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‘Every industry and every country will be tech driven. GE is a tech company. Walmart is a tech company. Verizon is a tech company,” John Chambers, executive chairman of Cisco, told an audience at the World Economic Forum in Davos earlier this year. Such was the scale and speed of technological change, he said, that every country in the world would have to become a digital country and every business a digital business.
Not so long ago, technology tended to be the concern of the chief technology officer and few others. Now, with the rise of technology-driven challengers in every industry, from Uber in transport to Alibaba in retail, it is an issue for every function across a company.
Many companies are struggling, however, to make the transition from analogue to digital and to innovate sufficiently fast. Mr Chambers suggested that one way for established businesses to acquire sufficient knowledge was a so-called “spin-in” — investing in start-up companies with innovative mindsets.
The global corporate venturing market, in which established companies invest in high-growth start-ups, has been developing fast. According to Global Corporate Venturing magazine, big companies made 1,693 investments in such deals worth $76.4bn in 2015. This compared with 1,481 investments worth $40.9bn the year before.
Cash-rich US companies, with plenty of money parked offshore, have been particularly active looking for such opportunities in China and Europe.
Incumbents are also buying start-up companies outright and looking to expand them quickly.
One example came in April when Accor, the French hotel group, acquired Onefinestay, the UK home-rentals start-up, for at least €148m to help counter the rise of Airbnb. Accor’s intention is to provide the financial and managerial muscle to expand Onefinestay’s presence in five cities at present — London, Paris, New York, Los Angeles and Rome — to a total of 40 within five years.
When the deal was announced, Sébastien Bazin, Accor’s chief executive, said the acquisition would enable the company to accelerate the transformation of its business model and expand more quickly into the digital world. “They should rely on us for speed and scale and for financial firepower — the rest we leave to them to do what they do best,” he said.
“To get to where Onefinestay is today would have taken between two and three years,” he said. “It would have been a terrible idea to do it by ourselves.” But as well as trying to innovate from the “outside in”, big companies are also trying to innovate from the “inside out” by promoting what has become known in ugly jargon as “intrapreneurship”.
Established companies are realising that they have many assets of value in the new digital world: powerful brands, smart employees, a deep understanding of their customers, masses of data, and easy access to capital markets. But their attempts to innovate are often hamstrung by a lack of focus and long-term commitment, divisional infighting, and fear of failure.
For their part, start-up companies often have the imagination, technological smarts and entrepreneurial drive to launch a business, but often find it hard to scale their ideas. More innovative business models, which could bring the two together, are needed. For example, Unilever has been increasingly looking to work with outside partners in its Open Innovation model.
Henry Lane Fox, who runs the Founders Forum group in London, is one of those trying to act as a marriage broker between big business and early-stage companies.
“We believe there is a massive untapped opportunity for big businesses to push their market insights and audience development skills into new business models,” he says. “The mindset of many CEOs is that there are real forces attacking their core business, often from unexpected sources, and they have to respond.”
To that end, Founders Factory, the group’s incubator, is working with established companies, such as L’Oréal, Aviva, Guardian Media Group and the German publishing group Holtzbrinck, teaming them up with promising start-ups in their business sectors.
For example, L’Oréal and Founders Factory will invest in five existing start-ups and jointly launch two new companies a year to accelerate innovation. The French cosmetics group will be able to tap into the Founders Forum network of 1,500 entrepreneurs and partners to explore new business opportunities.
In total, Founders Factory is aiming to incubate 200 tech companies over the next five years.
“We have an incredible community of tech talent and capital in London,” says Mr Lane Fox. “We have a lot of incredible corporate HQs too that are taking this tech world a lot more seriously.”