In a world where the catch cry of disruption due to digital, automation, AI etc seems eternal it is easy to overlook the underlying competitive advantage that is embedded within many established industrial/resource companies.
In most cases, a physical product (manufactured product or mined commodity) is an enduring output from these sorts of companies. So emerging technologies are likely to impact on how the product is created or how it is augmented/enhanced as it goes to market rather than replacing the need for the product altogether. Disproportionate competitive advantage is therefore likely to bestow on those industrial/resource companies who best embrace, integrate, and execute the new capabilities that are emerging.
Competitive advantage in established industrial/resource companies is embedded in three critical areas – financial (access to existing cash flows), existing technical knowhow (often built up over long periods of time and founded on deep product-in-use learnings), and market access with broad customer relationships. These advantages are often the missing links for many emerging technology companies. An obvious answer is to just get them to work together more – but experience suggests this is harder than it appears.
There is much that divides the cultures, philosophies and critical processes of an emerging technology startup and an established market participant in capital intensive industries. Capital intensive tends to lead to larger scale which tends to lead to larger organisations with more complex structures, and ‘heavier’ decision making processes. Risk and risk management tend to be managed at scale. These operating characteristics are often at odds with the needs of emerging technical companies – for speed in decision making, for cross organization cooperation and alignment, for iterative market testing, and for more fluid or evolving commercial and risk structures. So while the competitive advantage logic to join forces may be high, without some organizational ‘translational’ capability to bridge differences – outcomes may not match initial expectations.
Translational capability in many instances involves formation of a special unit within a traditional corporate entity focused on new growth, development, and advancement. The unit is composed primarily of investment (strategy and M&A) and technology (R&D and marketing) professionals, and is supplemented with high level operational representation. The unit has separate decision/investment making process and a quarantined source of funding which can be directed towards optimizing a portfolio of internal and external capability development. Operational representatives are critical to building the alignment bridge with operational entities that hold the keys to market access and market testing. New capabilities are nurtured through their early growth phase to reflect the particular needs in this part of their life cycle, needs that are often counter to those applied to mature businesses.
So done well, internal growth units can create a disproportionate competitive advantage for their industrial/resource company relative to their direct competitors. By enhancing the probability of successful technology development, they become an in-demand and preferred channel to market for emerging technology capability. This has further reinforcing benefits of ensuring they get exposed to the best emerging capabilities which further increases their probability of success in a virtuous cycle.