Large corporates have traditionally grown through two mechanisms: organic growth and acquired growth. However, with organic growth proving difficult and acquired growth becoming expensive, we see a third route to growth emerging: collaborative growth. Here’s why…
Organic growth remains an important strategy for all corporates. However, research we conducted, which built on work from Euromonitor and Neilson, has demonstrated just how difficult organic growth actually is for large corporates. We looked at data over the last six years for the US and UK from the pharmaceutical, financial services, FMCG and telco industries. What we found was fascinating: large corporates (who make up 73% of the sales we tracked) have been responsible for an average of only 28% of total industry growth. In sectors such as non-alcoholic beverages, this is as low as 19%, while in more regulated categories such as pharmaceuticals and finance, the numbers are marginally higher (but still disappointingly low) at 34% and 36% respectively.
So, if corporates aren’t driving category growth, then who is? Our research demonstrated that it’s the long-tail of startups and scaleups who are responsible for the vast majority of innovation. These are companies launched in the last 10 years who are introducing new business models, new brands and new occasions, and they’re moving at a speed that traditional corporates simply can’t replicate. VC funds invested US$127 billion globally into startups in 2016 – how competitive is your R&D budget when stacked up against that?
With explosive growth coming from across the startup ecosystem, the next logical option is to acquire and consolidate – after all, that strategy has been the bedrock of most corporates. However, the challenge is that your biggest competitor isn’t big – it’s a fragmented base of small companies who trade at multiples which most corporates can only dream of. So even if consolidation was possible, it’s guaranteed to be expensive and it doesn’t stop the onslaught of additional startups who will rise to take their space.
The other question corporates need to ask is ‘do I want to own these companies? While Diet Coke took 18 years to reach peak consumption, early signs suggest that coconut water is peaking 2.5 years after it entered ‘mass-market’ status. If you’re Coca-cola, do you want to own a brand that peaks after 2 years, or do you simply want to benefit from helping to scale the trend?
So, in a world where corporates are struggling to grow and the long-tail is too fragmented to consolidate, how do you make sure your organisation remains relevant well into the future? Hello “Collaborative Growth”.
Collaborative growth is derived from partnerships. ‘Partnership’ doesn’t mean ‘ownership’, neither does it mean ‘procurement’, it means partnership. At its core, partnerships give rise to mutual growth and value creation. Both parties make a contribution, and both realise value. The concept of collaborative growth builds on the notion of ‘leveraged growth’, which was conceived over a decade ago and brings it into a post-Uber/Airbnb era.
Perhaps one of the best examples of collaborative growth at scale is Lego. In 2004, Lego faced near bankruptcy, Jørgen Vig Knudstorp was brought in as CEO and last month Lego was recognised by Brand Finance as the world’s most powerful brands. How did this company which is built on plastic bricks achieve so much? In a valedictory interview with the Financial Times, the outgoing CEO summarised: “Lego has learnt it can’t do everything”.
Collaborative growth is what has allowed Lego to focus on its core, whilst building its brand through partnerships. For example, Lego partnered with Merlin Entertainment to run and scale Legoland. With five parks in operation and twenty-five planned as part of a global rollout, they’re already providing immersive brand experiences to over 10 million patrons each year and paying valuable royalties back to Lego.
Similarly, Lego worked with Warner Animation Group to develop the Lego Movie in 2014 which has now grossed over $500 million, and the Lego Batman Movie is on a similar trajectory having already grossed $280 million. When it comes to console games, Lego now partners with TT Games to build and distribute its interactive gaming experiences and when it comes to building the brand through fashion and apparel, Lego has partnered with Kabooki.
These are all examples of partnerships which don’t typically centre around any formal ownership but there are clear benefits to both parties. With annual growth averaging 17 percent every year under Mr Knudstorp’s leadership, the strategy speaks for itself.
This approach to innovation is as transformational as it is fast. It delivers leading edge innovation but because it involves partnering with experienced vendors it’s much lower risk than in-house innovation. Most importantly, it offers high rewards with low investment. The future of your organisation has already been built – now is the time to partner and scale these opportunities.
So, how does a corporate embark on this journey of realising collaborative growth opportunities? Well, it begins by defining your core – what’s the your capability that potential partners would give anything to utilise? For Lego, it became their brand; for large banks it might be the trust and credibility they bring to consumers, for companies like Coca-cola Enterprises (the UK bottler of Coca Cola) it might be their capability to manufacture, distribute and market brands.
The next stage involves building your organisational platform, processes and culture to actively welcome collaboration. At Unilever this is called “Foundry”. It provides a front door for potential partners to pitch their ideas to Unilever brands and demonstrates that Unilever is “open for business”.
Where is your company on the journey of cultivating collaborative growth opportunities? Getting started might be simpler than you think…