Large companies as ecosystems. Where does the core business dissolves?

 In The Innovator Blog

Large companies are reaching the world of startups more often. As I mentioned in the article published at http://arekskuza.com/startups-for-increasing-the-income-or-cost-effectiveness-of-a-large-organization/, they mainly do so in order to give themselves a chance to increase sales KPIs. Large organizations have discovered that the corporation-startup relationship can serve this purpose.

Let’s imagine that the corporation is no longer the center of the universe to which suppliers and customers connect, but becomes a planetary system where each planet influence the other one in kind of flexible relationship. An ecosystem of cooperating entities that together form a valuable system.

What does it mean?

The corporation attracts smaller entities, which thanks to it can scale their businesses. Startups can benefit from collaboration with a large company. At the same time, startups provide technology or innovative business models that large company uses to increase the satisfaction of its customers. As a result of these processes, large organizations are becoming ecosystems. Around the big star, an arrangement of smaller entities is created, they also interact with each other, eg. One startup cooperates with the other startup to increase the added value that the corporation can leverage. The ecosystem is being shaped.

How does the creation of such an ecosystem start?

  1. A large company is looking for an innovative technology or a new business model that allows it to meet the needs of its customers.
  2. As a result of searching, large enterprise selects an innovator (f.i. a startup) that has the desired technology or interesting business model.
  3. A large company establishes a relationship with a startup (invests, buys services or build partnerships).
  4. To maintain the energy, efficiency and speed of the startup, the corporation does not absorb the startup. Startup is organizationally autonomous (it may be owned by a corporation, but it functions outside of it).
  5. The corporation constantly evaluates the startup’s development. If large company decides to tighten the cooperation, it means that the added value which the new relationship creates, increases. Synergy factor is higher and has a potential to grow.
  6. As a result, the corporation becomes addicted to the startup (f.i. it takes over its shares). Startup becomes an indispensable element of the system. The corporation is looking for more stars and planets (more startups).

As a result of the above activities, innovators (f.i. startups) circle around the large company and relationship between them and large company is being formed. At the interface between these companies and a large organization, added value is born which would not have a chance to arise without this relationship. Naturally, an ecosystem is born. Before large companies create the value inside its structures, today they need external partners to maintain a competitive offer for its clients. For this reason, Walmart is negotiating the acquisition of PillPack and has already bought jet.com, Unilever acquires Shave Club, Shell takes over a electric chargers startup and Audi has bought a SilverCar car rental company.

There is no specific, defined way to build ecosystems in which large organizations can look for a new added value. However, you can find four elements that strongly affect the dynamics of this change.

People

One of the important elements are early adopters, who in large companies quickly take responsibility for the upcoming change. It is important for those who take the initiative to be the first to look for startups, start conversations with them and establish relationships to have the support of their senior executives. Support of senior executives is critical in the process of taking risk, experimenting effectively and making sure the effort it’s aligned with the company’s strategy. Pairing internal early adopters with startups, creative agencies or academic R & D centers is a good way to push for open and collaborative digital ecosystems.

Culture

Breaking silos (more I wrote in this article: http://arekskuza.com/4-reasons-why-innovation-needs-separation-from-large-companies-structures/) is important from the perspective of the development of innovative projects within large organizations. Cooperation between functional blocks of a large company, connecting people with diverse competences in well-synchronized teams is of great importance for building a culture in which experimentation is massive and repetitive. It is good when teams can embrace flexibility and the opportunities to explore innovative models of cooperation are not limited to the status quo. Often large companies try to play safe, that is, build relationships in the digital ecosystem using regulations from analogue times. Effective approach to this is a “community protocol” that lists a few¬†principles to which all participants in the ecosystems could commit.

Framework

Each of the emerging ecosystems should be able to define their own vision, KPIs and the way it is going to operates. For example, there will be a different cooperation type between WalMart, PillPack and WalMart, jet.com, different objectives, KPIs and requirements. Naturally different value will be crafted. Therefore, the frameworks can not be copied, they are always different as KPIs, vision and strategy of each relationship is different. The process requires a constant questioning “what can we do differently to embrace the value of this specific relationship”.

Infrastructure that helps to scale

In order for it to develop, the ecosystem needs support from many different sources. From specialists of accounting, through technology developers and technology architects, to the media, support from creative agencies and freelancers. To build an ecosystem smoothly, a large company should offer solid support, what does it mean?

  1. Build a service and not a solutions – in this sense, a large organization becomes part of a value chain that is involved in the process of creating an ecosystem. It not only establishes relations with startups, but actively engages specialists and external entities in this relationship. This action is not easy, because it requires smooth operation within a large organization, breaking up silos, fluency in changing costs structure and clearly defining centres of responsibility.
  2. Management through rewards not through control. Employees are at risk in the process of building the ecosystem. It is an inseparable part of experimenting. Constant change, iterations with customers and the pivot are inseparable elements of the process. Therefore, the managers of the organizational structure should pay attention to the principle of rewarding team members for taking risk and data-driven experimenting and not encouraging employees to take limited risk in order to avoid failures.

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