Is working with startups a fashion phenomenon or is it going to last? The
digital revolution is transforming industries one after another,
whether it be media, music, video games, distribution, agriculture…
The banking sector is obviously targeted and has no other choice but
to react when facing innovative startups that tackle all or at part
of its value chain. From Weelo to Younited Credit via Transferwise or
Anaxago, GAFA and FinTech are disrupting the banking world.
Traditional institutions are often compared to plodding elephants
overtaken by responsive ‘greyhound’ startups.
A diversity of experience and skills fosters creativity and disruptive services.
But
if you believe that banks will let themselves be reduced to mere
administrators of ‘core banking systems’, think again as you
under-assess their specific strengths, from their client base and
multi-channel sales distribution network to their immediate
investment capacity to deploy assets and generate disruption
themselves. The Fintech tsunami is therefore not a threat but rather
an opportunity for banks to cooperate in order to expand their client
relationship and transform themselves.
What should be expected from this partnership? Very
often corporate giants aim to become less complex, more agile and to
take on new ideas. What is at stake is enhancing digital client
relationships, and developing a steady and iterative stream of
innovation. A recent study shows that the top 100 biggest companies
in the Forbes ranking are twice as involved with startups (64%) as
the bottom 100 in the ranking (32%). Banks have fallen behind as only
64% work with startups vs. 94% firms from the pharmaceutical sector
and 85% from the telecom industry 1. Gains from such partnerships are
a known fact… but solely if big companies can manage to work with
startups in the long term, bearing in mind that they are so different
in every way. What is the best way for big firms to work with startups? BNP
Paribas got off to an early start with the launch of l’Atelier then
the WAI (We Are Innovation) and Innovation departments. Barclays
teamed up with Techstars, Credit Agricole launched their Is working with startups a
fashion phenomenon or is it going to last?’Innovation
Village’ network worldwide. There is no such thing as ‘one size
fits all’: the action plan must be tailor-made to each opportunity
according to various criteria such as expected gains from the
partnership, available resources to be devoted and required skillsets
from all parties.
For
bankers, one of the key factors of success is to have the broadest
view and not limit it to Fintech and Insurtech. Who would have
thought that Shazam’s algorithm would make it possible to detect
Alzheimer’s disease by listening to patients, or detect a bus
breakdown by listening to its engine? A diversity of experience and
skills fosters creativity and disruptive services.
Startups partners
What are the pitfalls for these partnerships? Two
worlds with radically different cultures makes it very difficult for
them to work together successfully. On the one hand, startups may not
find the value proposition offered by big groups attractive enough.
Long decision-making processes and slow action often discourage them
as they need short-term cash and wish to maintain their integrity,
agility and innovation capability.
On
the other hand, big groups see startups as not sustainable enough,
fearing they will disappear before project development is finalised.
As for hackathons or intrapreneurship, their economic impact takes
time to materialise. The ‘Return On Investment’ assessment should
take into account the ‘Risk Of Ignoring’ and missing out on a
critical turn for companies. What is the future for these partnerships with startups? Those
involved are still looking for the best answers. Buying out a startup
can rapidly kill
it.
But limiting oneself to mere idea contests will fail to generate
services that can be rapidly
industrialized
within the robust but ‘muddle’ information systems owned by big
firms’.
In
this era of collaborative economy and service platforms, many CEOs
expect that these platforms will be the ‘must-have’ link between
businesses. We oversee a solution in the acquisition of a base or
platform to host an ecosystem of partners, distribute multi-partner
offers, manage their invoicing and commission all parties involved.
Banks benefit from a huge client base and trust, they can investigate
offering a suite of services (aggregation and beyond core banking) to
assist retail and corporate clients.
BearingPoint
has been investing for the last five years in a solution enabling
companies to aggregate digital services in a fast and customised way,
whether internally or externally – such as a travel offer providing
car-sharing via a partner, as well as luggage delivery and train
tickets.
Philipps
Healthcare also established partnerships (with Salesforce, Alibaba
Alicloud) to speed up the launch of a platform (the Healthsuite
solution 2) which facilitates data transfers between patients and
hospitals and enables external developers (startups but also others)
to create new services for their own markets. One can also mention
the technological multi-services payment platform launched by
Carrefour and BNP Paribas designed to include startups.
Businesses
aim to transform themselves into ‘aggregators’ (rather than being
aggregated themselves), monetizing these services and providing
sophisticated marketing, thereby avoiding disintermediation.
Any advice for the big groups already on board and working extensively with startups? The
key is to speed up their internal transformation as they will only be
able to absorb external innovation after they have proven capable of
adjusting their internal culture and working methods. Such processes
take much longer and are much more complex than opening out to the
outside world. Placing Open Innovation at the heart of their strategy
allows for considerable internal transformation leverage. It enables
the development of intrapreneurship, collaborative and digital work
methods, shorter decision-making processes and more transversal
management with coach- or mentor-managers.
We
currently have clients who are rethinking their corporate strategy by
setting up executive workshops over a ‘4-hours/4-days/4-weeks’
format. This method inspired from hackathon methods enables teams to
rapidly identify and test new strategic pillars for the firm directly
in the field. Other firms like Danone or GE support their staff to
develop and incubate innovative ideas within ‘spin-offs’ by
joining an incubator for a few months.
The right to fail must win its spurs again.
Another
thing that teams can learn from startups is the art of ‘pivoting’,
as groping around in the dark and failing is part of the process of
finding the winning model. For instance Criteo applies the Machine
Learning method to advertising to practice offsite retargeting. It
first started with a B2C offer then switched to a B2B-in-the-Cloud
offer and eventually found its winning model through the
Cost-per-click method before being listed on the NASDAQ. The right to
fail must win its spurs again. Engie is a good example as each year
it organises a contest that rewards ‘the best failed idea’.
The
stakes are therefore more about cultural transformation than about
setting up partnerships with startups, as banking survival depends on
it. A few years ago in France, the smartest people wanted to become
investment bankers but now they dream of joining the Cargo or the
Halle Freyssinet to launch the next Unicorn… Only by leveraging
their strengths, betting on human resources and applying startup best
practices will the big firms be able to retain their talents and
attract the GenZ reaching the market.
[1] #500 Corporations, “How do the World’s Biggest Companies Deal
with the Startup Revolution”, INSEAD report February 2016
[2] Available in http://www.philips.fr/healthcare/innovation/a-proposde-healthsuite
Translation
from French: Jade Heuzey-Nedelec (BNP Paribas / La Tribu des Agiles)
