Re-thinking relationship between telcos and start-ups

21 October 2015

As disruptions rock the corporate world, Open Innovation has taken off, yet for telecom operators difficulties remain finding, scaling and sustaining valuable relations. In a report from Arthur D. Little, the consultancy argues that telcos need to show their hand to start-ups in terms of pitching what they can offer, from piloting fast-paced ideas to scale development. For collaboration relationships to be successful however, a good fit needs to be found in the initial meeting – requiring clear strategic planning, governance and internal processes and resources from telcos for any future collaboration with a good fitting start-up.

The telecom operators (telcos) have found themselves in a highly volatile and innovative ecosystem as disruptive start-ups create value for consumers in areas that were traditionally their backyards. Yet the rise in number of entrepreneurs leveraging new technologies also provides opportunities for telcos that are able to court start-ups that align with their own strategic goals. The benefits of effective collaboration between corporates and start-ups, known as Open Innovation, is a growing trend – even for those firms that are highly closed door, process and technology intensive. They offer corporates external creativity, disruptive potential and extremely fast scalability.

For telcos to truly benefit from start-up collaborations, certain fundamental changes need to be introduced in their mind-set, operations and governance Arthur D. Little argues. In its report, titled ‘Telecom operators: Open Innovation with start-ups’, the consulting firm looks at two specific requirements for change: “(a) a shift from a procurement mind-set to actively pitching for innovation partners and (b) commit to enabling governance that incentivises innovation or at the very least, provides independence to those who are tasked to drive this within the organisation.”

The key to successful collaboration

“Many large global telecommunications providers are crying out for a fundamental re-set of their innovation efforts and capacity,” explains Karim Taga, Global Practice Leader of ADL’s Technology, Information, Media, and Electronics (TIME) Practice. “As counter-intuitive as it sounds, some of the world’s biggest telcos will see their innovation efforts bear more fruit by opening up their R&D models, embracing fast-moving start-ups, and actively engaging with potential partners at every level in the global supply chain.”

The Pitch
Telcos are often not the first choice of partner, either for capital or collaboration, for start-ups. However, when telcos do get involved with start-ups in terms of corporate venture capital backing, they show 27% higher revenue growth than traditional venture capital companies. Given that both sides may be able to benefit from the relationship, the question becomes: how to bring about engagement?

Currently, corporates have placed the onus for collaboration on start-ups, requiring them to come to the table to say what it is that their innovation will bring, and how it will create possible value. This might cause some start-ups with relevant innovation to not be picked up, rather both sides need to come to the table with their propositions – corporates need to lay bare what it is they can offer start-up. According to the report: “[telcos need] a willingness to pitch to the start-up community rather than just a selection process, thus instituting a two-way discussion process.”

Facilitating scalability

Arthur D. Little's representation of the AT&T’s foundry model.

Facilitating scalability
Start-ups are by definition small businesses that, by virtue of their innovative offering or disruptive technological offering, can scale quickly. Telcos, in their pitches, therefore need to make explicitly clear how their proposition is able to facilitate scalability.

Difficulties come to the fore however, with telcos often having internal processes that inhibit fast change. This includes too many departments involved requiring too many meeting points, tendencies to think inside the box, risk to internal performance targets for staff that invest in ‘side start-up’ projects, as well as general unawareness about why the start-up and its ‘odd ball’ culture is part of a suited organisation.

One way to overcome internal issues and provide start-ups with a clear scalability trajectory, is to create a timeline with clear dates and agenda for the development, design, implementation and scaling of the idea.

Best fit

Sustainable fit
When both start-ups and corporates are up front about their value propositions, and telcos understand at which stage of the start-ups’ development they are seeking to engage, a good fit between the two parties can be satisfactorily achieved. The report highlights that, at the initial stage of courting, “operators can simply choose not to listen to pitches when start-ups are still in idea stage. Conversely, start-ups can choose to walk away when their aims are not in line with the operator’s focus areas.”

Sustainability for the relationship, even when there is a good fit, requires telcos to have developed the right internal environment for collaboration. Important factors, according to the researchers, are a clear governance structure for incorporation of start-up activities within the organisation, as well as a “centralised Innovation Single point of contact that facilitates the various innovation activities inside the organisation.”

“To truly benefit from start-up collaboration, operators need to fundamentally change their mind-set, operations and governance,” concludes Hariprasad Pichai, Principal in ADL’s Middle East TIME Practice.  “This would help operators change from simple facilitators of access to customer, billing and technology platforms to partners that actively seek out collaboration and commit to co-creating value by driving internal change.”


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