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Politics and inflexible legacy tech stymies disruptive innovation

Startups in traditional enterprises often feel they are being held back by culture, with legacy tech and business processes hampering innovation

Leap, a service from management consultant McKinsey, has reported that institutional control and inability to scale ideas are holding back traditional businesses.

Based on responses from 93 senior executives in Fortune 500 businesses, McKinsey found that while business leaders are keen to embrace innovation, the process can be daunting and time consuming.

To overcome the scale-up challenge and respond to the threat of disruption, McKinsey said companies should rethink their operating model for innovation-led growth.

It said that the most effective models combine a strategic innovation process with multiple mechanisms for powering innovation development and scale-up.

The survey reported that 57% of the executives who took part admitted that internal startups were hampered by politics and policies in the parent company.

One respondent quoted in the report said: “We are a large multinational and as such we are subject to the traditional silos and focus on individual lines of business success, sometimes at the expense of the new venture growth opportunities.”

Beyond the cultural differences, one area McKinsey highlighted in its research is the different approaches to technology that a traditional business takes compared with a startup.

“One advantage that startups enjoy over established companies is that they build their technology stacks from scratch, rather than having to work with legacy IT,” said McKinsey.

“Our experience suggests that it is possible to assemble modular, off-the-shelf components and some proprietary code into a high-performance technology stack capable of supporting the initial minimum-viable-product stage in just three or four weeks.”

Ari Libarikian, senior partner and global co-leader of Leap, said: “With more startups embracing innovative technology, the future of key industries is evolving, and incumbents are struggling to keep pace. This is why they need to take the leap to build and create new businesses that move the market – or they risk falling behind the competition.”

Another aspect of successful startups, according to McKinsey, that traditional corporates should learn from, is the ability to learn from past failures. 

“The strongest startups we’ve seen are led by people who are comfortable managing uncertainty by following test-and-learn methods and who are willing to accept failures made for the sake of learning,” McKinsey said.

For instance, in a recent McKinsey interview, Aaron Levine, the CEO of Box, said: “In the first year and a half of the company, I would say every 48 hours we’d change our business model.”

McKinsey reported that successful startups also have a technology model that takes advantage of ecosystems. and a clear path toward attractive monetisation.

Ralf Dreischmeier, senior partner and global co-leader of Leap, said organisations need to embrace business innovation while building on their existing strengths by “leveraging business-building as a strategic capability to shape the growth agenda”.

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