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IT leaders are under increasing pressure to find new sources of innovation. With creativity seen as key competitive differentiator, CIOs are being charged to help find new solutions to intractable business challenges, including from the startup community.
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So how can CIOs benefit from working with fast-growing firms and what’s the best way to use their expertise? Computer Weekly speaks to five IT leaders who give their best practice tips for working with startups.
Manage risk and rate your suppliers
Chris Hewertson, chief technology officer (CTO) at hotel group GLH, says his organisation spends a lot of time talking with startups and does, in the right business circumstances, draw on their expertise. “We trial and evaluate startup services, and we recognise the values they bring can be a potential competitive differentiator,” he says.
Hewertson, however, also believes CIOs should be looking to create an entrepreneurial spirit in their own organisations. He says GLH is still operating at a scale where it likes to manage developments in-house.
“We’ve used other companies but we haven’t handed anything over yet,” he says. “In fact, we’re starting digital businesses in our own organisation. We have agile developments going on and we’re building apps.”
“We manage and rate our suppliers. If we think a partner isn’t performing, we let them know”
Chris Hewertson, GLH
When it comes to closer ties with external partners, Hewertson says CIOs must understand there is a risk that a startup partner can fold. But the same is true of any supplier, he adds. Economic and business circumstances can change and CIOs must consider all potential eventualities.
“You have to manage through risk,” says Hewertson. “We have a corporate risk board and I run a monthly risk session. We manage and rate our suppliers. If we think a partner isn’t performing, we let them know. If we think there’s a risk they’re going to go under, we put in mitigations.”
Hewertson says supplier management is one of the key strengths of a CIO. He says IT leaders need to draw on that experience because they will play a crucial role as their organisation starts to work with more startups. “Who knows about service level agreements and service contracts?” says Hewertson. “The answer is the CIO – we’ll sort the contract, manage the service and insist on clauses.”
Balance the need for innovation with good business sense
Andy Wilton, CIO at Claranet, says that startups by their nature bring a new perspective to solving the challenges that CIOs face. The results are not always positive, however, as a new perspective can also represent an idea that has not been tempered through widespread adoption and adaptation.
One of the key concerns is that a startup will struggle to cope with demand, particularly if their service is embedded as a key component in a larger supply chain. “Understaffing, mismanagement or a failed product can all cause problems and this is more common than you might think,” says Wilton.
“For many IT leaders it is important to get the right balance of innovation – and that’s about bringing in startup suppliers in an iterative way alongside their long-term, and often more experienced, providers. With the help of a larger partner, the culture, values and service of the startup can be adjusted to meet the needs of your business.”
Problems are not just confined to smaller startups. Wilton says CIOs must recognise that larger, fast-growing startups should be approached differently. Companies that float on the stock market can change their approach and even become destabilised, especially if they are burning through cash to reach a target size.
“This situation can create another source of uncertainty for CIOs, as many will be at risk from having the rug pulled out from under them as business circumstances change,” says Wilton. “For this reason, due diligence on the profile of a fast-growing startup should be undertaken with greater care by CIOs during the tendering process.”
He says organisations looking to avoid risk in the procurement process should look to those suppliers that operate with a working profit. “But ultimately, if the service offered is genuinely innovative and the value proposition can’t be beaten, partnering with a startup could be a rewarding decision,” says Wilton.
Accept the challenges of working with fleet-of-foot suppliers
Neil Davison, IT director at law firm Farrer & Co, says his organisation has reached out to startups for certain elements of IT provision. One area is email management, where the legal firm called on a London-based startup that received significant funding to help develop software for filing and archiving.
The startup became particularly popular in the legal sector before hitting financial issues. Davison says a larger software firm is currently purchasing the supplier. Such issues might dissuade CIOs from partnering with a startup, yet Davison remains sanguine.
“The product’s great – it’s a really reliable system,” he says. “We now manage the product ourselves and it works well. In fact, we’ve recruited one of the startup’s best technical employees into our IT team.”
Davison, however, recognises the lack of support could create challenges in the long term. He is using the changes to email filing provision as an opportunity to take a broader view on electronic document management (EDM). Davison has recently installed NetDocuments’ cloud-based EDM system, which is helping to improve workflow across the firm.
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Yet Davison would not let the challenges of working with startups affect his choice of technology partner. “You’ve got to accept there’s a risk of failure unless they get their business model right. Even a good product can fail if it isn’t supported by a great management team,” he says.
Davison says the firm continues to look for new and interesting partners. Farrer and Co, for example, made a business decision to buy technology from time management specialist Rekoop. “We’ve been lucky because we supported them at early stage of their development and have watched them grow,” he says.
“When we talk about a new technology partner, the first thing our executives ask about is the risk of the firm going under. There is a perception that you might be about to invest in a company that won’t be around two or three years later. But the challenges you can face wouldn’t put me off working with startups.”
Consider an arms-length approach to innovation
Enterprise Rent-A-Car European IT director Jeff King says his organisation is most likely to work with a new firm as a result of an acquisition. “You might look to bring specialist expertise in-house,” says King, referring to his company’s approach to startups.
Enterprise has focused on expanding its European operation during the past 12 months and further growth is expected. King recognises that technology is likely to be crucial to expansion. He says partnerships with leading-edge firms in key areas of creativity could play a part, meaning the use of startups could rise.
“We’ve started working with a smaller company in the area of telematics as we wanted to explore that fast-moving area of technological development,” says King, who believes an innovative combination of telematics and mobile technology could create significant change in the car rental business.
“It’s good when you and your entrepreneurial partners have skin in the game – that’s the best way of working”
Jeff King, Enterprise Rent-A-Car
At a most basic level, data from in-car telematics systems could be used to keep a real-time feed of how far a particular rental car has travelled and how much fuel has been used. “We know telematics is going to become more strategic and we know we need more innovation,” says King.
He recognises that link-ups with external firms tend to work best when both parties have something to gain in terms of potential financial rewards. “It’s good when you and your entrepreneurial partners have skin in the game – that’s the best way of working,” says King.
Yet joint investments are not the only way to guarantee success. Sometimes an arms-length approach to innovation works best for traditional enterprises, especially when the technology being developed is unlikely to create a competitive advantage.
“If what you’re working on isn’t strategic, you can be better allowing people to go and develop products and services externally, pay a licence and to give their product to the market. Other, rival suppliers might be able to use the technology as well but their feedback will help shape and create a better toolset.”
Demonstrate the business benefits of entrepreneurial ideas
Like King, Brad Dowden recognises that some form of joint approach is likely to bring the best results when intellectual property is involved. Dowden is the former CIO of recruitment firm Adecco and now runs transformational projects for big firms, including a recently completed programme management stint at Odeon and UCI Cinemas. He advises CIOs who are looking beyond the firewall to create a symbiotic relationship with new partners.
“Working with startups can be an attractive proposition, but non-IT executives will sometimes feel that there’s a lot more risk involved,” says Dowden. “You need to have upfront conversations about what you are both likely to gain from any relationship.”
He recognises that many firms are still likely to take the easy route and go with recognised providers. Big suppliers, says Dowden, have the resources to support projects. These resources become particularly important when something goes wrong, as larger suppliers will be able to dedicate more cash to any attempt to turn around a problem project.
Yet Dowden, despite the potential downsides, is keen to make the most of the startup community. “I’m entrepreneurial – I want to give the smaller guys a chance,” he says, referring to his ongoing transformation work with blue-chips.
“The key to success is transparency – and that’s the case for every supplier, both big and small. CIOs should be using partnerships with external firms to demonstrate to the rest of the business how tapping into innovative firms can lead to great achievements.”