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Big companies will out-innovate tech startups in coming years

Innovations by large corporates will grow rapidly as they become the most innovative companies over the next decade

A connected car that knows what its owner is going to do during the day. Car insurance sold by the mile instead of by the year. A unique inflight entertainment system that allows passengers to start watching movies on their iPad before the flight. What these innovations have in common is they didn’t start in a garage in Silicon Valley or in an office in Shoreditch, but emerged, respectively, from a global car manufacturer, the offices of a global insurance company and a major airline.

Such innovations by large corporates will grow rapidly as they become the most innovative companies on the block over the next decade and shrug off their traditional stuffy and inflexible image.

This is not the story of the past decade where our lives have been transformed as our smartphones allow us to shop, travel, play, bank, share, get fit, book a cab or even rent out our houses with a swipe of our fingers. The vast majority of the innovations around mobile – often resulting in billion-dollar companies – have come from startups and entrepreneurs spotting a market need, raising money and creating new technologies to meet evolving requirements.

But spare a thought for the big companies that have lived through this disruptive epoch, where banks, supermarkets, TV companies, taxi firms and other traditional businesses have had their worlds turned upside-down. These organisations have been struggling to keep up, as the likes of eBay, Amazon, Google and Netflix changed their lives, as well as ours.

And it is not just the 100-year-old corporations that face this challenge. Even the poster children for the digital economy can make missteps – Microsoft missed the internet, Google missed social networking, Zynga missed mobile.

Play the challengers’ game

Today, most major corporates recognise they will have to play the tech challengers – which have completely transformed some markets or created entirely new ones – at their own game. This means they must become technology innovators as well.

That is easier said than done. Big corporates are not, by their nature, set up to develop and foster ideas that may completely challenge their existing business models. No matter how hard they may try to create an entrepreneurial culture internally, there are inevitably major barriers.

Entrenched business practices and operational structures, teams with expertise geared to the existing business models and, let’s face it, politics will all get in the way. This results in corporates being slow to grasp the challenges they face and implement change.

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That’s not to say brands are not good at reacting to market conditions, as many have created excellent digital channels to communicate or sell to consumers, but fundamental changes to business operations are more challenging to achieve.

Nevertheless, now is the time for corporates to take innovation seriously as we enter a new era in the transformation of business by technology and disruption becomes vital to stay ahead of the competition. Expect to see eye-catching new tech innovations appearing from within banks, healthcare companies, transportation firms and retailers.

Fear and greed

A key driver is fear. No one wants to be the next Blockbuster, innovated into irrelevance by another Netflix. Senior management are acutely aware of the threat of external innovation and the need to create change in their organisations, which means the days of stuffy board members dismissing digital are over.

Another driver is greed. The sheer quantity of cash sitting on corporate balance sheets worldwide means the time is right for massive investment in digital growth from major companies. Big corporates are in a very strong position in the innovation space in that they have a loyal customer base and a recognisable brand – something startups covet and are trying to acquire.

Recognising this, big businesses are beginning to rethink how they can serve their customers by looking “outside in” instead of “inside out”. Once they can change this mindset, they can experiment and not be afraid of failure. Fail fast is becoming a corporate mantra so when you do succeed, you hit it big.

CEOs realise that buying startups is not the way to get a handle on disruptive technologies, but instead sap the acquired startup of energy as the host kills the new organism. There are new, innovative ways for large companies to foster and adopt innovation that could help them regain the initiative and fight back against fast-moving tech startups emerging to challenge them – such as creating new ventures, often in partnership with others, which can attract new talent and cross-fertilise this talent back into the mothership.

These ventures can then play to the corporate’s strengths – cash, established brands and a huge loyal customer base – things that give them an immediate leg-up over startups.

So CEOs need to jettison the thinking that has allowed them to manage big companies – lot of oversight, detailed business planning, playing it safe – and move to what makes startups succeed – customer focus, rewarding risk takers and, above all, being curious.

Ajay Chowdhury

Ajay Chowdhury is a partner and managing director at BCG Digital Ventures UK.

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What data is there to support the assumption that big companies are not already "out-innovating" startups already?

It just seems like an extremely difficult thing to measure. Even the word "innovation" is pretty subjective. 

Anyway, I think that there will always be a place for the startups and also for the big companies. 
Interesting article. In my experience (20+ years at Citigroup, 15+ years as an Internet entrepreneur) they are quite different.

A large corporate draws on the information and technology they have available to adapt their existing business model. Example: Walmart starting online sales.

The entrepreneur starts with the information and technology available in the market and designs the business model. Examples are plentiful: Facebook, Amazon, Ebay, AirBnB, Uber.

There's a lot of both going on, but they don't overlap so much due to legacy systems at corporates (technical and organizational) and cultural gaps between the startups and the suits.