Open Innovation How Corporate Giants Can Better Collaborate with Deep-Tech Start-ups. The Case of East and Southeast Asia Index Executive Summary 6 1. Introduction: The Stories of Toyota, Samsung, Alibaba, and Lenovo 9 2. Corporate Venturing in Deep Tech: An Emerging Trend 12 2.1 What Is Deep Tech? 12 2.2 What Is Corporate Venturing and What Is Its Connection to Deep Tech? 16 2.3 The Case of East and Southeast Asia 17 3. Corporate Venturing in Deep Tech: What We Don’t Know 19 3.1 Unsolved Questions in the Literature 19 3.2 A Relevant Field 21 4. Our Results 22 4.1 Analyzed Population and Sample 22 4.2 Corporate Venturing in Deep Tech: Adoption Rates 22 4.3 Corporate Venturing in Deep Tech: What Keeps Chief Innovation Officers Up at Night 25 4.4 Corporate Venturing in Deep Tech: Tackling Problems with Architecture 28 5. Connecting the Dots: Now What? 37 5.1 How Can These Results Help Chief Innovation Officers Around the World? 37 6. Appendixes 41 2 IESE Business School Open Innovation 3 Authors Josemaria Siota Mª Julia Prats IESE Business School IESE Business School [email protected] [email protected] Researcher Vittoria Emanuela Bria IESE Business School Published in May 2021 4 IESE Business School Corporate Venturing Corporate Giants Innovating with Deep-Tech Start-ups The Case of East and Southeast Asia The Term Deep Tech Is Not New Understand this concept to implement, measure and improve it properly. Artificial intelligence Robotics and drones Deep tech is “a group of emerging technologies based on scientific discoveries or meaningful Advanced materials Photonics and electronics engineering innovations, offering a substantial advance over established technologies, and Biotechnology Quantum computing seeking to tackle some of the world’s fundamental Blockchain challenges.” Corporate Venturing In Deep Tech Is Growing at Speed Don’t miss the opportunity: Consider partnerships in this field with (and from) East and Southeast Asia too. Some examples: Among the analyzed companies: Past Now Future East and Southeast Asia 57% x2.8 x4.2 Latin 71% America 40% Growth of Growth of Growth of companies corporate venturing CV in deep tech United 90% expecting to increase (past 5 years) (past 5 years) States CV in deep tech Corporate venturing adoption (next 5 years) among corporate giants What Keeps Chief Innovation Officers Up at Night This study sheds light on some of the major challenges faced by East and Southeast Asian corporations, when innovating with deep-tech start-ups. These problems are related to governance, hierarchy and risk. Technology evaluation. Who and how should be done? 14% Deep-tech start-ups have higher complexity. Short-term view. How can time horizons be matched? 11% Deep-tech start-ups have longer gestation periods. Internal alignment of KPIs. How can expectations be managed? 11% Deep-tech start-ups may not be a priority for business units or headquarters. Regulation. How can regulatory barriers be tackled? 10% Deep-tech start-ups are often facing barriers related to intellectual property. Regional fragmentation. How can regional differences be managed? 9% Deep-tech start-ups need market proof. Diversity in East and Southeast Asia (languages, cultures, currencies, etc.) may complicate this validation. 8% Silos between R&D and corporate venturing teams. How can these teams be coordinated? Deep-tech start-ups can be seen as competitors of corporate R&D teams. Top-down management. How can the best of both approaches be combined? 6% Deep-tech start-ups can be undervalued if upper management doesn’t have the right knowledge. Open Innovation: How Corporate Giants Can Better Collaborate with Deep-Tech Start-ups. The Case of East and Southeast Asia © 2021 | Josemaria Siota and Mª Julia Prats Executive Summary Companies such as Toyota, corporate venturing (57%), compared Innovation Governance Samsung, Alibaba, and Lenovo are to that of Latin American countries What is the best way to manage cross- already innovating with start-ups (40%), while having room for growth region and -departmental corporate in the deep-tech field—a group of compared to the adoption rate in other venturing teams, when working with emerging technologies based on regions such as the United States deep-tech start-ups? Having these scientific discoveries or meaningful (90%). teams in multiple business groups and engineering innovations, offering a regions, within the same company, it substantial advance over established In the analyzed companies, not becomes challenging to coordinate and technologies, and seeking to tackle only has the adoption of corporate align efforts to maximize value creation some of the world’s fundamental venturing increased by 2.8 times in and impact integration, while minimizing challenges. Currently, this group the past five years but their deep- redundancy in the implementation. The usually encompasses artificial tech start-up collaborations have also five most common models are owner, intelligence, advanced materials, gone up by 4.2 times during the same coordinator, optimizer, catalyzer, and biotechnology, blockchain, robotics period. Moreover, in 71% of the cases, hybrid. Other aspects frequently used and drones, photonics and electronics, the weight of deep-tech start-ups to tackle this challenge are recurrent and quantum computing. in corporate venturing portfolios is meetings, joint databases, scouting expected to grow in the next five years. missions segmented by region or This phenomenon is increasing at technology, a combination of pull and speed. In past years, deep-tech start- Based on 77 interviews with push strategies on terms of identification ups have received increased attention innovation executives during this of opportunities, and internal alignment among corporations, entrepreneurs, study, complemented by the review among the executive committee, the investors, and media. Investment in of previous literature, there are seven business units, and the corporate deep-tech start-ups has more than issues cited as the biggest challenges venturing team. quadrupled over a five-year period, for corporations when it comes to from $15 billioni in 2016 to more than collaborating with deep-tech start-ups. What is the best way to deal with the $60 billion in 2020, approximately. The These are technology valuation, short- R&D department? Who should do the average disclosed amount per private term view, internal alignment of key technology valuation? R&D is sometimes investment event for these start-ups performance indicators, regulation, biased toward the “this has not been and scale-ups has grown 3.4 times regional fragmentation, silos between invented here” mantra, especially in between 2016 and 2020.ii research and development (R&D) working with deep-tech start-ups. and corporate venturing teams, and The decision as to who should do the In East and Southeast Asia, some of top-down management—aspects all technology valuation can be simplified the corporate venturing activity is related to innovation governance, considering two variables. First, who has concentrated in nine regions: mainland cultural hierarchy, and risk perception. the technical knowledge for conducting China, Hong Kong, Indonesia, Japan, Meanwhile, three departments are the valuation? That would likely be the South Korea, Singapore, Thailand, usually reported to be bottlenecking corporate venturing team; or it may Taiwan, and Vietnam. On average, this this relationship: finance, legal, and be the R&D department or an expert region has a higher adoption rate of R&D. outside the corporation. Second, is the -- i. In this study $ refers to US$. ii. Since this is the executive summary, it excludes references because they are included in the document. 6 IESE Business School R&D department biased toward its proposals coming from the bottom. either implementing the mechanism own developments? The latter can be Yet the company can complement within the corporation or through a avoided by having a shared mandate staff motivation with other incentives, corporate venturing enabler outside the across both teams (venturing and R&D) set decision-making thresholds corporation. The same happens with and having a joint boss with expertise (e.g., the seniority level required to corporate control over the start-up: there in both the venturing and the technical approve depends on the size of the are almost no differences by mechanism side. resources required), supplementing or implementer (inside and outside the with internal radars to sense the corporation). Cultural Hierarchy insights generated from employees How do East and Southeast Asia and outside the organization, and What is the best way to mitigate the affect corporate venturing? The shortcutting approvals (e.g., securing risk perception of non-venturing region is fragmented, sometimes a sponsor among the executive departments? One route is showcasing challenging local and foreign committee). Likewise, the company internal success stories, showing them corporate venturing initiatives. can complement the existing status to other business units. Run background The analyzed territories combined quo with bottom-up approaches by checks of the entrepreneurs and the the use of the six most frequent convincing upper management of start-up. Tailor your internal pitch: while languages (Mandarin, Indonesian, Thai, the pros of bottom-up models to the executive committee may prefer Japanese, Vietnamese, and Korean), then enhance upper- and middle arguments related to the connection to nine regulation frameworks, nine management to seed the change in its long-term strategy, business units may currencies, and nine management their business units, and by securing prefer a reasoning more related to short- approaches that directly impact a structural enhancement on the or mid-term impact on their profitability the corporate venturing approach. internal policies regarding information, and available resources. Do not start with Regarding management approaches, processes, and incentives toward the the technology (or solution) but with for instance, the avoidance of new approach. the pain point (or use case) of business uncertainty is quite diverse: while units.