Large scale companies and the challenge of being innovative: the integration of external startups

IN

DEGREE PROJECT INDUSTRIAL ENGINEERING AND MANAGEMENT,

SECOND CYCLE, 30 CREDITS STOCKHOLM SWEDEN 2018 ,

Large scale companies and the challenge of being innovative: the integration of external startups

AUGUSTIN YANN DUMAS

KTH ROYAL INSTITUTE OF TECHNOLOGY

SCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT

Large scale companies and the challenge of being innovative: the integration

of external startups

by

Augustin Yann Dumas

Master of Science Thesis TRITA-ITM-EX 2018:363 KTH Industrial Engineering and Management

Industrial Management

SE-100 44 STOCKHOLM

Storskaliga företag och utmaningen att vara innovativa: integrationen

av externa uppstart

av

Augustin Yann Dumas

Examensarbete TRITA-ITM-EX 2018:363 KTH Industriell teknik och management

Industriell ekonomi och organisation

SE-100 44 STOCKHOLM

1 Master of Science Thesis TRITA-ITM-EX 2018:363

Large scale companies and the challenge of being innovative: the integration of external startups

Augustin Yann Dumas

Approved

2018-05-28

Examiner

Cali Nuur

Supervisor

Milan Jocevski

Abstract

During the 20

century, Large Scale Companies (LSCs) mindset was all about minimizing risks and maximizing profits. On top of this, they were heavily relying on intellectual property – culture of secret – and they were shaped to exploit rather than to explore. In this context, open innovation brought a completely new approach. As part of the changing landscape, trends of corporate venturing appeared about five years ago. Among LSCs which have chosen to get on the train of innovation, different strategies have been adopted from one company to another. Only today are people witnessing corporate venturing getting more structured. Yet, LSCs have not focused enough just yet on the development of venture structures with external startups. It is essential to understand how to make incubation and acceleration of external startups successful within LSCs.

This study adopts LSCs’ perspective and aims at providing them with the best practices that currently exist in the innovation ecosystem in terms of corporate venturing. In particular, this study focuses on how Large Scale Companies (LSCs) can take advantage of external startups through a corporate incubator and/or corporate accelerator in order to become more innovative. The study suggests the venturing process should be divided into three main stages: the identification of the appropriate venture structure and of the right startups, the follow-up of the integrated startups of the corporate venture structure and finally the exit strategy. Building upon the business model canvas and customer value proposition theories, the suggestion is made for LSCs to step backwards and reflect thoroughly about the corporate venture strategy they want to adopt. LSCs should be aware that they evolve as part of a complex venturing ecosystem, and that each tool, rather than being isolated, should embrace and collaborate with the multitude of existing structures.

Key-words: large scale company, corporate venturing, startup, incubator, accelerator, innovation,

business model canvas, customer value proposition.

2 Examensarbete TRITA-ITM-EX 2018:363

Storskaliga företag och utmaningen att vara innovativa:

integrationen av externa uppstart

Augustin Yann Dumas

Godkänt

2018-05-28

Examinator

Cali Nuur

Handledare

Milan Jocevski

Sammanfattning

Under de 20 århundradena var Large Scale Companies (LSCs) tankegangen allt om minimering av risker och maximesring av överskott. Utöver detta var de starkt beroende av immateriella rättigheter - hemlighetskulturen - och de var formade att utnyttja snarare än att utforska. I det här sammanhanget kom öppen innovation till ett helt nytt tillvägagångssätt. Som ett led i det förändrade landskapet uppträdde trenderna för företagsvågningar för ungefär fem år sedan. Blandt LSCs, som har valt att få på toget eller innovation, olika strategier har beslutats från ett företag till ett annat. Endast idag är människors vittnesbörd om företagsvågar att bli mer strukturerad. Ändå har LSCs inte fokuserat tillräckligt på utvecklingen av venturestrukturer med externa startups. Det är viktigt att förstå hur man gör inkubation och acceleration av externa startups framgångsrika inom LSCs.

Denna studie antar LSCs perspektiv och syftar till att ge dem de bästa praxis som för närvarande finns i innovationsekosystemet när det gäller företagsledning. I synnerhet fokuserar den här studien på hur Large Scale Companies (LSC) kan dra nytta av externa uppstart genom en företags inkubator och / eller företagsaccelerator för att bli mer innovativ. De studier som antyder vid venturingprocessen bör delas in tre huvudfaser: Identifiering av den aktuella riskstrukturen och rätt uppstart, uppföljning av den integrerade uppstarten av den organisationsstruktur och slutgiltigt slutstrategi. Med utgångspunkt i affärsmodellens kanfas och kundvärdes propositionsteorier, görs förslaget att LSCs ska gå bakåt och reflektera noggrant på företagsledningsstrategin som de vill anta. LSCs borde vara medvetna om att de utvecklas som en del av ett komplext venturerande ekosystem, och att varje verktyg, istället för att isoleras, ska omfamna och samarbeta med de många befintliga strukturerna.

Nyckelord: storskalig företag, företagsledning, uppstart, inkubator, accelerator, innovation,

affärsmodellduk, kundvärdesförslag.

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

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Acknowledgments

First of all, I would like to thank the Director of Innovation who helped me identify the focus of my master thesis and who consistently supported me whenever I needed support. Thanks to his guidance, I am confident that the chosen topic but also my work will help Large Scale Companies (LSCs) with being more innovative by taking advantage of external startups.

Then, I would like to thank specifically Milan Jocevski, my supervisor at KTH who has provided me with continuous feedbacks throughout the writing of my thesis. Furthermore, I would like to thank the Indek and the Sustainability and Industrial Dynamics unit for accepting and adapting to my master thesis being written from France. A special thank you to Cali Nuur and Richard Backteman.

Moreover, I would like to thank all the interviewees that took part of their time to answer my questions. They have all provided me with very valuable insights and I thank them again for having been so keen to exchange on their innovation processes.

Finally, as this master thesis represents the ultimate assignment as part of the TINEM program, I

would like to thank specifically Lars Uppvall and Pär Blomkvist for those two years in terms of

learnings, of human experiences but also all the professors that have contributed to make those

two years an amazing learning experience, intellectually, culturally but also socially.

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

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Table of contents List of figures ... 6

List of tables ... 6

Glossary ... 7

Definitions ... 7

1. Introduction ... 10

1.1. Background ... 10

1.2. Problem formulation ... 12

1.3. Research purpose ... 13

1.4. Research questions ... 13

1.5. Delimitations and limitations ... 14

1.6. Contribution ... 15

2. Business model concepts and the corporate venturing landscape ... 17

2.1. Business Model Canvas – startups’ perspective ... 17

2.2. Customer Value Proposition – LSCs’ perspective ... 19

2.3. Application of theoretical framework ... 20

2.4. Corporate venturing ... 21

2.5. Identification stage ... 22

2.6. Follow-up stage ... 28

2.7. Exit stage ... 33

3. Methodology ... 36

3.1. Research design ... 36

3.2. Company Alpha ... 36

3.3. Case study ... 37

3.4. Pre-study ... 37

3.5. Literature review ... 38

3.6. Interviews ... 38

3.7. Data analysis ... 40

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

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4. Empirics ... 44

4.1. Identification ... 44

4.2. Follow-up stage ... 57

4.3. Exit Strategy ... 62

5. Discussion ... 64

5.1. Business model canvas ... 66

5.2. Customer value proposition ... 69

5.3. Key CVS learnings ... 81

5.4. Discussion of validity, reliability and generalizability of the results ... 82

6. Conclusion ... 84

6.1. First sub-research question ... 84

6.2. Second sub-research question ... 84

6.3. Third sub-research question ... 85

6.4. Fourth sub-research question ... 85

6.5. Main research question ... 86

6.6. Implications ... 87

7. References ... 91

8. Appendix ... 98

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

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List of Figures Figure 1: The venturing strategies depending on the degree of internality and externality of . both innovations and venture structures (adapted from Prats et al., 2017). .... 11

Figure 2: The venturing eco-system ... 12

Figure 3: The nine building blocks of the Business Model Canvas (Osterwalder & Pigneur, . 2010) ... 18

Figure 4: Customer Value Proposition theory (CVP) (Johnson et al., 2008) ... 19

Figure 5: The three stages to value creation ... 22

Figure 6: The Three Horizon Growth (Baghai et al., 1999) ... 24

Figure 7: The challenge of disruptive innovation (Christensen & Overdorf, 2000) ... 29

Figure 8: The three main stages as part of the CV cycle ... 65

Figure 9: The appropriate venture strategy for each of the Three Horizon Growth (Baghai . et al., 1999; Company Kappa, 2018) ... 72

Figure 10: Suggested allocation of resources for each of the three horizons (Nagji & Tuff, . 2012) ... 74

Figure 11: Key CVS characteristics (adapted from Baghai et al., 1999 and Company Kappa, . 2018) ... 81

List of Tables Table 1: Classification of companies per size (INSEE, 2016) ... 14

Table 2: Conducted interviews with Company Alpha ... 39

Table 3: Conducted interviews with other companies ... 40

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Glossary

• BI Business Incubator

• BP Business Plan

• BU Business Unit

• CA Corporate Accelerator

• CI Corporate Incubator

• CV Corporate Venturing

• CVC Corporate Venture Capital

• CVS Corporate Venture Structure

• IRL Investment Readiness Level

• KPI Key Performance Indicator

• LSC Large Scale Company

• LSCVS Large Scale Company Venture Structure

• MVP Minimal Viable Product

• POC Proof Of Concept

• TRL Technology Readiness Level

• UK United Kingdom

• US United States of America

• VS Venture Structure

• VC Venture Capital

Definitions

• Accelerator – Most of the time, accelerators incubate early stage startups. From a chronological perspective, an accelerator is the following venturing stage of an incubator. Their venturing time frame is typically in between 3 and 9 months.

• Exploitation and exploration – On the one hand, exploitation is related to “doing what we do better”

(Tidd & Bessant, 2009, p.257). By doing so, companies strengthen their knowledge and focus on perspectives that are the same they have been focusing on so far. As mentioned by Tidd & Bessant (2009), this process leads to “path dependency” (p.257). On the other hand, exploration is about “doing something different” (p.257). In an innovative context, companies adopting such strategy embrace competitiveness but develop in unknown fields.

• Incubator – Incubators’ venturing time frame is typically in between 1 and 3 years and they usually venture in early stage startups.

• Incremental and radical innovation – Incremental innovation is distinct from radical innovation. It proposes to do what is already done but better. It relies upon small changes while radical innovation proposes to do something different which in turns leads to new markets and applications (Tidd &

Bessant, 2009).

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• Innovation – An innovation is an invention that has scaled and has “some kind of a market impact”

(p.1) (Morgan, 2015).

• Invention – An invention “creates an ability” (p.1) (Morgan, 2015).

• Large scale Companies – In the master thesis, Large Scale Companies (LSCs) have been defined as large enterprises and/or incumbent firms.

• Nurturing – In this study, nurturing is used to refer to the action of contributing to the growth of a startup from the VS (Venture Structure).

• Open innovation – When it comes to being innovative, open innovation is a good way to source ideas both from the inside and the outside. Dahlander & Gann (2010) present four logics of exchange and focus: “inbound” open innovation “sourcing”, “inbound” open innovation “acquiring”, “outbound”

open innovation “selling” and “outbound” open innovation “revealing” (p.700). “Inbound” open innovation “sourcing” is a non-pecuniary solution. It can take the form of collaboration with customers, universities, etc… On the other hand, “inbound” open innovation “acquiring” is a pecuniary solution.

“Outbound” open innovation “selling” is also a pecuniary solution that can for instance involve out- licensing to others. Finally, “outbound” open innovation “revealing” is a non-pecuniary solution. It typically happens when internal data is revealed to the external environment.

• Startup – A startup is an innovative company, aiming at a high growth and which requires financing to develop (De Chevigny, 2015).

• Startup development stages – Depending on the investment stage and the amount of money they have raised, startups can be categorized into five mains stages, which are, from the less developed to the most:

“seed stage”, “early stage”, “series A”, “series B” and “series C” (p.1) (Gupta, 2016).

• Venture Capital – A venture Capital invests equity into high potential startups for a typical duration of 5 to 10 years. Its goal is to achieve high returns before exiting startups (Bpifrance, 2017).

• Venture Structure – In this study, venture structure refers to all the existing type of ventures that can be set up by Large Scale Companies (LSCs) in order to foster innovation: incubator, accelerator, venture capital, partnership, innovation ecosystem, etc... As mentioned by Tidd and Bessant (2009), LSCs such as Nokia have overcome the concept of ‘not invented here” (p.267) and they are now adopting a new approach: “let’s find the best ideas wherever they are” (p.267).

• Venturing – In this study, venturing is similar to nurturing. It is the action of bringing a startup in the

Venture Structure (VS)

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

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1.

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

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1. Introduction

This chapter starts by presenting the background of the research. Then, the problem is formulated, as well as the purpose and the research questions. Finally, it treats the delimitations and limitations of the master thesis before presenting its contributions.

1.1. Background

“The landscape is littered by brands that can’t change” (Winsor, 2017, p.1). According to Winsor (2017), this “Kodak Moment” (p.1) is characterized by the impossibility for companies to project in the future. It confirms that a majority of Large Scale Companies (LSCs) are slow to innovate.

At the same time, customer expectations are increasing and their preferences are continuously changing (Gilliland, 2017). This is why it is essential for LSCs to become more agile when carrying out innovation (Leifer, R., 2000).

A changing landscape

According to Viki (2017), organizations now need to be ambidextrous and cannot rely only on their core competencies anymore. Large Scale Companies (LSCs) must compete at the same time on their existing mature markets characterized by existing solutions, and new markets where they need to develop new ones. In this context, “open innovation” (p.699) allows them to source ideas both from the inside as well as from the outside (Dahlander & Gann, 2010). The key perspective is that LSCs should not restrain to a single business model but should broaden their portfolio of activities. By doing so, Viki (2017) affirms that in the case a “shift” (p.1) would occur, they would already be enrolled in the process of being proactive. Ambidexterity is echoed by Winsor (2017).

Indeed, he affirms that it is essential for a LSC who aims at conducting radical innovation to focus on new market at the same time as the company develops incremental innovation for the existing products and services. Ambidexterity permits to achieve both strategies without putting any of the two at risk: keeping up the pace with the core activities of the LSC and at the same time taking advantage of new opportunities by being agile.

On top of this, Stanley (2016) points out that “only 63 percent of companies have a chief innovation officer” (p.1) and “26 percent have an informal system to achieve innovation” (p.1).

More than that, most historical actors are not yet engaged on the innovation train as “40 percent of the 50 most innovative companies in 2014 had been in existence for a decade or less” (p.1).

Here lies a key challenge for LSCs as the path towards innovation is complicated and that they are

not as modular as startups (Stanley, 2016). Venture structures are a way to keep the pace of

innovation. A wide variety of programs have emerged, yet, many questions through the incubation

process remain unanswered (Mian et al., 2016).

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

11 The choice of venture structure

A VS (Venture Structure) allows LSCs to catch up with the pace of innovation, to become more agile but also to get engaged in the innovative sphere (Prats et al., 2017). VSs can take the form of an incubator (follow-up and mentorship of startups typically for a time frame of a few years with a moderated investment per startup), accelerator (mentorship of startups typically for a time frame of a few months with little investment per startup), venture capital (investment of around 5 years with an investment of about 20 percent of the shares in the startups), etc. As mentioned by Prats et al. (2017), accelerators and incubators are specifically designed for early stage startups and can range from “discovery” until “deployment” (p.21) while VC typically seek from “scale-up” (p.21).

The model of venture structure (VS) needs to be chosen carefully. Indeed, because of the different VS models, the different types of startups, their various stages of maturity, LSCs are facing a myriad of combinations when it comes to the choice of Corporate Venturing Structure (CVS) and need to make the right choice adapted to their needs, if they do not want to miss the innovation wagon.

Figure 1 below presents the four main combination types.

Figure 1: The venturing strategies depending on the degree of internality and externality of

both innovations and venture structures (adapted from Prats et al., 2017).

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

12 Depending on where the innovation originates from and where it will be nurtured, there are four main classifications that appear from a LSC’s perspective (see figure 1 above). The first one is in the case a LSC’s internal idea is ventured externally. This could be for instance the case of a LSC’s employee developing his or her idea in an accelerator such as TechStar on behalf of the LSC. The second type of VS is when an internal idea is incubated internally. This is typically the role of Corporate Incubators developing R&D ideas. The third one corresponds to external startups which are ventured externally. In this case, LSCs are not involved. Finally, the fourth type of interaction between LSCs and startups is when LSCs venture internally external ideas. In this case, a corporate incubator or accelerator would not restrict to internal ideas. This study focuses on the fourth type of CVS.

As a result, adjacent figure 2 presents the relationship types between the different actors of the innovative ecosystem aforementioned: external startups, LSCs and external VSs. It shows that interactions are complex and that LSCs are facing a multitude of alternative when facing the choice of the Corporate Venture Structure (CVS) to set up. The integrated numbers correspond to the different classifications of venturing strategies previously presented in figure 1 (see above).

Once LSCs have decided upon the venturing strategy, they still need to

choose the right venture structure that will help them venture the right startups’ profiles.

1.2. Problem formulation

If only focusing on corporate accelerators and incubators, despite some companies which have initiated a move towards the venturing of startups, the willing to be more ambidextrous has to go beyond marketing considerations and the “pursuit of opportunities without regard for the resources currently controlled” (Kraus et al., 2009, p.1). Indeed, too many LSCs have simply used VSs as a marketing tool to brand the innovative mindset of the brand without any clear strategy or goal. Thus, even though literature suggests that the future of corporate incubators and

Figure 2: The venturing eco-system

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

13 accelerators is promising, many have already been shut down because they had not been though about thoroughly. Here lies a key issue that needs to be tackled.

Moreover, innovative ideas are more likely to emerge outside LSCs rather than inside, just from a resource of talents perspective. Not only LSCs do not have a clear vision nor strategy to tackle the challenge of innovation but also they have not focused enough just yet on the development of VSs with external startups. It is essential to understand how to make incubation and acceleration of external startups successful within LSCs. As mentioned by Bruneel et al. (2012), the key challenge lies in being able to develop a successful structure to process startups throughout the path to value creation. The model of incubation has to be determined, from the identification of the startups to the integration of the company or its handoff.

1.3. Research purpose

The purpose of the study is then to investigate how LSCs (Large Scale Companies) can successfully develop an incubator and/or accelerator to take advantage of early stage external startups in order to stay innovative and to anticipate trends. This is needed for LSC to bring value to the group by identifying and supporting external ideas that could benefit the company. The aim of this study is then to present the key steps to undertake and the key processes to implement for a LSC which has the willing to leverage external startups as part of their innovation strategy.

1.4. Research questions

In order to answer the previously formulated purpose, the study will tackle the following main research question. It has been split into four sub-research questions which will help answer the main research question:

Main RQ: How can large scale companies successfully foster their rate of innovation through the incubation and/or acceleration of early stage external startups?

SRQ1: What are the key perspectives for corporate incubators/accelerators to achieve successful venturing?

SRQ2: How to choose the startups to integrate?

SRQ3: How to grow the startups through the whole process of incubation?

SRQ4: Which exit strategy to adopt and for which startups’ profiles?

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

14 1.5. Delimitations and limitations

In the aim of increasing the validity of the study, the following delimitations have been set. First of all, even though a specific focus will be shed on France and Sweden, and because innovation happens worldwide, the study will focus on different LSCs from different industries from various countries around the world. No delimitations will be set on the studied industries.

Then, when it comes to companies’ size, one can rely upon several criteria such as “the staff head account” or “the annual turnover” to evaluate it (ECHA, 2018, p.1). When it comes to the French system, companies can be divided into four main types: “micro-enterprise” (INSEE, 2016a, p.1),

“small and medium enterprises” (INSEE, 2016b, p.1), “intermediate-size enterprises” (INSEE, 2016c, p.1) and “large enterprise” (INSEE, 2016d, p.1). Table 1 below summarizes the key characteristics of those four categories of companies:

“Micro-enterprise” “Small and medium

enterprises” “Intermediate-size

enterprises” “Large enterprise”

Number of

employees (X) X<10 X<250 250<X<4999 5000<X

Annual

turnover (Y) Y<€2 million Y<€50 million Y<€1,5 billion €1,5 billion<Y

Table 1: Classification of companies per size (INSEE, 2016)

Furthermore, related to companies’ size, another key perspective is the one of an “incumbent firm”

(p.1) which is “a firm which is already in position in a market” (Oxford Reference, 2018, p.1) and which is usually “a leader in the industry being discussed” (Investopedia, 2018, p.1). In this study, the master thesis will only focus on Large Scale Companies (LSCs) which have been defined as large enterprises and/or incumbent firms as they both need to stay innovative if they do not want to die.

Even though the vocabulary of venture structure will be used, this study is focusing only on

corporate incubators and corporate accelerators. Indeed, as mentioned by (Brigl et al., 2017),

incubators and accelerators are the typical venture structures used when dealing with early stage

startups. Other venture structure either focus on more mature business or focus on the ideation

stage. Yet, it does not mean that this study will not consider the best practices of venture structures

in general. This is why this study, through a review of different venturing models such as Corporate

Venture Capital (CVC), corporate incubators and accelerators, private incubators and accelerators,

proposes to identify what are the best practices among all those venture structures. Indeed,

focusing only on incubators and accelerators would be detrimental to the validity of the study as

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

15 it would narrow down the pool of competence. Indeed, it might be that some of the venturing processes used in a CVC for instance, could be relevant for a corporate incubator too, and that such a parallel has not yet been made.

From a timeframe perspective, because the corporate venturing landscape is changing quickly, the study aims at suggesting the best practices to set up in the next 5 years given the current and general understanding of the venturing landscape. Having the ambition to anticipate a longer timeframe would deteriorate the validity and reliability of the study.

Furthermore, from a system perspective, the study encompasses all of the three perspectives in the name of the industrial one, the functional one and the individual one. Yet, given the time constraints, the focus has been on the organizational and functional perspectives. The industrial one because the study analyses the venturing ecosystem dynamics as a whole and the functional one as it proposes best practices to implement to improve the current processes. Despite the individual perspective not being the focus, it is very much linked to the functional perspective.

Indeed, given the startup stage that is considered, any evolution of processes directly affects employees. Because it is crucial to assess the evolution of corporate venturing from an individual perspective, it will be treated in part 6.6.3.

1.6. Contribution

First of all, this master thesis aims at contributing to the state of the art of corporate venturing of external startups. Indeed, according to Mian et al. (2016), only from a technology perspective, the process of incubation still has many gaps that have not been answered. This is echoed by Hochberg (2015) who highlights in particular that little research has been made in particular on the very role of accelerators. In particular, here the master thesis proposes to compare different incubation processes occurring in different companies from different locations, which is suggested as future research by Mas-Verdú et al. (2015). Furthermore, as aforementioned, this research proposes to take different Venture Structure (VS) perspectives into account in order to assess whether some key competencies developed in some of those VSs could not be leverage by others.

Secondly, the scientific contribution will provide LSCs with key insights about which external

innovation incubation or acceleration model to implement. In the specific case of Company Alpha,

this knowledge is currently missing and will allow them to perform better in the future by

broadening their pool of innovation.

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

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2.

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

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2. Business model concepts and the corporate venturing landscape

Many theories and concepts are closely linked to innovation. Finding those that specifically adopt LSCs’ perspectives in terms in successful venturing has been difficult. The point being that most theories and models tackle similar perspectives but applied to different cases. First, this chapter introduces the two main concepts that will be used: the Business Model Canvas and the Customer Value Proposition. Those concepts are applied throughout the study.

Then, it presents the relevant literature given the purpose and the sub-research questions formulated previously. First, it analyses the importance of the choice of the venturing structure and of the ventured startups – identification stage.

Then it analyses the methods and metrics that can be deployed in order to support a sustaining growth for the ventured startups – follow-up stage. Finally, it treats of the different alternatives in terms of exit strategy – exit stage.

The two aforementioned concepts are applied throughout the study to all of the three previously mentioned perspectives – identification, follow-up and exit stages. In this context and for the sake of clarity, the choice has then been made to first present the theoretical concepts used before presenting the state of the art when it comes to corporate venturing.

2.1. Business Model Canvas – startups’ perspective

The study adopts LSCs’ perspective. Yet, LSCs need to evaluate startups when assessing them for a potential integration in their Venture Structures (VSs). Here, the theory that will be used to evaluate startups business model is the Business Model Canvas. According to Osterwalder &

Pigneur (2010), it is a tool to analyze and assess a business model by confronting it to “the nine

business model Building Blocks” (p.37) presented on figure 3 below.

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

18 Figure 3: The nine building blocks of the Business Model Canvas

(Osterwalder & Pigneur, 2010)

As presented on figure 3, the Business Model Canvas is composed of nine “building blocks”

(p.37) which are:

• “Customer segments”: groups a company wants to reach

• “Value proposition”: what the company proposes to provide the target customer segment with

• “Channels”: how the value proposition is distributed

• “Customer relationship”: explicit meaning

• “Revenue streams”: the amount of money the company can earn from each customer

• “Key resources”: they can be “physical”, “intellectual”, “human” or “financial”

• “Key activities”: what needs to be conducted for the company to align with its business model

• “Key partnerships”: explicit meaning

• “Cost structure”: costs that arise when conducting a business model

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

19 2.2. Customer Value Proposition – LSCs’ perspective

Then comes the evaluation of the corporate venturing business model. The Customer Value Proposition (CVP) by Johnson et al.

(2008), presents four key perspectives to develop a successful business model:

“customer value proposition” (p.60),

“profit formula” (p.60), “key resources”

(p.61) and “key processes” (p.61). The profit formula includes in particular the

“revenue model”, the “margin model”, and the “resource velocity” (p.60). The “key resources” can be the “people”, the

“technology” (p.62), the “equipment” and the “key processes” can be the “norms”

(p.62) for instance (see adjacent figure 4).

As part of the first perspective which is the

“customer value proposition”, it is crucial to identify the “job to be done” (p.60) in order to satisfy customers with value creation.

Then comes the “profit formula”. This perspective is all about bringing value to the company at the same time as the company brings value to the customer. As presented on the above figure 4, the revenue corresponds to the price times the volume.

Johnson et al. (2008) suggest to decide upon the “profit formula” before going into “key resources”

and “processes” because, by doing so, it clearly sets the resources that are available in the aim of targeting a specific profit. The “key resources” are the means that allow the company “to deliver the value proposition to the targeted customer” (p.61). Finally, “key processes” are linked to the way value is delivered. In particular, processes can be improved throughout time and repetition.

All in all, as mentioned by Johnson et al. (2008), the first two perspectives – “CVS” and “profit formula” (p.62) – are about the value that will be brought to both the customer and the company while the last two – “key resources” and “processes” (p.62) – are about how it will be delivered to them.

Figure 4: Customer Value Proposition theory (CVP)

(Johnson et al., 2008)

Augustin Yann Dumas Sustainability and Industrial Dynamics ME210X

20 2.3. Application of theoretical framework

To take the best out of the empirical findings, the two aforementioned theories have been combined: the Business Model Canvas (Osterwalder & Pigneur, 2010) and the Customer Value Proposition (Johnson et al., 2008).

Business Model Canvas – Startups’ Business Model Evaluation

Because the focus of the study, as mentioned in the delimitations, is on early stage startups and because the business model of startups is evaluated in the aim of corporate venturing, some perspectives aforementioned are less relevant. Indeed, an early stage startup cannot have a clear picture of all the “building blocks” (p.37). This is in particular the case for the “customer segments”, the “customer relationship” and the “channels” – early stage startups have little idea of the how their goods or services will be distributed.

In this context, the most relevant perspectives that are used in order to help LSCs evaluating startups business model are startups’ “revenue streams”, startups’ “key activities”, startups’ “value proposition”, startups’ “cost structure”, startups’ “key partners” and startups’ “key resources”.

CVP – LSCs’ Venturing Model Evaluation

According to Johnson et al. (2008), the four perspectives (“CVP”, “profit formula”, “key resources” and “key processes” (p.62)) help “create and deliver value” (p.60). Given the specific case to which this theory is applied in this study, which is corporate venturing, the customer that is specifically targeted is nothing more or less than the LSC itself. Indeed, the value creation that corporate venturing proposes to achieve is to foster the innovation of the LSC itself by leveraging upon external startups.

In this context, the four perspectives set by Johnson et al. (2008) need to be refined. Indeed, in the case of this study, the value proposition is to foster corporate innovation through corporate venturing. Thus, the four perspectives become:

• “CVP”: here the value creation is the development of a startup until it becomes a sustainable business or undergoes a handoff. The CVSs’ job is to make LSCs more innovative. Grown startups serve the interests of LSCs – which could be to achieve growth, to propose customers with new offerings, to attract talents, to communicate around the CVS, etc.

• The “Profit formula” is to bring value to LSCs at the same time as LSCs bring

value to startups. For instance, when applied to the study, the revenue model

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21 becomes the price Large Scale Company Venture Structures (LSCVSs) could potentially charge each startups times the numbers of ventured startups per VS.

• The “Key resources” are the ones the CVSs need to deliver value to LSCs and eventually to the LSCs’ customers.

• “Key processes” correspond to the “operational and managerial processes that allow them to deliver value” (p.61).

Thus, here the study proposes to use the CVP theory from a B2B2C perspective instead of a just B2C one. Indeed, even though the customer is the one that will benefit in the end from innovations produced by external startups, first it would have benefited LSCs themselves.

2.4. Corporate venturing

From a historical perspective, one has to go back to the seventies and eighties to witness the birth of the idea to separate the creation of new ventures from the existing structures (Garvin &

Levesque, 2006). As mentioned previously, most historical actors are not yet engaged on the innovation train as “40 percent of the 50 most innovative companies in 2014 had been in existence for a decade or less” (p.1). Here lies a key challenge for Large Scale Companies (LSCs) as the path towards innovation is complicated and that they are not as modular as startups (Stanley, 2016).

Despite the willing of fostering business creation, most leadership teams are missing a specific tool in the name of a “periscope” (Brigl et al., 2017, p.1).

As mentioned by Prats et al. (2017), “it is not the strongest of the species that survives, but the most adaptable” (p.9). Based on this perspective, he argues that startups could be seen as “outsourced R&D”. On the one hand, Mui (2014) reminds us that there are still “95”

percent (p.1) of startup that die, while on the other hand, when such innovative entities can benefit from the expertise of large organizations, the success rate is “1,700 times better” (Zook, 2016, p.1)). This is echoed by Nanterme (2015) who points out that, when it comes to LSCs and startups,

“collaboration, innovation and growth” are closely intertwined. As a result, if incumbents want to stay competitive, they must take advantage of agile small player in the name of startups and develop them (Zook, 2016). As mentioned by Bruneel et al. (2012), the key challenge lies in being able to develop a successful structure to process startups throughout the path to value creation, from the identification until the exit.

“It is not the strongest of the species that survives, but the most adaptable”

(Prats et al., 2017)

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22 As presented on figure 5 (see below), through the literature review, it has been identified that innovation cycles can be divided into three steps: the identification stage when it comes to designing the right CVS and accessing the right startups profiles, the follow-up stage, when LSCs want to develop the integrated external startups and convert them into successful businesses, and finally the exit strategy which deals which the transfer of the grown up startups to other entities.

Figure 5: The three stages to value creation 2.5. Identification stage

The identification stage is crucial in order for LSCs to develop the appropriate Corporate Venture Structure (CVS).

First, this part proposes an analysis of the key criteria that a company must define before deciding upon a specific CVS. Then, because the focus of this study is Corporate Incubation (CI) and Corporate Acceleration (CA) of external startups, only the literature related to those two models has been taken into account.

2.5.1. The venture structure strategy

As mentioned previously, the study is delimited to corporate incubators and corporate accelerators.

This section aims at presenting those two venturing structures. Bruneel et al. (2012) have studied the evolution of Business Incubators (BIs) across time. Mian et al. (2016) have also been studying VSs’ history. Their conclusion is that incubators in particular have a bright future and that there is room for expansion. By comparing the older generations of BIs to the new ones, Bruneel et al.

(2012) realized that older one tended to choose older startups profiles but also that incubated profiles tended to stay longer within the BI than they do in new BIs. Furthermore, they realized that older generations were not able adapt to new models because of stiffness within the management of the BIs. As mentioned by Mian et al. (2016), it is important to keep in mind that

“The train is leaving the station, and companies that don’t climb aboard will miss out on the growth that these innovation tools can unleash”

(Brigl et al., 2017)

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23 the spreading of incubation models rely on their capacity to bring value. In the case of incubators, from a geographical perspective, Europe has caught up with the US in terms of startup incubators in the last decade (Andonova, 2015). According to InBIA (2015), there were 7,000 incubators worldwide in 2015. More specifically, there were 300 programs in Germany in 2012 (ADT, 2012), 300 in 2012 in the United Kingdom (UKBI, 2012), and 113 in 2010 in France (RETIS, 2010).

LSCs should not rush in the process of developing a corporate venture but instead should have a clear and reflected approach. As mentioned by Brigl et al. (2017), “rather than enter the field simply to keep up with corporate fashion, however, companies should carefully consider the kind of innovation they wish to source and match it with the appropriate innovation strategy and tool”

(p.1). Thus, it is crucial to identify and design appropriately the best Venture Structure (VS) for each company.

First of all, according to Brigl et al. (2017), an incubator is the venture structure to adopt when a LSC is looking for a “specific product or technology that is still under development” (p.1) while an accelerator is best suited when a LSC aims at having a clear idea of the innovation landscape.

According to Nanterme (2015), around 30 percent of LSCs are using incubator or accelerators.

One key insight is that entrepreneurs are expected LSCs to develop such structures as with them comes the opportunity to benefit from LSCs’ “mentoring” (s.11). As suggested by Chui (2015), LSCs have to embrace the opportunity set by incubators and accelerators. Yet the pain point lies in the fact that so far, such corporations always try to “maximize profit and minimize risk” (p.1).

Incubators typically work with early stage startups. The time frame is “open-ended” (Bone et al., 2017, p.12) but usually ranges around three years (Brigl et al., 2017). Corporate incubators can take various forms. LSCs can decide to incubate internal or external ideas and to incubate it internally or to outsource it (Prats et al., 2017). Given the aforementioned delimitations, this study is only focusing on external startups incubated internally. Within such a venture structure startups benefit from mentoring but also financial support in order to develop their business. An incubator typically involves a small amount of people (Vatier, 2015) and provides a physical structure to the benefit of startups (Bone et al., 2017).

While incubators tend to focus on a limited number of startups, accelerators on the other hand propose a quick overview of the startup landscape. They adopt a “wide-angle model” which is typically beneficial to industries with a fast paced change (Brigl et al., 2017). Contrary to incubators, accelerators are newer, they have highly selective entrance criteria and the acceleration period is decided upon beforehand (Bone et al., 2017). The time frame of acceleration is typically from

“three to nine months” (p.24) and during this period of time, startups benefit from “highly

structured programs” (Prats et al., 2017, p.24). LSCs’ awareness of their need for such structures

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24 is increasing. For instance, in the United Kingdom, “65” percent of all accelerators were funded by corporates in 2017 while only “29” percent were in 2014 (Bone et al., 2017, p.45).

Investing resources into innovation is too vague. Such an investment strategy has to be refined and adapted to companies' needs. In order to sustain innovation as a company grows throughout time, Baghai et al. (1999) propose a framework composed of three horizons as represented on figure 6 below.

Figure 6: The Three Horizon Growth (Baghai et al., 1999)

As part of the first horizon, the company strengthens its core business, in the second one it

supports emerging fields while the last one is about exploring new markets. While a small company

will experience the different horizons as it matures throughout time, LSCs are already mature

enough and have to decide upon a strategy concerning how to address each horizon in terms of

structure and resources. This perspective is echoed by Nagji & Tuff (2012) who identified three

different types of innovation in the name of “core innovation” (p.1), “adjacent innovation” (p.1)

and “transformational innovation” (p.1). Core innovation can be characterized by incremental

innovation, adjacent innovation relies upon existing solutions developed in-house and that could

be developed on new markets while transformational innovation corresponds to the development

of new solutions for new markets. Relying on those three types of innovation, Nagji & Tuff (2012)

propose a “magic formula of 70-20-10” (p.1) that is applicable by most of the companies, even

though it has to be refined to their specific needs. It explains how to split the budget given the

three types of innovation: 10 percent should be allocated to “transformational innovation”, 20

percent to “adjacent innovation” and 70 percent to “core innovation”. Winsor (2017) builds upon

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25 this point as he points forward the central role of the leader that should act as a “fulcrum” (p.1) in order to “orchestrate the resources” (p.1).

The focus of this study is on incubators and accelerators of LSCs which aims at benefiting from external startups to become more innovative. The business venturing model of such venture structures can recover different forms. Bone et al. (2017) mentions some key perspectives to take into account as part of the business venturing model. First, as previously mentioned when talking about the evaluation of startups, geography needs to be taken into account, as much in terms of where to source the startups as much as in terms of where to develop the venture structure. Then, the “funding sources” (p.68) have to be identified. For instance, the venture structure might be able to benefit from public funding depending on countries’ regulations. Then comes the revenue model. Will the corporate incubator or accelerator charge a fee to the startups or will it rather take an equity of the startup? In this particular case, little mention is made in the literature about how much equity to take when bringing in a startup. Finally, the “number of businesses supported per year” (p.70) has to be decided upon. Bone et al. (2017) define it as the amount of innovative structures integrated “over a 12 month period” (p.70). Companies that will adopt VSs will benefit from a competitive advantage. Indeed, according to Brigl et al. (2017), the “seeds” will son “bear fruit” (p.1). As a consequence, they will increase their innovation gap with their slow moving competitors, which will provide them with an economic sustainability advantage from a long term perspective. Last but not least, incubators and accelerators remain a way to promote the company’s innovative image and to build upon the brand (Prats et al., 2017).

Brigl et al. (2017) also observed that the most successful venture structures were the ones that were aligned with the corporate strategy, both in terms of startups “goals” (p.1) as well as in terms of

“field” (p.1). In the case of McKinsey, Afshar (2017) identified that when interacting with startups, they always keep in mind their “use cases” (p.1) and always ensure whether startups “complement their corporate agenda” (p.1). This is echoed by Seitz et al. (2017) who also warns about having just a “sexy” (p.1) venture structure with no correlation with the business. When defining the road map of the venture structure in order to be aligned with strategy, Stanley (2016) is even more specific. Indeed, because he affirms that Venture Structures (VSs) are much more flexible than traditional R&D, and because VSs must align their strategy with the one of the company, he suggests VSs should have no more than five “priority domains” (p.1). The aim being to “protect and defend the core” (Zook, 2016, p.1). This is for instance what Amazon did by developing its

“A clear strategy for collaboration is the single most important factor for successful collaboration between large companies and entrepreneurs”

(Nanterme, 2015)

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26 data activities in order to protect the core of its business which is supply chain. All in all, the venture structure has to be part of the “company ecosystem” (Prats et al., 2017).

2.5.2. Evaluation of the startups

Then, as part of the identification part, the evaluation of startups comes into play. According to Afshar (2017) and in relation to what has previously been presented about strategy alignment, startups have to be in line with the corporate strategy. Then, in order to be efficient and to save time as well as to reduce the number of meetings, Todd Schofield who was interviewed by Afshar (2017), recommends to bring both the business and technical perspectives together when evaluating the startups. More specifically, Afshar (2017), identified that McKinsey was following a three step approach when evaluating startups in line with the strategy alignment. First of all, they conduct a “due diligence” (p.1). Then, they develop a pilot with a customer to see how well the startup is doing in the market. Finally, only if it proves to be a promising entity, then they develop a more formal approach in the name of a venture structure. The evaluation of startups can also rely on more specific KPIs. Garvin & Levesque (2006) propose a list of KPIs:

• “market size” (p.1)

• “fit the brand” (p.1)

• “feasible within a year” (p.1)

This list is not exhaustive but presents key KPIs that have already been used and that all help assess the potential of innovative ideas. Furthermore, according to Tidd & Bessant (2009), among other criteria one could take into account when evaluating startups are the following ones: “relationship with existing markets” (p.373), “marketing and distribution” (p.373), “facility and equipment requirements” (p.374), “annual (or unit) cost” (p.374). Finally, Blank (2013) highlights the relevance of using both the “Technology Readiness Level (TRL)” (p.1) and the “Investment Readiness Level” (IRL)” (p.1). While the TRL is used to evaluate the technology maturity, the IRL is used to evaluate the relevance of startups’ business model.

Then, when deciding upon the VS, the time frame of venturing is crucial. Bone et al. (2017) refer to the duration criteria as a perspective to be taken into account by LSCs when designing their VS.

Yet flexibility is needed in order to adapt to each and every ventured startup. Another perspective

is the expected results within the time frame. Indeed, while startups typically stay two or three

years in incubators, the expected creation of value is not expected before five or seven years (Brigl

et al., 2017). This is the reason why clear KPIs of success have to be clearly set in order to have

milestones all the startup journey along.

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27 Then, the stage in which LSCs want to venture in has to be taken into account. First of all, because this study is focusing on LSCs willing to take advantage of external startups through an incubator and/or an accelerator, it makes no sense for those companies to invest in mature startups which would rather be developed among Corporate Venture Capital (CVC). Dee et al. (2015) differentiates four different types of startups: “pre-startup”, “startup”, “early-stage venture” and

“later stage venture” (p.15). He defines pre-startup as the intention of developing an idea. Startup is the stage when the project has received some funding and is on the verge of developing a product. Early-stage venture is when the product exists but that more funding is required for commercialization. Later-stage ventures are startups that have already experienced growth and need investments to back it up. With the focus of this study being incubators and accelerators, according to De et al. (2015), LSCs then have to choose among ‘startup’ and ‘early-stage venture’.

Garvin & Levesque (2006) also bring an interesting perspective as they affirm that “integration works best when it begins in the early life of a new business” (p.1). This would then suggest that LSCs wanting to integrate external startup in dedicated CI or CA should then as much as possible try to bring in “startup” (p.1) profiles rather than “early-stage ventures” (p.1). This perspective is mitigated by Nanterme (2015) who affirms that LSCs are not willing to invest too early either in startups. That means that they are not interested in the nurturing stage. They are interested in the startups from the moment they propose a “commercially viable solution” (s.17). Yet, early stage contacts between startups and venturing structures of LSCs should not be avoided as it helps startups align early on their deliverable in order to meet LSCs’ needs.

In the case of CVSs, people are crucial. According to Nanterme (2015) it is an exchange, which means that LSCs benefit as much from a pool of talent as entrepreneurs benefit from LSCs brand image and resources. Thus, on the one hand, LSC “gain access to new skills, ideas, talent and markets” (s.2), and on the other hand entrepreneurs reach “distribution networks and customer bases” (s.2). This is echoed by Zook (2016). Indeed, according to him, project holders’ mindset is one of the three perspectives in order to have a higher successful rate among corporate venturing.

More than that, he identified that when incubated startups rely on their project holders, the delivered value to stakeholders is “3.1 times greater than those without”. Finally, in order to assess the team’s dynamics, LSCs can rely upon Belbin’s nine Team Roles theory (Belbin, 2012) which point forward that in order for a team to perform at its best, people need to have complementary roles.

2.5.3. Identification section summary

The identification stage cannot be omitted. It has to be conducted upstream of the launch of the

venture structure and must be fully completed. Indeed, the literature has shown that in the case

some parts would be omitted, it is then the whole CVS that is weakened. When developing such a

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28 CVS, it has to be matured and thought about precisely in terms of alignment with the strategy, evaluation of the startups, time frame of venturing, resources to allocate, profiles LSCs are looking for, stage to venture in. Based on those key perspectives, LSCs can then identify the best suited venture strategy as well as the best business venturing model.

Then, when it comes to incubators and accelerators, for LSCs to leverage external startups, they should focus on “startups” and “early-stage ventures” (Dee et al., 2015, p.15). A key perspective is the alignment of the incubated startups with the strategy of the LSC. The time frame also needs to be decided upon beforehand: it will impact directly the milestones for the startup once integrated to the venture structure. It is also directly linked to the venture strategy - incubator or accelerator - and the resources allocated to each project. Not to forget, people are crucial when it comes to startups: VSs are a way to be innovative as much as a way to attract talents and to communicate about the innovativeness of a LSC. Eventually, the business venturing model has to be chosen accordingly to get the expected results.

2.6. Follow-up stage

The first phase was the identification. Once external startups have been identified and integrated to the venture structure according to what has been presented previously, then the LSC needs to support the startup in order to develop it and help it become successful in the marketplace.

As mentioned by Seitz et al. (2017) one must keep in mind that not all sectors are facing the same economic environment. For instance, pharmaceutical and energy sectors are currently undergoing “economic pressures” (p.1).

This is why, again, even though different industries will face different challenges in their operating markets (Strategy&, 2018), the study here aims at giving a clear structure that will be applicable to most cases. It will then be up to each LSC to refine it to its specific needs and to take the most relevant information given its innovation landscape.

2.6.1. Human resources

First of all, Christensen & Overdorf (2000) propose a theory to face the challenge of disruptive

change. Depending on the alignment of the innovation with the company core competencies,

different approaches are suggested as presented on figure 7 below:

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29 Figure 7: The challenge of disruptive innovation (Christensen & Overdorf, 2000)

In the case the fit with LSCs’ processes are good and that the innovation is sustaining, then the company should adopt a “lightweight” team. On the contrary, if the fit with the LSCs’ processes are good but that the innovation is disruptive, then the company should adopt a “heavyweight team” to develop the innovation. Furthermore, in the perspective of commercialization, a spin out is very much likely. In the case the fit with LSCS’ processes are poor, there are again two cases.

First, if the innovation is sustaining, then the company should use a “heavyweight team” while if the innovation is disruptive, then it should use a “heavyweight team in a separate spinout organization” (Christensen & Overdorf, 2000).

Then comes the leadership of the Venture Structure (VS). As mentioned by Garvin & Levesque (2006), because people have to interact with different types of resources among the company in order to source some core competencies, it is valuable to have experienced employees as leaders, as they understand the business and have an existing network throughout the company. This is echoed by Brigl et al. (2017), who also point out the need for “executives who combine an entrepreneurial mind-set with a deep understanding of the company’s culture and structure” (p.1).

Nanterme (2015) adds an interesting perspective: the “mindset” (s.5). The leadership must have a

“win-win” (s.14) mindset. More than that, it has to share the devotion feeling for innovation. The

point being that devotion will always be there from a bottom-up approach, but in order to be

successful, the whole structure needs that “enthusiasm” (s.14) to be shared by the leadership,

which means from a top-down approach. Yet, because agility also means testing and failures, and

because agility and failures take time, executives have to make it clear who will take the

responsibility to shut down projects if objectives are not met (Garvin & Levesque, 2006). Then,

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30 leadership has to do with steering the venture structure to the right path. Of course, as mentioned previously, the strategy of the venture structure has to be aligned with the one of the LSC. Once this has been done, Zook (2016) points out that the leadership of the venture structure should aim at developing “repeatable formulas” (p.1). This means that the tools that have been developed for one solution would then be reused for other projects. For instance, it could be a multitude of startups relying on the same complex artificial intelligence algorithm, all with the aim of providing a cutting hedge customer experience but applied to different industries.

Once the startup has been identified and that the leadership team has been decided upon, it is crucial to allocate the right human resources to the project. The main question remaining how many people to allocate to it (Seitz et al., 2017). Once this number has been chosen, there are two main perspectives: which people to source internally and which ones to source externally. In order to help LSCs find the best balance between internal and external resources and in relation to the cultural part, it all depends on the degree of “culture shift” the CVS wants “to help create” (Seitz et al., 2017, p.1). From the inside perspective, relying on experienced profiles will help the project get access to the right people (Brigl et al., 2017). From the outside perspective, as mentioned by Vatier (2015), LSCVSs must “develop the ecosystem with the right partners” (p.5). This is echoed by Garvin & Levesque (2006) who affirms that “not all skills are best developed from scratch”. As mentioned by Stanley (2016) sourcing resources from the outside can take the form of collaboration with universities or third parties. Support can take various forms. According to Bone et al. (2017), it can be “mentoring, seminars, training, networking” with peers, etc (p.15). All in all, a decision has to be made upon whether to spend time and resources to develop capabilities in- house or to source it externally and then to face a possible difficulty of assimilation of the capability that has just been purchased (Garvin & Levesque, 2006). The balance will also depend on the cultural change LSCs aim at undergoing.

2.6.2. The culture

According to Afshar (2017), even though LSCs are trying to apply the same principles that worked from a cultural perspective for successful startups, they are lacking an in- house innovative mindset. He makes his point very clear:

“for that change in culture to occur, it all starts at the very top” (p.1). He points out the fact that companies are

currently working on structures where they could build the culture “from scratch” (p.1). This perspective is exemplified with the case of BMW and the development of the i brand: they have developed a completely new environment with its own specific culture. That cultural gap between startups and LSCs affects all the aspects of the CVS. Indeed, as mentioned by Garvin & Levesque

“For that change in culture to occur, it all starts

at the very top”

Afshar (2017)