Corporates can orchestrate billion dollar new ventures
Industries are being fundamentally changed as technologies and start-ups are coming together to deliver new products and solutions. The car industry, for example, is no longer about metal boxes on rubber wheels. Cars are now made from composite smart materials that can capture energy from the sun and store it for off-grid energy, have the computing power to be autonomous, and can be shared in a congested urban environment. Transport as a Service (TaaS) could become the new norm.
Corporates cannot be really strategic and scale by doing ad hoc innovation and corporate venturing investments. They also need to be joining technologies, start-ups, and corporates to create what we term Innovative New Value Chains. Innovative New Value Chains are the result of orchestrated investments and allow corporate executives and those running their corporate venture and innovation units to be more strategic.
Corporate venturing (making minority stake investments in start-ups) and partnering can then be the way to move toward the more strategic opportunities the organisation can address. Making ad hoc investments aligned to the current business can be beneficial. If an organisation invests this way and survives for more than three years in the world of corporate venturing, it is clearly making decisions that are tactically beneficial in terms of making returns. Simply looking at technologies or themes too closely aligned to the current business unit is not effective in the long term.
Bringing together technology, start-ups, and corporates has the potential to deliver new great opportunities. The application of new materials, devices in products, new payment methods, and increased social interaction with customers are coming together to change organisations and industries.
A large number of new technologies—from new materials, biotechnology, mobile devices, the Internet of things (IoT), big data, artificial intelligence, virtual and augmented reality, social media, and more—all continue to bring unmatched opportunities for organisations.
Simply deploying these or other new technologies into current products or services, however, does not ensure that these powerful tools are being used to their full potential. There is plenty of technology out there, but only a fraction of it is being deployed within current business models and that spells wasted opportunities for organisations. For an organisation that truly prioritizes innovation, the question surrounding technology should not be merely how to scout and invest in it but how to change the model and scale it up.
As a “supermaterial,” graphene has fantastic properties that were discovered and characterised at Manchester University in the United Kingdom. In an Innovative New Value Chain session at the Manchester University National Graphene Institute, leading experts and I explored the application of graphene. In current applications, graphene’s properties of heat and electricity conductivity can be taken advantage of. It is being applied in rubber and concrete curing, which is cutting production time and providing additional features. Graphene is also being applied to composite materials, adding the advantages of strength and weight reduction, which significantly benefits high-performance automotive and aerospace applications.
The bigger potential is when its properties are applied to new devices and business models in health, transport, aerospace, electronics, and others, which then develop Innovative New Value Chains. Having functions for sensing and IoT connectivity at the microlevel opens up many opportunities that will require new processes and value opportunities.
Start-ups and incubators are important components of the ecosystem, and the marketplace is saturated with both. To complicate the matter, there are innovative initiatives being run by schools, universities, governments, corporates, venture capital companies, and more. In 2017 there were 368 incubators and accelerators in the United Kingdom alone.蜉 This is replicated globally, with hot spots in Silicon Valley, Shanghai, Israel, and Europe. Connecting and scaling effectively will give better financial and returns for the planet.
Corporates, too, have challenges when it comes to making space for innovation. If modern organizations were more effective in their corporate venturing, open innovation, or venturing processes, they would have better opportunities. Finding those opportunities starts by understanding where corporates can add value. In organizations I have worked with, these tend to be in the realm of regulations, the management of assets, or the direct relationship with customers. For example, corporates can gain advantages from their understanding of regulations in clinical trials, the development of health solutions, transport, infrastructure, and financial services.
Addressing the challenges
Silicon Valley has “done the easy stuff” by creating big businesses based on 140 characters on social media, computing centers focused on search algorithms, and disruptive technologies and business models (e.g., Uber and Airbnb) that mediate some current, long-standing channels or existing asset.
The bigger challenge today is deploying technologies that improve public health, transportation, and people’s lives in general. To address these challenges, we will need to deploy technology and new business models in an environment that requires more asset investment, more engagement with people, and more regulation.
This task requires an environment familiar with regulations, yet committed to the care and delivery of technology as a solution, not simply a product or service. Innovative New Value Chains do just that, addressing the needs of consumers and the needs of society as a whole, rather than simply running software that bolsters current business models.
Innovative New Value Chains: What They Are Not
Innovative New Value Chains are not Horizon One initiatives—that is, those that strive to make the current business model more efficient by producing alternative or adjacent products.
Telecommunication company Vodafone, for example, ran some of its venture activities to find technologies that would be alternative-energy solutions for powering its base stations—a worthwhile cause, of course, because those activities build their core business. Just because those activities involve corporate venturing and technology, however, does not mean they represent the building of Innovative New Value Chains.
Innovative New Value Chains are also not just referring to the creation of new business models, which can also simply be called innovation. Consider Xerox and photocopiers, for example. Xerox was not the first photocopier, but the business model of selling the photocopying capabilities on a price per print rather than selling a machine became an entirely new business model, and a successful one at that—just not an Innovative New Value Chain.
Innovative New Value Chains: What They Are
Innovative New Value Chains are not only new technologies, new business models, or new start-up investments—they are formed from connecting the pieces of all three.
As Claudia Fan Munce, the retired founder of IBM Ventures, described in my book, “For me, the approach to innovation is to bring together the ‘string of pearls’ of technology and start-ups.”
Innovative New Value Chains are relevant in a number of industries, and we will see examples of connecting technology and start-ups to give better outcomes in a number of scenarios. You will then see parallels with your organization and industry.
There are many examples of Innovative New Value Chains illustrated in the book including, McLaren Applied Technologies where we brought together industry leaders to consider new value chains. Climate Corp developing new models in agriculture and acquired by Monsanto for nearly $1bn – Energy and smart home solutions with NEST acquired by Google for $3.2bn.
The Insurance sector is also looking for new value and transaction opportunities in automotive, health, and asset insurance. I asked Jacqueline LeSage Krause of Munich RE Ventures:
“Are you seeing new products, services, and business models that are brought together in different ways to the current business—what I would term Innovative New Value Chains?”
She replied, “Absolutely. That has been especially true over the past five to ten years for telematics and other sensor-based technologies that can be integrated into insurance in either light form or very disruptive ways.”
Merck Global Health Innovation Fund brought three ventures together to create a cardiac health solution of device, data solution and care for patient in the home. Half of the newly created $ billion entity was sold to Boston Scientific. Bill Taranto gave a very good illustration of the Innovative New Value Chain in one of my Podcast Interviews – Gaule’s Question Time
When it comes to succeeding with Innovative New Value Chains, scale is best discussed at the global level. Whereas start-ups are typically in only one location and backed by local funding, corporates are in the position to gather vision from European markets, leverage the technological capabilities of Silicon Valley, and leverage the manufacturing leadership of China to launch globally.
Participating in Innovative New Value Chains gives an organization the chance to become truly strategic, making corporate venturing beneficial for the company and serving as a potential catalyst for societal change. Companies need to create and sustain Innovative New Value Chains by doing the following:
- Understanding the investment ecosystem
- Scouting and investing in start-ups and the new VC opportunities they create
- Orchestrating new business models
This article is edited from the book ‘Purpose to Performance Innovative New Value Chain’ by Andrew Gaule.
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