud offer and eventually found its winning model through the Cost-per-click method before being listed on the NASDAQ. The right to fail must win its spurs again. Engie is a good example as each year it organises a contest that rewards 'the best failed idea'.
The stakes are therefore more about cultural transformation than about setting up partnerships with startups, as banking survival depends on it. A few years ago in France, the smartest people wanted to become investment bankers but now they dream of joining the Cargo or the Halle Freyssinet to launch the next Unicorn... Only by leveraging their strengths, betting on human resources and applying startup best practices will the big firms be able to retain their talents and attract the GenZ reaching the market.
1 "#500 Corporations: How do the World's Biggest Companies Deal with the Startup Revolution", INSEAD report February 2016