What happens when David and Goliath join forces

The Davids of the high-tech world – Uber, Airbnb, and Alibaba among them – have wielded new technology to challenge giants, or join their ranks, in industry after industry. Meanwhile, insightful behemoths like Siemens, BT, and Marriott have learned that teaming with tech start-ups is becoming essential if they want to compete with inventive new products and services.

Yet setting up partnerships between large, established corporations and much younger, smaller firms takes skills that most companies lack or overlook. Lots of things stand in their way. There’s the challenge of convincing colleagues that it’s a great idea. Differences in corporate cultures, a fear of sharing intellectual property (IP), and keeping the partnership relevant can all be obstacles.

There is an approach for overcoming these hurdles. It involves three layers: Prepare, Partner, and Pioneer.

1. Define clear objectives in the Prepare phase

While this sounds obvious, knowing exactly what you want out of the partnership and how to select the right partner are things that companies commonly neglect. Carefully constructing a business case lets you know if goals are realistic. It can ensure buy-in from top management down and allows potential partners to consider how dependent they will become. For instance, young firms will have to get used to solving problems for larger firms. In turn, the value had better be there for the smaller company. Taking the time to understand the constraints, costs, and desired benefits of the other company helps both receive maximum mutual gain. To that end, transparency and trust go a long way. An outside intermediary or an independent department within the larger company can act as go-between, a step most companies skip as well.

U.K.-based Diageo, a major producer of spirits, beer, and wine, has such an intermediary. Through Diageo Technology Ventures, it partners with young tech companies to come up with diverse solutions to problems. The go-between scouts for the best firms, tests out new ideas, and sets up partnerships with the most successful ones. The process led to Diageo’s collaboration with Norwegian company Thinfilm, which helped them produce a traceable “smart bottle” that also allows consumers to interact with the company through their smartphones.

2. Make it a win-win alliance in the Partner phase

Once people throughout a company are ready to partner with another firm and that partner has been found, it’s time to establish a working structure. The focus on innovation means that there will be higher levels of uncertainty, so the structure will be different. It should be based upon lean governance that supports flexibility and communication, and that draws on the true strengths of both parties. Balanced and fair IP arrangements are crucial. Young firms often find it difficult to finance extensive IP protection. It isn’t easy for them to relinquish some control of plans for a product or service that has been central to their identity. Conversely, the large firm will need to rein in its likely desire for maximum control to motivate the smaller firm. And given David’s great strength is agility, Goliath may have to get used to a faster-paced innovation timeline.

Marriott International wasted no time in collaborating with LiquidSpace in 2012. LiquidSpace had developed a small online platform that allowed people to book flexible workspaces by the hour or day. Together they effectively adapted it to turn the hotel company’s largely underused conference rooms into meeting spaces that guests and local business people could easily book. A test with 40 hotels turned into a regular service offered by 432 hotels within two years. Ultimately, it was an innovation that disrupted the hotel industry, with other chains quick to emulate the service.

3. Adapt and adapt some more in the Pioneer phase

Nothing is static, especially in a partnership. Knowing what it takes to continue innovating together means measuring results, managing uncertainty, and searching for additional value. Once again, this is an area that is often overlooked. For large companies, working with the sexier, smaller firm is no longer as new and alluring. Perhaps internal silos have risen that slow productivity. At the small firm, management may feel the itch to focus on developing new relationships, rather than the one with the giant. If the partnership is failing, seeking new business may beckon over developing a “plan B.” Yet both companies can keep the love alive by sharing knowledge and the results of their joint work. That input can then be applied systematically to other product lines or activities to create even more value for both companies.

DigitalGlobe had the future in mind when it partnered with Orbital Insight. A small geospatial big-data company, Orbital Insight provides algorithms and other data sets to analyze socioeconomic trends. By working with them, the much larger DigitalGlobe could offer new products to its clients based on the high-resolution satellite and aerial images it generates. The two companies’ arrangement emphasizes rapid product development. Rather than focus on short-term revenue, they’re both in it for long-term competitive advantage.

Developing ongoing mutual benefits like these, along with inspiring teams, encouraging proactive communication, and openly safeguarding incremental IP can all go toward sustaining a fruitful partnership between mighty start-ups and their formidable new rivals.

Author: Dr. Kai Engel leads A.T. Kearney’s Innovation Practice, is the founder of the annual Best Innovator Competition and supervises the IMP³rove European Innovation Management Academy. His books include Masters of Innovation (LID Publishing, 2015), and he is an adviser on the World Economic Forum’s Fostering Innovation-Driven Entrepreneurship and Collaborative Innovation: Transforming Business, Driving Growth.

Image: A couple look at a sand sculpture depicting “David and Goliath” at an exhibition in Tel Aviv July 2, 2013. REUTERS/Nir Elias