Big business eyes collaboration to combat dearth of innovation
Few people might think serial entrepreneur Sir Richard Branson would need help when it comes to making sure his companies are on top of new trends. But even the Virgin founder is enticing small, cutting-edge businesses to help his train company keep up with the latest tech revolution.
The Platform X project launched by Sir Richard this week comes as a wave of big businesses look to harness the expertise of more nimble rivals to help them overcome a dearth of innovation within their own organisations.
Chris Haley, executive director, policy and research at innovation foundation Nesta, said large companies usually find it hard to innovate because, as they grow, they standardise their processes. “You have to break processes that have been established for very good reasons,” he says.
He added spending in the UK on research and development was “pretty poor by international standards”, lagging Europe and the OECD.
Ben Medland, managing director at consultancy Accenture Strategy, said research the firm had conducted showed 40pc of UK business leaders preferred to be first followers – quickly replicating something a rival has done rather than trying something new themselves first – and 32pc preferred to take a wait-and-see approach.
He added taking an idea from theory into reality often takes more energy than large companies are willing to dedicate. “The hard part is scaling the idea as that means using your customer base and brand, or defining a new one,” he said. “It might also mean using your salesforce and at that stage you are using more of your company and that’s when we see the anti-bodies kick in. Successful ideas have to find a way through the anti-bodies.”
Karl Blanks is co-founder of Conversion Rate Experts, which recently won the Queen’s Award for Enterprise, and has worked with Amazon, Google and Facebook on various projects. He agrees many businesses “don’t know how to organise themselves for innovation”.
“They have processes and a culture to protect the existing business – its finances, its reputation and its legal risk – and those processes stifle innovation,” he said.
But big business is now finding a new way to innovate, more often than not with the help of outsiders.
A report published by Nesta in April for the Department for Business, Energy and Industrial Strategy, showed the vast majority of accelerator programmes it tracked had been launched in the past few years with the bulk funded by companies rather than the public sector.
An accelerator programme often involves a large company teaming up with a start-up business, whereby the former provides resources and sometimes capital to the latter with the aim of developing a product or enhancing an existing one.
Virgin’s accelerator programme, Platform X, will give successful applicants access to a slice of a £25m innovation fund and provide mentoring from the train company’s senior management team.
Sir Richard said it shouldn’t matter if a good idea comes from inside or outside a company. “Big business shouldn’t be afraid to say they don’t have all the answers, and must recognise small companies can play a big part in helping to develop new ways to making business better,” he said. He added that what matters is that those leading a business are “bold and brave enough” to implement an idea that could reinvigorate their company.
He said the not-for-profit Virgin StartUp business, which turns four in October, had provided nearly 1,800 loans totalling more than £21m in funding. Virgin StartUp has supported food and drinks companies whose wares can now be found on its trains as well as a finance company called Nudge that has improved budgeting in its Virgin Management business.
There are even companies which specialise in accelerator programmes now, such as LMarks, which has run schemes with retailer John Lewis and logistics firm Wincanton.
These have seen both major firms invite start-up businesses to pitch products or services which are then put into a live trial. If these are successful, this can result in the large company seeking to buy an equity stake in the small business it has teamed up with.
Kevin Smith, chairman for the London region at accountancy giant KPMG, said there were also a burgeoning number of companies that specialised in connecting large corporations with smaller start-ups. He cited Rocket Space as an example of a business which specialises in helping large companies find a smaller partner. Such businesses are known as incubators and earn money by charging rent for their space.
Rocket Space has a directory of 10,000 start-ups globally which have worked with some of the world’s largest companies, including Budweiser brewer Anheuser-Busch InBev, insurer AIG, General Motors and pharmaceutical giant Pfizer.
Mr Smith said a similar off-shoot was the co-working space industry. Huckletree is one such company, providing office space in London for large businesses to hire and thrash out ideas with Huckletree’s member firms large and small. Plexal, a £15m space in Here East in London’s Olympic Park, opens this month.
Some large companies have launched their own accelerator programmes, including drinks giant Diageo. In 2013 it teamed up with innovation specialists Independent United to create Distill Ventures, which is tasked with finding the next best thing for bar shelves and drinks cabinets. Among the brands it has backed are two whisky brands – Starwood and Stauning – and most recently it launched the world’s first distilled non-alcoholic spirit, Seedlip.
Whichever path businesses take, there’s undoubtedly an appetite to work with others. Nesta’s report said it identified 163 accelerators in the UK, “considerably more than previously estimated”. It said these programmes support an estimated 3,660 new businesses per year.
Accenture’s Mr Medland said the ease with which technology makes communication it was only sensible to look outside for new ideas.
“That leads to many more ideas coming to people that seek them,” he said.
“It is becoming quicker and easier to partner with another company and I think it is a bona fide strategy.”
Courtesy Telegraph.co.uk