Companies are living organisms. As they mature they tend to slow down a bit and align to familiar routines. This pattern has the benefit of keeping the primary corporate economic engine stable and avoiding unintentional disruption.
However, that same ‘disruption avoidance’ can cause companies to become so sedentary that they miss the next innovation wave. Conceptually, we understand the desire and need for large companies to stay innovative, and they try many different approaches to avoid this trap, including developing innovation conferences, corporate venture investments, internal skunkworks projects, and adopting technologies outside of their dominant suppliers. In particular, while it can take time and energy to bring a smaller vendor on board to assist a global multinational company, the payoff can be enormous. Let’s explore four reasons why large companies are bringing smaller technology vendors into their stack.
Stay ahead of new technologies
In the technology ecosystem, innovation is largely fueled by smaller companies reimagining long held enterprise beliefs. The success of these small companies has been evident during 2018 with the flurry of enterprise technology initial public offerings, including DocuSign, Smartsheet, Zuora, Pivotal, Dropbox, Carbon Black, SendGrid, and Zscaler.
For large enterprises looking to innovate, choosing a smaller vendor can help inject new technology and approaches into a large organization quickly to stay competitive. Most of the time, these changes are evolutionary. However, in times of rapid change such as now with digital transformation, the changes can be far more necessary and extensive.
Attracting top talent is one of the biggest obstacles large companies face today. In a recent global study, Korn Ferry found that a global talent shortage could lead to a deficit of more than 85 million workers by 2030, and a lost revenue opportunity of nearly $8.5 trillion dollars.
When trying to attract new technical talent to a large company, one tactic is to use the lure of working with the latest and greatest tools. This cannot happen when enterprises rely only on the most established vendors, many of which are protecting revenues on older products. By the very nature of the technology industry, newer tools from less established vendors tend to be more innovative and have a higher appeal for new graduates.
So diversifying the technology stack with the latest advances not only helps deliver an innovation boost but further attracts the type of talent corporations seek to keep their businesses running.
Balance with megavendors
Large companies tend to spend the bulk of their technology budget with other larger vendors. This creates a consolidation of spending, and at times can also lead to a partial or complete “lock-in” to those larger vendors. For example, once you choose your applications and database from the same vendor, your leverage to negotiate on the whole solution degrades. If you choose best-of-breed offerings, there is a chance you can switch out one solution for another, and the buyer leverage increases compared to the supplier leverage. Enterprise storage is another market where this can have an effect with companies combining larger conventional suppliers such as Dell, HP, and IBM with newer vendors such as Pure Storage.
With smaller technology partners, large companies can balance their spending with megavendors. Technology users in I.T. are not going to remove the solutions from larger suppliers on a wim, but might add smaller suppliers to the list to foster a competitive marketplace, ensure that they receive products and solutions at market rates, and continually refresh their stack with the latest capabilities.
Drive company-specific needs
With established suppliers the chance of having company-specific requests implemented into the product declines. You have to be a very large customer in order to see your own company-specific needs appear in a product.
However, with smaller suppliers the stakes are completely different. Large companies can more readily influence the product roadmap of small suppliers to meet their specific needs. This provides options for more efficient and more competitive technology solutions. Ultimately, this helps large companies move more quickly to solve problems and drive new revenue.
Steps to diversifying your tech stack
Once you recognize the need and rewards of diversifying your technology stack, here are a few tips to help you get started.
Foster a culture inside your company that values stretching the vendor portfolio beyond the established megavendors. Point to innovative examples within your company of using newer solutions from smaller suppliers.
Aim to include one to two smaller vendors in the round up for new projects. Even the established analyst firms such as Gartner try hard to showcase emerging vendors in the context of established vendors to highlight significant innovation and provide a choice.
Make time to invite smaller vendors to share their technology and roadmap, even in the context of general education. You may be surprised how much new thinking can influence your own company through something such as a brown bag lunch education session on a new technology or means for implementation.
Whatever the method, large companies have many ways they can benefit from working with smaller companies. There are a few links in the reference section below showcasing these efforts.
Reference links of large company innovation efforts
Deutsche Bank video on their Innovation labs
Bank of America Merrill Lynch Technology Innovation Summit
Morgan Stanley video on their Annual CTO Innovation Summit
Visa’s Everywhere Initiative
Citigroup Corporate Ventures
Johnson and Johnson Innovation Labs Challenge
Shell Technology Ventures