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In an increasingly digital and connected world, large enterprises and small entrepreneurs alike are exploring the value that can be created by closer and deeper collaboration with each other. Enterprises gain access to new skills, ideas, talent and markets, while entrepreneurs tap into large companies’ distribution networks and customer bases.
In fact, recent Accenture research titled: Harnessing the Power of Entrepreneurs to Open Innovation, found that 82 percent of large companies say they can learn from entrepreneurs about how to become a digital business. And 50 percent believe they need to work with entrepreneurs to be sufficiently innovative. Yet obstacles to effective collaboration remain.
Entrepreneurs often question their partners’ commitment to supporting the growth of their businesses. At the same time, large enterprises often lack confidence in a startup’s ability to move from idea to marketability in the context of a broader business strategy.
The G20 countries are ahead of South Africa and open innovation is a journey for them. Depending on corporate needs and the market forces in their sector, some large companies in G20 countries have adopted corporate venturing. Others have developed incubators or accelerators. Some engage in joint innovation or co-creation, and a select few engage in ecosystem innovation.
Closer to home, South Africa is still behind and local companies will have to leapfrog to the joint and ecosystem innovation stages while simultaneously maturing their approach to corporate ventures and accelerators. To do so the guarded corporate mindset in South Africa needs foremost to open up and embrace open innovation.
Interaction with startups often begins with corporate venturing. This form of collaboration is especially important in the eyes of large companies that want to de-risk financial bets on internal research and development (R&D) through external investment, and to scout for next-generation technology and innovations.
Nearly half of the top 100 companies in the global Fortune 500 ranking have a corporate venturing unit. However, corporate venturing in South Africa is still emerging, led by a handful of local and multinational companies that have recently begun setting up venture funds.
Globally, accelerator programmes are typically run alongside large companies’ corporate ventures. They are currently used by about one-third of large organisations, a percentage that is expected to hold steady over the next few years. At the same time, entrepreneurs anticipate that the importance of incubators will increase, and generally desire large companies to make start-ups a greater part of their DNA.
In South Africa, there are over 50 incubators. It is a small yet growing movement. The first phase was largely driven by government support. In fact, over 70 percent of incubators are started by the government. The second phase of private sector investment is now picking up. The Technical Incubator launched by Standard Bank in collaboration with the University of Johannesburg is one such example.
Joint innovation or co-creation is seen as the most effective model of collaboration by many global organisations. Joint innovation enables the partners to collaborate more broadly and jointly maximise market opportunities more effectively than they could independently. For example, Barclays Rise has signed proof-of- concept agreements with three start-ups in the ICT space to test their products.
Although an important stage in the overall journey, joint innovation’s centre of gravity remains with the large corporation and its innovation, as well as R&D processes. Start-ups are expected to contribute their ideas within an environment of solving the large corporation’s problems and needs.
In this more radical step in the open innovation journey, innovation occurs among a broader ecosystem of collaborators working on a more equal footing. Ecosystem innovation enables enterprises to look beyond their four walls to bring in ideas quickly, enhance their innovation programmes, and also create shared value at the intersection of corporate performance and society to solve big or common problems.
Digital platforms and platform-oriented companies are a major enabler of ecosystem innovation. Digital platforms are generally owned or orchestrated by a single company that controls the development of core products or services. However, the success of the platform depends on the ability of the leader to nurture the ecosystem of players and participants, including start-ups, encouraging them to offer value-added services on the platform.
Leapfrogging to Ecosystem Innovation: How do we get there?
Most large and small enterprises in South Africa are taking their first steps on the journey. It is, therefore, important that stakeholders align on the essentials of digital-based joint innovation. This will put in place a foundation that can support more radical advances and leapfrog open innovation into the future. The critical focus, therefore, is to advance to more digitally enabled collaboration.
Large companies need to enable access for start-ups via existing vendors, rerouting purchases to manage risk while continuing the mentorship under the corporate accelerator programme until such time that the due diligence standards are met for direct sourcing. Entrepreneurs need to recognise the specific needs and interests of large companies if they are to effectively collaborate with them and serve as their suppliers.
Government funding, paired with private sponsorship, has a strong positive impact on the entrepreneurship ecosystem, as evidenced from G20 countries. Bridge-makers – such as The Cape Innovation and Technology Initiative (CiTi) and AngelHub Ventures – can act as intermediaries to help connect organisations to appropriate partners, act as a buffer between partners with conflicting cultures, provide support in mitigating risk, and assist in piloting and deploying technologies.