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Partnering with Start-ups - Purchasing is the key for success

Authors:

Abstract

Purchasing teams are increasingly realizing that they need to look beyond the classics and search for new opportunities to contribute to their Company’s success. This sometimes includes working with Start-ups! Our Companies are now surrounded by dynamic ecosystems where Start-ups are gradually taking prominent roles. Start-ups and large corporations want to work together and Purchasing teams can contribute to make these collaborations work. Purchasing have a role to play, an opportunity to grab. Purchasing teams can contribute throughout the different stages of collaboration with a Start-up.
The Value Creation Observatory
an EIPM Laboratory
Time to Partner With Start-ups!
Purchasing is the key for success
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About EIPM
EIPM is at the intersection of the business and academic worlds, with an approach to education
(grounded) established in the reality of business.
Currently, with branches in Geneva and Shanghai and partnerships in Brazil, Mexico, USA,
Canada, the United Arab Emirates and India, the Institute has developed a complete range of
solutions to meet the training needs of its large base of international clients in all sectors of
industry and service.
About CRG
Founded in 1972 by the Ecole Polytechnique (France), CRG (Management Research Center) is
the first laboratory dedicated to research in management to have been recognized by the CNRS
in 1980. It is an active component of the Interdisciplinary Institute for Innovation - i3 - (UMR
CNRS 9217) which includes teams from Mines ParisTech and Telecom ParisTech.
The unit is organized into four programs: Strategies of Innovation and dynamic systems design;
Strategies, structuring and regulation of markets; Information Technology and Communication:
Organizations, markets; and Creation, organizational and societal creativity.
CRG approach brings together theory and practioner’s perspectives to seek solutions to
problems faced by managers and organizations, putting knowledge into action.
………………………………………………………………………………………………………
The Value Creation Observatory
EIPM has embarked on a major Research project to measure the progress of the Purchasing
profession towards Value Creation.
The ongoing research project consists of a series of surveys, workshops, case studies and
publications.
We thank all the interviewees and the participants in our events who provided input for this
observatory report
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Copyright © 2017 EIPM
EIPM
Bâtiment Mont-Blanc 2
Rue Antoine Redier
74160 Archamps
France
Tel: +33 (0)4 50 31 56 86
Fax: +33 (0)4 50 31 56 80
www.eipm.org
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Romaric Servajean-Hilst, PhD
Romaric is an associate-researcher at the Management Research Center of Ecole Polytechnique
and an entrepreneur. Specialist of innovation breakthrough management and open innovation
management, he teaches, researches, consults and practices around these subjects. He began
his career in LVMH group and further transferred to highly innovative BtoB environments the
interest of building high quality relationships. The core of his research works, conducted
together with entrepreneurs and with large firms, focus on three main questions: How to
industrialize collaborative innovation? What is the role of Purchasing in Open Innovation? What
is the place of trust and interdependence in innovation cooperations?
The specificity of his approach is its implication in the « how » and in the « what » of his
missions. Based on an ethnographic approach, his work on Purchasing is rooted in his personal
involvement in the Innovation-Purchasing of a multinational, scouting and integrating innovative
organizations to their innovation processes and continuously developing new management
methods based on these experiences. He was awarded best French doctoral thesis in 2017 for
Purchasing, and best French academic work « Purchasing Trophy » by CDAF in 2016.
Hervé Legenvre, PhD
Hervé blends the best of the academic and practitioner thinking to create a unique learning
experience and engaging articles. He continuously looks at the trends that will shape the
business world in the future. He believes that the competitive edge of companies will
increasingly be co-created with suppliers as innovation needs to be seized outside. He builds on
his wide knowledge of invention, innovation and business excellence to create new tools and
practices that help engage everyone on what counts most in a fast changing world.
Hervé worked for Renault Consulting where he transferred some of the first lean six sigma
programs to Europe. He later joined EFQM where he led the latest major revision of the EFQM
Excellence Model and the European Excellence Award. At EIPM, he was responsible for the EIPM
Executive MBA since September 2011. Presently, Hervé acts as an assessor for the EIPM-Peter
Kraljic Awards and is the Director of the Value Creation Observatory. Hervé is a regular speaker
during in-company and public conferences, he is also the author of two books and he frequently
writes articles and research reports
METHODOLOGY
The present report builds on the experience and past research conducted by the two authors. It
is also the result of a large group exercise that took place during the 2016 EIPM annual
conference. Following this, the case studies were collected through interviews.
AUTHORS
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TIME TO PARTNER WITH START-UPS!
Purchasing teams realize that they need to look beyond the
obvious and search for new opportunities to contribute to their
company’s success. This sometimes includes working with Start-
ups!
5
CONTENT
Executive Summary
page 8
1.
The Rise of Dynamic Ecosystems page 9 12
Traditional Value Chains are being replaced by Dynamic
Ecosystems
page 11 12
2. David and Goliath are Ready to Work Together
page 13 14
Why Start
-ups & Large Corporations want to Work Together page 14
3. Roadblocks
Ahead! page 15 18
Why is
it so Hard to Realize Page 16 17
The Collaboration
Landscape Page 18
4. The Collaboration Framework
Page 19 20
Purchasing
Involvement in Successful Start-Up Relationships Page 20
5.
Some Tips and Tricks Page 21 26
5 Tips
to Find Start-Ups You Could Work With Page 23
5 Tips to Manage Early Exchanges with Start
-Ups Page 24
5 Tips to Build and Sustain Solid Partnerships with a Start
-Up Page 25
5 Tips to Overcome the Scalability Challenge
Page 26
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Purchasing teams are increasingly realizing that they need to look beyond the classics and
search for new opportunities to contribute to their Company’s success. This sometimes
includes working with Start-ups! Our Companies are now surrounded by dynamic
ecosystems where Start-ups are gradually taking prominent roles.
Start-ups and large corporations want to work together and Purchasing teams can
contribute to make these collaborations work. We have a role to play, an opportunity to
grab.
Purchasing teams can contribute throughout the different stages of collaboration with a
Start-up. To do so, they need to simplify our processes, we need to focus on the essentials
and continuously learn from our experience.
We can help finding Start-ups by contributing to the mapping of business ecosystem and by
joining other functions in scouting activities, when relevant. We need to be opportunistic
but, at the same time, we also need some focus and it is important to explore these
ecosystem with some “unmet needs” in mind.
Managing effectively the early exchanges with Start-ups is essential . We need to find the
balance between ambition and the attention to details. Complementarities and trust
develop over time. We might need, in some instances, to protect the Start-ups from our
cumbersome processes and to redesign our qualification process for them. We need to
understand each one of them, to evaluate their true potential contribution and how much
risk we are ready to take, if we work with them. It is important to early recognize
differences while sharing the same goals.
Building and sustaining solid partnerships with Start-ups require focus on a small number of
key-business and/or knowledge outcomes. Intellectual property issues need to be
addressed through tough but fair and value sharing deals. It is best to operate through quick
loops of validation and learnings, where clear feedback is shared on both sides. This process
needs to be managed. We can help create the required transparency, clarity and visibility on
goals, resources, actions and progress. Sometimes, we might need to protect the Start-up
from our complexities, as their resources are limited.
Overcoming scalability challenges is one area where Start-ups can benefit from our help. On
one hand we can help manage internal expectations, on the other hand it is also possible to
help the startup access the right resources and network to manage its ramp-up. We,
Purchasers, have the right tools and networks to help Start-ups make this work.
So it’s time to partner with Start-up! Purchasing can be more than a key for success.
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EXECUTIVE SUMMARY
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1. THE RISE OF DYNAMIC ECOSYSTEMS
Companies are now surrounded by dynamic ecosystems of
organizations that simultaneously collaborate and compete
against each other. Within these Ecosystems, Start-ups are taking
prominent roles.
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OEMs
Sub-Systems
Providers
Component
Raw materials
From Value Chains to Ecosystem
CUSTOMERS
COMPLEMENTORS
SUPPLIERS
COMPETITORS
EXT. R&D INFLUENCERS
VALUE-ADD
RESELLERS
SERVICE
PROVIDERS
START-UPS
BROKERS
IBM used to be a vertically integrated company capable of transforming sand into algorithms.
Today IBM is one layer within a broad ecosystem of companies and innovators. Thirty years ago
Industries were depicted as a chain of players with sequential inputs and outputs. Today these
giant economic silos have merged, recombined and interpenetrated each other. Innovation is
everywhere and continuously accelerating. Combination is the key; Complexity the motto.
As the result, traditional value chains are shaken. We now have dynamic ecosystems of
organizations that simultaneously collaborate and compete against each other.
Today - as the final consumer has regained power thanks to the internet, as sustainability forces
us to reinvent our performance equations, as value is shifting from components to algorithm, as
the internet of things and digitalization offers new opportunities, as valuable knowledge pops up
where you don’t expect it - these ecosystems are going through rapid transformation. All our
companies try to escape the commodity trap and to regain differentiation by harnessing open
innovation and external opportunities
11
TRADITIONAL VALUE CHAINS ARE BEING REPLACED BY
DYNAMIC ECOSYSTEMS
Existing
Suppliers Tier 2 Tier 3
Suppliers
Start-ups
New players
Non Supply
Chain Players
NGOs
Universities
Research C.
83%
73%
11%
35%
34%
51%
Current focus
Future focus
24%
54%
Purchasing teams have realized that they need to look beyond the obvious and search for new
opportunities that can bring performance and differentiation to their company. And as shown by
data collected in 2014 by EIPM, this includes working more with start-ups.
Fishing in unknown
territories
Fishing in the
neighbourhood
Shaping future
fishing grounds
The buyer creates access to
existing and new players.
He ensures the company is
perceived as an attractive
player for start-ups and
newcomers within the
ecosystems
The buyer secures
preferred treatment from
existing key suppliers. This
ensures access to
opportunities coming
from existing industry
players
The buyer foresees where
innovation could come from.
Together with business
partners he uses his
networking skills and open
innovation capabilities
This calls us to rethink Purchasing organizations, processes and skills. We expect more out-of-
the-box solutions from existing suppliers and we need to search for new opportunities beyond
them. We expect an increased focus on finding relevant external opportunities. The following
three practices should become more common in the future:
All actors within dynamic business ecosystems need to know how to work together, how to co-
innovate and how to address a broad range of intertwined stakes and uncertainties.
EIPM value creation observatory, 2014
12
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2. DAVID AND GOLIATH ARE READY TO WORK TOGETHER
Start-ups and large corporations want to work together. This is
good news and an opportunity to grab.
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01
02
03
04
05
Get important and stable
clients and markets
Obtain references;
reputation enhancement
Cash
Accelerate growth
Mature idea / Technology
with client
The Start-up Agenda
In this changing world, there is one relationship that crystallizes all the potentials and challenges
of creating new ecosystems: the couple formed by one large firm and one start-up. This couple
is such a hype at the moment that the Purchasing function is too often put aside at the time of
engaging with start-ups. Maybe, it is one of the reasons why so many relationships between
start-ups and large firms are failing.
Nevertheless, there are reasons why start-ups and large corporations might want to work
together which are different from classical relationships. We have outlined a few underneath:
01
01
03
04
05
Early access to new ideas, skills,
talents and business models
Follow the trend ; Image and brand
enhancement
Access to new markets
Get a shot of
Entrepreneurship culture
Test innovation outside the
firm’s boundaries
The Corporate agenda
Partnering with Start-ups can offer great opportunities to bring disruption and to speed up
transformations in large corporations. And start-ups need to build ecosystems where they can
survive and grow, and these include some large firms. A key success factor in such collaboration
is the compatibility of their agendas. Both parties should either commit to doing business
together for some time or agree on a set of clear benefits they could harvest from a short-term
collaboration.
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WHY START-UPS & LARGE CORPORATIONS WANT TO WORK
TOGETHER
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3. ROADBLOCKS AHEAD!
Collaboration between Start-ups and large firms are challenging
but Purchasing can contribute to make them work.
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Even when a start-up and a large firm want to work together, the two sides are generally
painfully experimenting their cultural and organizational differences. They approach
innovation and risks with different appetites. The start-up is born to innovate, dealing with
uncertainty is its only routine. It searches for a viable business model by going quickly
through a series of experiments. The large firm is organized to best exploit its existing
capabilities; its processes and routines are here to minimise risks even when
“innovation” is its main headline. Time does not have the same signification for them;
they decide and act at different speeds.
Their ways of working are dissimilar. Flat and flexible organizations don’t get along with
hierarchies and complex governance mechanism. A start-up often offers a single point of
contact while in the large firm, multiple layers of hierarchies and an army of functions
need to be involved all the time.
Scales can mean something very different. A start-up can be quickly overwhelmed by an
order of 20 products when in the large company, projects are seen as relevant only if they
can quickly reach a critical mass. Start-ups are concerned about the end of the month and
their cash position, while large corporations focus on rapid return on investment.
Start-up
Financial
sustainability
Scalability
Risks
Speed
Limited
Resources
Large firm
Intellectual
Property
Governance
Main collaboration challenges to deal with
Mass Survival
16
WHY IT IS SO HARD TO REALIZE
17
For the start-up, it is quite difficult to find the door to enter into the large firm, and then
to find its ways inside the labyrinth of processes and organizations. With the proliferation
of Open Innovation actions such as hackathons, corporate venture capital structures,
incubators, the dead ends are multiple. The time consumed for pitching such a
dedicated program is often lost in trying to convince a future client.
From the point of view of the large firm, it is hard to evaluate the real maturity of an
innovation brought by a start-up. It is impossible to evaluate the solidity of a new firm
with no references and a shaky business model. For some managers it can be hard to
understand that the start-up doesn’t have an office in China, while in fact, its sole office is
a maid’s room in London.
And when they agree, the worst decision can suddenly be taken. The large firm and the
start-up can fear intellectual property discussions. At this stage they tend to loose sight of
the shared vision! Large firms tend to carry a long and painful history of failures on
Intellectual property deals while start-ups tend to ignore how to deal with it. They don’t
know what should be kept confidential and how to secure future business. They are quick
to see large companies and their layers as big bad wolves who want steal their
intellectual property. Both don’t know how to beat these fears through open discussions
and contracts.
Start-ups go through different stages of development. Sometimes it can be useful to spot
them and to start shaping their strategy at early stages. Sometimes it can also make sense
to wait till they have reached a certain stage to interact with them. The following diagram
outlines the stages of development of a start-up.
Type of engagements
Corporate Venture Capital
Incubator
Accelerator
Innovation partnerships / co-development
Pitch competition
Procurement
Innovation
team
Corporate
venturing
teams
Procurement
team
Hackathon and crowdsourcing
Natural involvement
Random involvement
Publicly funded research projects
Communication
team
BtoB meetings
Nevertheless, the majority of these new forms of engagement leads to communication
successes rather than business successes. This can be explained by three main factors:
-the over-focus of large firms on market intelligence and communication
-the lack of maturity of start-ups that oversell their innovation
- the lack of knowledge on both sides on how to build up and manage such innovation
partnerships
It is also important to consider different sectors of activities. If you are a Hardware company,
there will be very few start-ups that will offer great value to you. So don’t expect them to bang
at your door. You will need to spot them and to start working with them at very early stages of
development. At the other end of the spectrum, start-ups who dream of reinventing banking
are legions. They should not expect Banks to have their doors wide open as they need a swift
and solid process of pre-qualification that takes into account the value offered, the fit between
the players and other risks.
Being hype, the start-ups - large firms collaboration leads to the proliferation of events and
means to engage such relationships. It is hard to find one big firm that has not organized or yet
taken part in such event or organization. and a start-up who never pitched behind them.
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THE COLLABORATION LANDSCAPE
……………………………………………………………………………………………………
4. THE COLLABORATION FRAMEWORK
Purchasing can contribute throughout the different stages of
collaboration with a start-up. To do so, it needs to adapt its
processes and practices to make it work.
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At the very first stage of the relationship between a large firm and a start-up, the main
challenge is to establish the best connections amongst the two players. Purchasing here can
help everyone on both sides to reach a common understanding on a few critical points:
First, they can help clarify the resources and capabilities that both players can bring to the
table outlining where complementarities exist and where challenges can be foreseen. What
the start-up brings, needs to be unique. If something similar exists on the market, don’t make
your life more complex than needed. By adopting a facilitator role, they can ensure that
transparency exists and that no issue is hidden under the table. This is a cornerstone for future
trust and a good collaboration.
Second, they can help achieve clarity on who does what and eliminate some of the roadblocks
that come in the way of the collaboration. They can also keep an eye on the overall value of
the relationship. It is part of Purchasing’s job to manage external relationships.
Third, when contracts need to be drafted and signed; they can prevent some frequent
mistakes from happening. Managers who love to be on the forefront of trendy business
practices, engage with start-ups and they sometimes rush to partner without clear objectives.
Purchasing needs to be involved at early stages to prevent adding a project to the graveyard of
fantastic innovations that faced too many problems at the time of industrialization. Involved at
the right time, their practices and tools can help to eliminate such mistakes. Their experience
with sourcing committees and make-or-buy processes enable them to create internal
alignments and to communicate effectively about the need to work in partnerships and to
establish trust with a start-up. They can help develop and share and rather stable vision that
can be presented and discussed with the start-up.
Thanks to Purchasing, a company can create a clear basis for negotiation when it is time to
elaborate a contract with a start-up. Negotiation for the start-up, is a sign of interest and
seriousness from the large firm, but some difficulties can arise. By providing clear objectives
and limitations, Purchasing can facilitate the overall process of establishing a contract that
reflects ambitions and commitments from both sides. This is also the right time to investigate
what could be the right business models to use. Buyers can help the start-up look at
alternatives to a product focus model and investigate service models where some industrial
challenges can be eased.
Beyond this role for each project, more can be done to simplify the Purchasing process for
start-ups. This can include early prequalification and online self assessment, light RFI and short
contracts, rapid feedback to the start-up and regular lessons learned on working with start-
ups.
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PURCHASING INVOLVEMENT
IN SUCCESSFUL START-UP RELATIONSHIPS
……………………………………………………………………………………………………
5. SOME TIPS AND TRICKS
At every stage of a relationship with a start-up, some basic tips
and tricks can be useful to help all of us improve our practices.
The following pages can also form the basis for a rapid
assessment of where you are in terms of practices.
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Finding good
Start-ups
Early
Exchanges
Scaling up Solid
Partnership
This final section provides a series of tips and tricks to make start-up collaborations work. It is
structured around four themes:
Finding start-ups you can work with
Managing effectively the early exchanges with start-ups
Building and sustaining solid partnerships with start-ups
Overcoming scalability challenges
These four dimensions and the items described for each of them can be used to assess and
review your current experience managing relationships with start-ups.
You can look at each item, ask yourself about its importance in your context and then rate
yourself from 1 to 5 depending on your maturity ( from Ad Hoc experience to Systematic and
Excellent)
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TIPS AND TRICKS
1 Chance favors only the prepared minds. So start
searching with an opportunity for business differentiation,
a pain-point or a problem to solve in mind.
2 Be opportunistic! When you look beyond your existing
supplier base, take the time to connect people from the
start-up with the right people inside. Be patient, as only
one time out of hundred something will come out of it.
3 For a clear need, be systematic in your search. Map
ecosystems by looking at key trends across the industry,
by identifying who could collaborate with whom in the
future. Use Market intelligence tools.
4 Occasionally, scout together with other functions. This will
help you to better understand their pain points and to
identify who could be the right partner for them.
5 TIPS TO FIND START-UPS YOU
COULD WORK WITH
5 Look at intermediaries and events that can help you
access start-ups. There are many hackathons, incubators,
accelerators, platforms, awards and influencers that can
connect you with the right people.
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1 Look at the world through the eyes of the start-up. Are you
their partner of choice? What would it take for your
company to be their partner of choice?
3
4 Understand their business and technical capabilities. Take
into account the network they can gain help from. See
who has experience with working with large companies
within their extended team.
5 Acknowledge differences and potential challenges right
from the beginning. But always look at the risks in the light
of the potential benefit and value your company can get
out of the relationship.
5 TIPS TO MANAGE EARLY
EXCHANGES WITH START-UPS
2 Make sure that your company and the start-up’s goals are
compatible and mutually supportive. Ask yourself the
questions: How will they help you grow your business?
How will you help them grow their business?
Make sure to provide clear and reasonable expectations.
Be ambitious but go step by step, don’t ask for new
features all the time.
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1 Make sure that the collaboration focuses on the real
customer or business pain-point and on the expected
business/technical outcomes. Don’t increase the wish list
every time you see a new prototype.
2 Prototypes and help to test hypothesis, to fail fast and to
rapidly perform validations. They allow you to test the
quality of the relationship. But don’t get blinded by the
magic of prototypes and by the relationship honeymoon.
3
4 Sometimes you might need to protect the start-up from
the internal complexities and the heterogeneity of views.
Pay attention to the human network, if someone leaves,
ensure that continuity is maintained.
5 TIPS TO BUILD AND SUSTAIN
SOLID PARTNERSHIPS WITH A
START-UP
5 Create contracts that grow the overall cake and offer both
parties opportunities to grow and develop. Develop fair IP
and value sharing deals do not block the start-up’s
access to other markets than yours.
Implement, internally and externally, a crystal clear
process to manage and take decisions. For the scope of
work, leave space for exploration but manage the
process.
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1
Provide the startup with a letter of intent to help the start-
up open new doors. Offer them to become a reference.
Support them with your own testing, sourcing and
development capabilities.
2
3
Manage internal expectations so a safe ramp-up can be
secured. Communicate about the stage of development of
the start-up and about what can be expected right from
the early days of collaboration.
4 Consider multiplayer collaborations. Pair your suppliers
with start-ups to benefit from their combined expertise.
The business case needs to be clear for both of them.
Follow-up on the quality of their relationships.
5 TIPS TO OVERCOME THE
SCALABILITY CHALLENGE
Educate the internal business partners on the nature and
scope of the collaboration, its challenge AND its benefits.
Explain the maturity gap. Turn diversity into an advantage
in their eyes.
5 Open your network in other sectors to the start-up in order
for them to be able to get scale effects and secured
return-on-investment made for you.
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