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Why the old economy should set up start-ups in order to gain speed in Digital Transformation?

Young digital companies are increasingly challenging established companies. The establishment of subsidiaries in which new technologies and business designs are developed is a promising approach.

Do things differently and faster. Startups have many advantages over established companies.

Established companies should guarantee stability, growth and profit. In order to remain relevant in the future, however, they must at the same time prove the agility and spirit of discovery of start-ups. This is often not feasible in the same organisation. Strategic decision-makers should instead consider an alternative way: to found companies out of their own organisation that, like start-ups, can develop and scale new products and business designs while at the same time being supported by the expertise and infrastructure of the parent organisation.

Challenges for Established Companies

Technical quantum leaps and revolutionary business models of young companies are among the biggest challenges for established organisations. An average Unicorn - a company worth more than $1 billion - is only six years old and has nearly nine-folded its market capitalisation in the first five years after going public. No wonder existing companies are trying to harness the value creation potential of founders.

Unfortunately, however, this often does not work as planned. And there is seldom a lack of ideas or money. Instead, excessive bureaucracy and difficulties in scaling established companies are putting obstacles in the way.

Founding your own start-up - BP shows how to do it

The British energy group BP proves that there is another way. It places particular emphasis on creating its own structures in which innovative companies can emerge and grow - better and more extensive than is possible in start-up incubators or similar programs.

In 2018, BP launched a program to scale forward-looking technologies. One of the technologies selected was a technology that uses acoustics to determine whether and where sand, liquids or gases penetrate oil wells. The developers became co-founders of a new company - with the freedom to dynamically develop and grow like a start-up in order to scale their technology. The results are impressive: Business is growing.

Unlike conventional startup incubators

BP is just one example of the opportunities offered by setting up your own start-up structures. However, they should not be confused with conventional startup programs. Although they are similar in some respects, they have a different internal structure. They consist of much more independent decision-makers with great freedom of action:

  • Experienced entrepreneurs who have been recruited externally and bring special expertise with them,

  • Executives from the parent organisation with strong networks who can stand up for the young companies and remove bureaucratic hurdles,

  • Specialists in data science, software development, sales, design thinking and other disciplines that support start-ups.

Together they ensure that the new start-ups are not held back by bureaucracy, micromanagement and other challenges.

Does it work for Energy und Infrastructure? Yes, Botswana Power Corporation did.

Botswana Power Corporation (BPC) used to have under utilised dark fiber capacities in order to control their transmission and distribution network. But only 5% of the installed capacities where used. Therefore, the corporation established a joint venture with Liquid Telecom in order to provide internet services to commercial and private customers in the future.

The company was supported by an unbureaucratic Board and a Management Team that was well experienced in this market segment. The development of the new internet infrastructure could be accelerated by using a market orientated organisation. Nevertheless, Liquid Telecom and BPC could always provide resources and know how whenever needed.

Another example: The Bosch Startup Security and Safety Things

One practical example is the Bosch startup Security and Safety Things (SAST), which pursues ambitious goals: The wholly-owned Bosch subsidiary wants to revolutionise camera-based applications in building technology. It uses an open operating system, a development environment, an app store, and a portal for integrators. Cameras in buildings are becoming the technical basis for analytical and data-driven applications, for example in security technology. Users can extend the cameras with apps and adapt them to their needs.

Bosch decided to collaborate with a digital business partner to set up SAST. This ensures that work can be carried out in a focused manner and at the necessary speed. He also shares the entrepreneurial risk with regard to the achievement of milestones and revenue-based targets - similar to an external investor. As CEO, an external access with special digital experience was also used in order to be able to act as independent and agile as possible.

Success factors of own start-ups

The more freedom the founded companies have, the greater their chance of success. The pupils should be provided with the advantages that are hardly attainable by independent start-ups. These five are particularly valuable:

  1. Existing customer base: organisations can consistently support their start-ups with access to their existing customers.

  2. Visible brand: Start-ups should participate in the strongly developed brands of their parent organisation.

  3. Strong infrastructure: large organisations often have detailed and far-reaching supply chains and should integrate start-ups well into this infrastructure.

  4. Liberal exchange of knowledge: Subsidiaries should have access to intellectual property in the form of know-how, data and patents of the parent organisation.

  5. Eye level in negotiations: Negotiations are easier with an established organisation behind them. In this way, investments can be made that would be practically impossible for most independent start-ups.

The effort is worth it

Doing things differently and faster, taking the advantages of a large parent organisation with you and leaving unnecessary burdens to one side - on paper this seems simple. The implementation nevertheless requires a clear strategic effort. However, this is worth it, because if the company consistently creates its own start-up structures, the newly founded companies can scale effectively and transfer their added value to the parent organisation.

And this can really be both: stable and agile, strong and agile, proven and disruptive.

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