Corporate accelerators and innovation labs have faced a fair amount of scepticism recently. Programmes are dismissed as either extended due diligence processes that offer little value to the startups involved, or as PR projects to promote big businesses.
We paid close attention to these criticisms when planning the BMW Group Financial Services UK innovation lab back in 2015. Having celebrated the programme’s conclusion in December 2016, I believe we successfully avoided many of the common pitfalls normally associated with corporate innovation labs. Better yet, our inaugural programme has surpassed expectations and we’ve already confirmed long-term relationships with two of our finalists.
But this has also involved one of the steepest learning curves I have encountered.
You don’t know what you don’t know
The innovation lab was entirely new ground not just for me but also for BMW Group Financial Services itself. BMW Group is a company steeped in engineering innovation where quite rightly everything is researched and all implications considered before decisions are made. The idea of bringing five startups into our UK headquarters for 10 weeks with no guaranteed outcomes at the end of it presented quite a leap into the unknown.
But it was a leap that needed to happen. While the automotive sector boasts a heritage of trailblazing innovation, automotive finance hasn't moved on much in the last 15 years. It remains one of the last areas of the financial services sector to have not been disrupted by the fintech revolution.
This poses a problem for our industry because it’s undeniable that modern consumers have evolved. They are digitally savvy, they expect a personalised service, they want it now and they’ve never had so much choice. The sectors that have been most disrupted are those that failed to offer consumers the service they expected, industries such as high street banking. I expect similar disruption to arrive in auto finance in the near future.
Collaborating on collaboration
By treating the innovation lab as a genuine collaboration with fledgling tech startups, we were able to not only accelerate their businesses but also our own innovation processes. This will give us the opportunity to deliver a better, more modern experience for our customers – and faster. But we did not think that this would be simple. Many big brands have failed in similar innovation initiatives simply because they tried to do too much, too soon, and on their own.
The biggest obstacle is the corporate mindset: corporates and startups are fundamentally different beasts, with different priorities, objectives and structures. Effective accelerators and labs depend on being able to exchange ideas freely, therefore we needed to ensure there was a bridge between our own teams and the startups throughout the 10-week innovation lab.
We needed a mediator: a third party who understood the needs of startups as well as the potential and constraints of corporate businesses. We brought in a corporate acceleration specialist, L Marks, to play this innovation-partner-come-marriage-counsellor role.
An open approach
An accelerator’s success effectively hinges on how honest and transparent the corporate is. These fledgling companies are looking for insight into market challenges, yet large brands are often resistant to being completely open and honest about threats to their future business or business models.
This is again where an innovation partner makes a real difference. We were advised that we would only see real benefit from the lab if we were completely transparent about our own business challenges and the threats to our sector. Many corporates naturally remain guarded throughout their accelerator programmes, pretending everything in their garden is rosy. This makes it difficult for startups involved to spot opportunities for improvement and provide their own fresh perspective on challenges.
Insight trumps investment
With an increasing array of funding options available to startups, innovation labs need to provide more than a quick cash injection in exchange for 10 weeks of work. Companies are increasingly applying to programmes not for investment but because of the expertise and customer insight on offer. These experiences can prove transformative to a fledgling business.
From the outset we were clear that our primary goal wasn’t to invest in return for equity, but to find at least one company that we could potentially pursue a long-term, commercial relationship with. We selected very senior mentors from inside the company, including the director of Mini UK and our own chief operating officer, to provide market-leading advice and insight.
Providing this level of regular access to board-level management was crucial to the companies enrolled in the programme, but it also exposed our senior team to cutting edge technology and fresh ways of thinking that they could then spread throughout their own teams. Corporates can develop some incredible innovation internally but the duties of board-level staff can make it difficult for them to play an active role in this day-to-day. This can make it difficult for an atmosphere of innovation to really spread throughout an organisation.
The need for speed
Arguably measuring the success of an innovation lab’s approach lies in its outcomes. In our innovation lab’s case, our finalists only presented their final pitches at December's Demo Day, yet we’re already discussing specific future commercial relationships with a number of our alumni.
But for me, the biggest benefit has been exposing our business to a new mindset and fresh approach to problem solving.
For any big brand, giving out advice to startups comes far more naturally than accepting constructive criticism from the same young businesses. Yet this is where I believe the innovation lab approach offer the most benefit for corporates. Large organisations can approach innovation with the best will in the world, but little will change unless they involve their senior teams, bring in external parties, and are open about the difficulties they face in their market and business.
As a corporate, it can be all too easy to shy away from openness with an ‘other’. But if executed with openness and collaboration as cornerstones, corporate innovation labs provide an invaluable way of speeding up your own innovation to adapt to a rapidly changing business environment.
Big business must always be somewhat guarded with who and what they work with, but I firmly believe that the age of big and small working separately is over. Those corporates that intend to ignore the startup community or proceed with innovation labs half-heartedly may believe they are playing it safe, but they’re actually taking a risk. Disruption is coming to every sector, it’s inevitable and it will likely arrive sooner than you think. The young, eager entrepreneurs of today could quickly become the disruptive competitors that erode your market share and bottom line tomorrow.
Mike Dennett is chief executive officer at BMW Group Financial Services UK