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A Changing Landscape
It is reasonable to expect that recovery from COVID-19 will result in structural and systemic changes across all sectors and regions. These changes are likely to include new priorities such as increased focus on health and safety, accelerated digitalisation, increased virtualisation of the workforce, supply chain resilience, new associated business models and commitment to sustainability.
As companies, both large and small, prepare for a new normal with fundamentally reshaped economies and societies, it’s inevitable that they will need to incorporate these priorities in their business models. One way to achieve this is by establishing a web of alliances. By partnering with both large specialist firms, as well as innovative start-ups, businesses can collaborate to shape new market offerings.
Traditional partnerships tend to be driven by one-on-one connection or the need to tackle specific problems. In a post-COVID environment, we are expecting to see a rise in purpose-led alliances. These will not be bound by traditional industries, but instead coalesces around deeper human needs and common purpose (e.g. workplace health and safety, wellness, trust, sustainability etc.). These value-based structures will bring together a broader set of collaborators, including corporate peers, companies from other sectors, innovative start-ups, technologists, futurists, universities, government agencies and many more.
So, how should companies and high-growth scale-ups build purpose-driven ecosystem alliances?
Aligning Needs with Innovative Capabilities
It starts with something fundamental – matching market or customer needs with capabilities. For example, in a post-COVID world, remote-first consultation might become the new normal for GP practices. Similarly, an on-demand production capability could be a key requirement for FMCG and fashion retailers who depend on responding quickly to changes in consumer trends.
Inevitably, gaps arise between market needs and capabilities. These gaps are where companies tend to look for new solutions and partners to bolster their offerings. High-growth scale-ups should have proactive dialogues with enterprises to demonstrate how their value proposition can help corporates address those specific gaps. In turn, this will lead to meaningful conversations that lay the foundations for partnerships and purpose-driven alliances.
Over the last few months, we have seen a number of interesting alliances between corporates and scale-ups. In the UK, Aldi is delivering groceries to homes for the first time through a partnership with Deliveroo, an online food delivery company. In Germany, How.fm (a start-up that provides digital training and coaching for workers around issues like health and safety, compliance and work procedures), is forming several partnerships with corporates who are reliant on traditionally skilled workers and want to quickly upskill them for post-COVID new working realities.
Judicious use of alliances provide high growth scale-ups with new growth opportunities in challenging conditions. For example, ViSenze, an image recognition AI start-up from Singapore, has used a network of alliances to enter into new market segments, as well as create new offerings.
They expanded beyond their core retail customers by forming alliances with marketplaces such as Flipkart (one of the largest marketplaces in India), mobile OEM’s such as Samsung to integrate their technology into mobile devices, and formed partnerships with start-ups offering complimentary services, such as Pixibo, which provides accurate measurements using 3D technologies.
Turning ‘I’ Into ‘We’
Even when there is a strong mutual desire for corporates and scale-ups to collaborate, many partnerships unfortunately get stuck because of conflicting objectives. When corporates consider alliances, they typically have two primary objectives: the partnership should have high alignment to their strategy and the investment costs should not outweigh the benefits. However, this could often be at odds with how scale-ups approach alliances. Scale-ups typically want to use alliances to expeditiously increase their revenues, and expect high alignment to their core capabilities to minimise additional investments.
This inevitably causes tensions and it is important to bridge the gaps early on.
While starting alliance discussions, both parties should ensure shared vision and transparent communications as the hallmarks of their working relationship. Underpinning this should be executive sponsorship and commitment. Both sides should not shy away from difficult conversations, such as those related to future investments, sharing of data, ownership of joint IP, time commitment, and so on. Measures of success are important to establish, but alliance partners need to look beyond quantitative measures towards broader qualitative metrics in order to encourage partners to be more ambitious and celebrate change.
And, most importantly, cultural alignment matters. A key concern for scale-ups is that they want to retain their freedom to innovate and not get bogged down by organisational structures. Meanwhile, corporates often find it difficult to deal with the ‘asymmetry of risk’ and the fail-fast/learn-fast mentality inherent in scale-ups. Bridge these cultural differences by recognising the value each party brings to the table, acknowledging the degree of inter-dependence on each other and putting in hard yards to build on personal chemistry between individuals.
Turning the I into We, and recognising and accepting these differences early in the alliance is crucial for long-term success.
Trust Becomes the Common Denominator
Purpose-led alliances need to deliver purpose-led growth that benefits both the customers and the alliance partners.
Trust is the connective tissue that binds any alliance together. Companies need to show authenticity and consistency while dealing with ecosystem partners, demonstrating collective gain. Show empathy towards the financials, consider the health and safety of both workforces, and demonstrate an unwavering commitment towards safe and ethical use of customer data. These traits will be the key hallmarks of successful purpose-led ecosystem alliances in the months and years to come.
The UK Deloitte Private High Growth team is running regular webinars, for Founders and CxOs of fast growing businesses, on a variety of topics to offer practical considerations during this crisis. You can register for the webinar series here.
Sriram is the Global Lead for Disruptive M&A and leads a multidisciplinary proposition to advise clients on venture investment and M&A opportunities to capture innovation-led growth opportunities. He has advised clients on a range of complex issues covering growth & innovation strategy, M&A, corporate venturing and change management. He is UK relationship leader for Uber and his clients include Softbank, Ricoh, Bank of America, UBS and BT. He is also the Global Lead for M&A Insight and responsible for positioning Deloitte as a market leader for eminence and works closely with clients to drive insight-led deal opportunities. He has been featured in in publications such as Financial Times, WSJ, The Economist, BBC, NY Times and Atlantic Magazine. He is also a frequent media commentator on BBC, Bloomberg TV and CNBC.