We Have Discovered the Corporate Fountain of Youth

By Jim Stengel and Tom Post

The corporate world is in a pickle—a strong brine of its own making. Growth at venerable old companies has flat-lined. Aging brands fail to excite consumers. Decision-making is often measured in months, not days. Real innovation? That’s the property of Silicon Valley. Executives are curled up in a defensive hunch, aware that they’re getting eaten alive by companies that didn’t exist 20 years ago, but terrified of taking a flyer on something unproven. And unwilling to engage the forces of inertia—from legal teams to mid-level managers—that help keep them in their jobs.

How to bail out of this mess? In the past, legacy companies often tried to acquire their way out of a jam. But M&A deals are expected to be on a steep decline after a record-breaking 2015-16, thanks, in part, to a wary Justice Department and a post-Brexit-and-Donald-Trump suspicion of globalism. Besides, no one really believes acquisitions amount to anything more than faith healing, and the economic data supports that.

Is there a solution to what ails big, mature enterprises? A new paradigm of productive corporate coupling is quietly stealing the show: partnerships between legacy companies and startups. While these arrangements may not be a panacea, corporations in extremis are discovering all kinds of benefits from smaller-scale relationships with young companies: They’re cheaper, briefer, better targeted, and often more demonstrably successful than a lot of mergers. Put another way, marriage is out; lots of short-term affairs with younger partners are in.

You’ve undoubtedly read about Ford’s investments in Lyft and Uber to create driverless cars. Maybe you know of Walmart’s stake in Flipkart (the Indian e-commerce company); NBCUniversal’s increasing buy-in of BuzzFeed to create a hipper kind of news; GE’s backing of Pivotal in order to sort through Big Data on customers; and Merck’s $200 million bet behind Moderna Therapies to provide a better cocktail to combat cancer. These partnerships represent just the visible end of the spectrum. While no one is tracking them, there are clearly hundreds of new alliances between enterprises and young companies cropping up each year, if not every month, and they’re happening all over the world, not just in the U.S.

We know this from research we commissioned from OgilvyRED, the research and strategy arm of the storied advertising, marketing, and public relations firm, part of Sir Martin Sorrell’s empire, WPP. In the first such study of its kind, which we have dubbed the Global Partnership study, we surveyed 100 older companies and 101 startups from around the globe that had recently been involved in partnerships. Our goal was to find out what motivated both parties, what worked and what didn’t, and whether the relationship had changed them and, if so, how.

Thanks to this analysis, overseen by OgilvyRED’s Joanna Seddon, we now have a quantifiable playbook for successful partnerships. Its findings confirm what Tom Post and I have discovered in over 100 interviews with corporate executives, startup founders, and venture capital investors for our new book, Unleashing the Innovators: How Mature Companies Find New Life With Startups.

Our conclusions amount to this: Partnerships are difficult to pull off well, but if they succeed, they can be a great tonic for what ails most mature companies. Acquiring key technologies, rekindling innovation, bringing products and services to market faster, embracing risk (and failure), shaking up a sclerotic corporate culture—all these can be achieved by partnering with young companies, provided they’re the right partners and the enterprise host doesn’t crush the relationship. Whatever drives legacy companies to form these alliances, whether out of desperate necessity or to solve a particular problem, there’s a surprising halo effect wrought by successful partnerships: They’re nearly three times as likely to have a major and positive impact on the rest of the organization than unsuccessful partnerships.

Enterprises with successful partnerships are THREE TIMES 
more likely to have a major positive impact on their entire 
organization than those with unsuccessful partnerships.

In a sense, we have discovered the corporate Fountain of Youth—and it is located not among the mangroves and sawgrass of Florida, but in the workings of successful partnerships between iconic companies and energetic startups.

So, what works? How do you set up and conduct the best kinds of partnerships? Here are the four lessons for leaders in legacy companies to stay youthful:

1.   To find a great partner, let happenstance guide you.

 Sounds stupid, right? Wouldn’t it just be better to form a search committee or design an algorithm to screen for the best candidates to provide the right jigsaw puzzle piece? Nope. Having an overarching strategic purpose is indispensible. So is a proactive approach to looking for partners: 68% of surveyed legacy companies told us they had somebody—or several somebodies—onboard whose job was to pursue opportunities. But too organized an approach can be a liability. Serendipity is often the best guide.

No company is better at capitalizing on unexpected collisions than Motorola Solutions, the spun-off half of Motorola that provides technology to emergency, safety, and utility crews, security and law enforcement, and transportation companies. (The other half, of course, marketed mobile handsets and went to Google, then to Lenovo.) Motorola Solutions has developed what it calls “Hunting Grounds,” four or five areas of focus for new ideas and approaches that change with strategic priorities. The Hunting Grounds attract a lot of disparate “trappers” at Motorola Solutions: its venture-capital arm; senior executives who are encouraged to visit with entrepreneurial clusters in key cities; its new incubator in Israel; and employees within its own new walls in Chicago (the company relocated from Schaumberg in the summer of 2016). When we caught up with Eduardo Conrado, the chief strategy and innovation officer who oversees all these efforts, he had just come back from a trip to Ottawa and Toronto where he and a small team had met with 26 different startups. “We usually invest in companies that are creating products not necessarily for our markets,” says Conrado. “They have something unique and we think that then we can adapt it for our market.”

Let’s look at one of those investments. Eyefluence, an eye-tracking startup in Milpitas, California, lets your eye do the work of a computer mouse. Its technology is designed not for Motorola’s safety market, but for virtual reality and augmented reality headsets. Imagine a real or fictional 3-D world where shifting your eyes can do just about everything a finger swipe can achieve on a smartphone, launching and diving into any app or function.

Eye-tracking tech wasn’t even on the radar for Motorola Solutions, but in hearing about it, Chief Technology Officer Paul Steinberg became intrigued. When he met with the founders he had an epiphany: Eyefluence could help Motorola develop a head-worn display that freed up the hands—a must for firemen and policemen who need all their manual digits, to say nothing of their wits, in an emergency. Perhaps that technology could even be a part of Motorola Solutions’ next big thing: a connected first responder of the future that not only freed up an emergency team’s hands but could help document scenes, send messages to an operations center, look up records, call for backup—all with eye movements (and voice control).

Eyefluence also caught the attention of Google late in 2016, which snapped it up for an undisclosed sum. But the startup continues to work with Motorola. “I call it the fire-and-aim methodology” of investing, says Steinberg. “I actually like investing in non-pure play companies.” You never know exactly how a partnership will work, if it all. But sometimes it brings amazing surprises.

2.   Want to win? Let the startup run the show.

Isn’t that like giving the keys to your vintage Alfa Romeo to your 17-year-old son? Older companies want to control everything—especially the key decisions in a partnership. And why not? They have the experience, the resources…and the hubris to really screw it up. According to our study, 75% of partnerships that put startup leaders in charge were successful; versus 62% of those where the established company called the shots achieved success. (Shared decision-making is the least productive arrangement, with a 56% success rate.)

3.   To succeed, fail like venture capitalists.

Partnerships fall apart for all kinds of reasons, though the leading candidates, according to our study, are unmet goals and culture clash.

Failure—despite the rhetoric that failure is endemic to innovation, the “F” word is off-limits at most companies because it suggests weakness, fallibility. Not at GE where David Kidder and Anne Berkowitch, co-founders of Bionic Solutions, are helping bring down the cost of failures and encouraging the industrial giant to run its R&D and partnership investments as venture capitalists would. Under the leadership of Sue Siegel, GE Ventures’ CEO, the firm is making multiple bets on innovative solutions, most of which won’t make it, but one or two probably will, and big time. Kidder calls it “productive failure” because you fail quickly and learn from your mistakes. “Success,” he adds, “is not a good educator.” Beyond that, GE is learning to celebrate failure: A new program out of its operations in India—the DARE Award—recognizes efforts that failed mightily but helped people acquire valuable lessons they can apply successfully right away.

4.   Win over skeptics with demos not discussions.

We know from our study that two-thirds of established companies that said startups had been instrumental in improving their organizational culture had successful partnerships. But achieving that scale of change requires overcoming institutional inertia, doubt, fear—even undermining from within.

How? By dramatically demonstrating the lasting benefits of a radical new approach. Seeing—in convincing detail—really is believing. Gene Han, Target’s head of the San Francisco innovation center, knows the value of providing proof of concept before the concept takes concrete shape: He and his team hastily assembled a model of a CityTarget store to overcome doubters in the C-suite.

But the true master of this sort of prestidigitation is Zackery Hicks, Toyota North America’s CIO. During the recall crisis of 2009-10, his digital high-wire act convinced everyone—from IT and sales to dealerships and Japanese higher-ups—of the value of predictive data and analytics. And he leveraged those victories to create Toyota Connected, the company within the carmaker that’s exploring not just IoT on wheels, but partnerships that push the idea of “mobility” to new extremes.

*****

Only 12% of the Fortune 500 companies in 1955 remain on that list today. You can avoid that fate by leading change in your company. Start with applying these four lessons to your firm’s partnerships.

Jim Stengel, founder of The Jim Stengel Company, and adjunct professor at the Kellogg School of Management, worked at Procter & Gamble for 25 years and was the global marketing officer from 2001-2008. He and Tom Post, a former managing editor at Forbes, have written Unleashing the Innovators: How Mature Companies Find New Life With Startups, in bookstores now.