Accumulate to innovate: Staying ahead in the innovation arms race
Last year Siemens, the 170-year old industrial conglomerate, announced the creation of something that had a strong whiff of back to the future about it.
The innovative German company hasn’t yet, unfortunately, created the world’s first time travelling train. But on October 1 it did launch a business that speaks as much to its past as it does to its future.
Indeed in founding next47, a new unit designed to foster innovation and accelerate the development of new technologies, Siemens is focusing even more than it has in the past on partnering and investing in innovative start-ups to enhance its future growth and development.
“Siemens itself was a start-up in 1847,” said Joe Kaeser, president and CEO of Siemens. “With next47, we’re living up to our company founder’s ideals and creating an important basis for fostering innovation.”
Siemens has been partnering and investing in start-ups for the past 20-years or more. But in next47 – a play on the year Siemens was founded – the company has consolidated all its existing start-up activities, empowering the unit and essentially giving this business greater strategic importance to the entire company than ever before.
What’s interesting is that Siemens is not alone.
For years many of its blue-chip company peers – from Intel and IBM to Unilever, Google and more recently GE – have been partnering with and investing in some of the brightest start-ups in much the same way.
Unilever Ventures, the consumer goods conglomerate’s venture capital and private equity arm, was founded, for instance, in 2002. Intel Capital, by comparison, has been going since 1991.
Back then the innovation arms race was only really just getting going. And yet in the last decade this race has accelerated phenomenally, transforming the global economy in ways few knew or perhaps thought were possible.
From AI and machine learning, to distributed ledger technology, augmented reality, robotics, cybersecurity, energy storage and 3D printing, large, mature companies are today seeking out some of the most innovative start-ups in an ever increasing array of profoundly impactful areas.
Consequently, corporate venture capital investment – the means through which these companies tend to invest in or acquire start-ups via their own dedicated divisions – has rocketed in recent years.
Last year, for instance, corporate venture capital investment touched $85bn globally – roughly double what it was in 2014, according to Global Corporate Venturing.
It looks set to keep soaring.
An increase in acquisitions of innovative start-ups by larger, more established competitors is seen as one of the top themes in M&A over the next 12 months, according to over 2,000 company CEOs, CFOs and other senior executives who participated in the recent Capital Confidence Barometer survey we conducted on behalf of EY.
Ask the same executives the same question but our over a longer timeframe and the acquisition of start-ups may be nearer the top.
Part of the reason why is the recognition that internal research and development alone struggles to deliver the type of innovations companies want, when they want, and at a cost that they want to see.
Combine that with the fact that the type of environment that fosters innovation – one where staff can collaborate and operate under the freedom to create, experiment and ultimately fail – is not typically to be found flourishing in large, mature multi-billion dollar companies.
At least, not in most.
Part of Siemens’ objective for next47 is to provide existing group employees, entrepreneurs as well as external start-ups and established companies with the “freedom to experiment and grow” without the organisational restrictions so often symptomatic of a company its size.
In some sense, Siemens is just opening its doors to bring the innovations that can and do happen outside, in.
And while much of that focus is on attracting the ingenuity and flare that start-ups can bring, large mature companies are also getting in.
The first of next47’s projects is with European aircraft maker, Airbus. By 2020 they aim to show the technical feasibility of hybrid/electric propulsion systems for small to medium-sized passenger aircraft.
Innovations driven by and among large companies can of course be just as profound as any developed by start-ups, but to stay ahead in the innovations arms race, better ultimately to work together as one.
And who knows, anything might be possible – even time travel.