Digitalization is creating opportunities for new business models and innovation. But going it alone might slow down or weaken success, leading many established companies to look for innovations outside their corporate boundaries and consider collaborative partnerships with young, innovative and aspiring companies.

Collaboration between large companies and startups can enhance value for both parties. Success, however, is not a sure thing. There will be some challenges and difficulties.

To realize the full potential of such a collaboration, each party must find its own way to a viable partnership. The extent of the innovative forces is strongly dependent on the type of cooperation.

Incremental innovation built on platforms
More and more companies today rely on platform-based business models that are dependent on the internet and an ever-increasing interconnected intelligence. These can be found in classic IT environments supported by Microsoft and AWS, as well as in areas such as electromobility, gaming and healthcare. These platforms can also serve as hubs for sharing information and support collaborative partnerships, particularly when working with innovative startups.

This kind of collaboration needs concrete, platform-based solutions that represent a specific application or add features to the platform itself. The startups gain access to the platform and a dedicated technical contact person.

The benefits of this type of collaboration are (1) the simple and fast onboarding of the startups, and (2) the fact that it usually also drives incremental innovation, since the applications are thematically and technically tied to the platform — and therefore built on existing applications or solutions.

Incremental innovation built on collaboration with organizational units
Companies are increasingly looking to innovate on their own business models by digitizing and optimizing internal operative processes such as order and invoice processing, procurement or customer relationship management (CRM), which can have a positive impact on the entire value chain. Additionally, companies want to advance their services and/or products and customer experience. Here, the issue is how to meet customers’ needs and expectations — or even exceed them.

Collaborative projects fostered through direct contact between organizational units at both parties can be useful here. To facilitate such a partnership, companies can set up startup programs (examples include Startup Autobahn from Daimler, mindbox from Deutsche Bahn, and Bayer G4A) to provide a certain framework.

These programs are often limited in their scope and time frames, and the invited startups typically have a framework in which they can work with the company and with various resources and contacts.

An internal, specially assigned team takes over lead generation and the so-called matchmaking that puts relevant startups in contact with the appropriate organizational units. Support also includes legal guidance, help in establishing the startups as suppliers, plus clarification and mediation in the event of communication difficulties that can occur when startups and established companies work together. This type of collaboration facilitates targeted, mostly incremental innovation, which is close to the existing solution of the established company, as the responsibility lies directly with the departments and they usually look for optimizations for their daily business.

Disruptive innovations through innovation teams
To enable truly disruptive innovation through startup collaboration, consider establishing a dedicated team within the organization to design, test and prototype new business models. In addition to leading and managing the project, the team should be responsible for organizational tasks such as legal clarification and process support. The team also can provide a flexible framework for the collaboration and assign people to specific working groups according to the needs and requirements of the project.

The challenge will be to integrate the resulting solution into the entire organization. The team should connect to the company’s production, delivery and sales departments to facilitate the integration.

In addition to handling requests from within the organization itself, the dedicated innovation team could ignite disruption beyond the four walls of its own organization and force others in its industry, or even in other industries, to purchase a license or to adapt by developing a similar solution.

To remain successful in today’s interconnected and rapidly changing world, it’s a good idea to pursue a variety of types of innovation. These include incremental innovation to continuously improve one’s own work processes and disruptive innovation to prepare for the future and, if necessary, develop new business areas — or even establish oneself as a company in other industries.