Entrepreneur of the Year: It takes two to win the digital race

Kiwi companies can benefit by getting behind newcomers, writes Rob Webb
Early-stage digital businesses are trying hard, but established corporates need to pull their weight too. Photo / AP
Early-stage digital businesses are trying hard, but established corporates need to pull their weight too. Photo / AP

New Zealand has a great platform for leaping on to the digital world stage.

But the results from EY's recent Digital State of the Nation survey suggest Kiwi corporates must lift their game significantly to seize these opportunities, or be prepared to hand them over to offshore competitors.

What's required is for corporate New Zealand to engage and collaborate with digital innovation start-ups, committing to both funding and execution support.

The World Economic Forum ranks New Zealand as 17th in the world on its global Networked Readiness Index, close to Australia (16th) and ahead of other developed nations, including Austria (20th), Belgium (24th), Ireland (25th) and France (26th). And within this result, the WEF ranks NZ at an enviable 2nd in the world in the "environment" category, meaning we enjoy world-beating conditions for political, regulatory, business and innovation, piracy, IP protection and general ICT laws.

So, unlike many other countries, our Government is demonstrably doing its bit to foster a world-class digital economy.

But is corporate New Zealand taking advantage of these conditions and delivering on its side of the bargain? Or can it do more to capitalise on the chance to turn NZ into a digital innovation incubator for the rest of the world?

For every New Zealand success story, a larger number of credible new digital businesses are not getting the private sector support they need.

Increasingly, we see early-stage digital businesses with a great model and some early commercial success but unable to get scale with the right NZ corporate partner to create the 1 + 1 = 3 dream digital scenario, and scale internationally.

Why do these start-ups (or so-called "disruptors") need corporate support? Surely, if their idea or technology or business model is so good, why would it not flourish on its own?

That's a bit like treating everyone around you fairly and expecting the rest of the world to treat you fairly in return.

Though start-ups often have a great new digital model and the agility to act quickly, they may lack other vital ingredients for success, such as a recognisable brand, an existing customer base, distribution and fulfilment capabilities and deep pockets. Corporate NZ can provide many of these.

Ironically, while many large businesses expend energy agonising about the threat of disruption, they overlook creative options for partnering their own capabilities, alongside digital innovators, to unlock new potential for mutual benefit.

But doing this effectively requires a cultural shift at the interface between incumbent and newcomer.

Corporate NZ is missing out on the opportunity to accelerate digital innovation on its home turf.
Rob Webb

One example involves establishing a base level of trust between these two very different commercial "species" -- almost a digital translation service from boardroom to digital incubator.

Another example is the problem of traditional corporate funding prioritisation and business case tests. By definition, these are based on traditional, linear business models with standard ROI (return on investment) hurdles and payback periods.

They cannot cope with new digital platform business models that often involve different investment and/or funding options and alternative revenue streams that don't fit within a typical corporate business case template.

But when we look outside New Zealand, we see the most progressive corporates partnering effectively with start-ups. And despite these cultural differences, they are making these relationships work and codifying the approach into a repeatable formula.

So when you look behind many successful global new entrants and disruptors, you'll often find a digitally-savvy, mature incumbent quietly offering funding or other support in a way that doesn't threaten to stifle the new digital venture.

This is very different to setting up a lab, which often risks moving the cultural problem (and some budget) sideways under a new organisational label but side-steps the core problem of implementing smart partnerships.

Likewise, venture models have mixed results. They go to the other extreme by outsourcing the digital "bet" to an arms-length fund which is remote from the incumbent. Neither of these tackles the opportunity to digitise the corporate via smart partnerships.

We are increasingly approached by great new start-ups or early-stage businesses which have exhausted their partnership options in the local market and are running out of time (both for funding and because of IP decay).

As a result, we are increasingly asked to facilitate partnership opportunities elsewhere in the region or globally, acting as a trusted mentor alongside innovative NZ digital start-ups navigating exciting but daunting offshore opportunities.

While many large businesses expend energy agonising about the threat of disruption, they overlook creative options for partnering their own capabilities.

We are happy to do this because EY's regional and global operating model means we can easily match high quality NZ start-ups with an offshore client who is scanning the market for innovations and keen to pilot something new in this country, with its small but diverse representation of the global population.

But corporate NZ is missing out on the opportunity to accelerate digital innovation on its home turf and potentially treat success in New Zealand as a global pilot. It is also losing the chance to monetise these innovations offshore, via partnership and funding arrangements.

Each lost opportunity that sees local start-ups working with overseas corporates harms us all indirectly: NZ corporates themselves, small NZ businesses, local co-investors and NZ consumers who miss out on experiencing new digital innovation in their own backyard.

We need to address this issue now because, EY's digital survey found, time is running out for NZ corporates to sharpen up their digital act.

Compared to other countries, NZ consumers are not that digitally demanding. They are currently less likely to abandon their loyalty to your brand if your website or app doesn't provide the best mobile experience, for example. By comparison, Australian, Singaporean and Malaysian consumers are far quicker to move on in search of a better experience.

Some NZ businesses are currently getting away with delivering digital services below international benchmarks. But they have only a small window of opportunity to improve before restless customers seek better alternatives.

When NZ consumers do develop more demanding digital tastes -- and they will -- it will be a double-whammy for NZ corporates because they will then be well behind global standards and customer expectations will accelerate faster than NZ businesses are capable of innovating.

The World Economic Forum statistics show our Government has created favourable conditions for digital innovation. Corporate NZ is sitting on an untapped goldmine of "legacy" capabilities. EY's Digital State of the Nation survey tells us consumers have a growing appetite for innovation. And NZ start-ups are keen to collaborate.

Spot the opportunity and act now.

- NZ Herald

Rob Webb is EY New Zealand's Digital Lead.

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