Partnership, Platforms & Innovation in logistics

Innovation and disruption are two themes that seem to be mentioned in connection with a multitude of industries these days. Almost all of this has been driven by technology and particularly the spread of software into every aspect of our lives. This has resulted in companies being challenged by how much they can innovate, or how they may be disrupted by other innovators. At the same time, the companies who are, almost by definition, responsible for innovation, the small ‘start-ups’, are challenged by their investors to “get customers and grow faster”.

The obvious solution for both would be to collaborate, but that is easier said than done.

In many cases, ‘start ups’ are unfamiliar with the challenge of gaining the necessary support to work with a ‘start-up’ inside a large enterprise. Alternatively, the founders of the ‘start-up’ may be loath to work with larger enterprises as they probably tried to innovate inside a larger company, before they gave up in frustration at the barriers and bureaucracy and left to form their own business. Despite these problems, it is still worth considering the value of a collaborative approach between the two parties.

It would be wrong to assume that large enterprises are unable to innovate; there are numerous examples of companies that have impressive track records for innovation. e.g. 3M, GE, Apple, etc. The difference with these companies is that the DNA of the organisation encourages (and in some cases, expects) out-of-the-box ideas and innovation. It is much harder to introduce an innovative mindset to organisations that have focused on process and conformity and, in many industries, where this conformity may be a legislative imperative.

In the logistics industry there are numerous examples of innovation irrespective of how far back into history you look. The revolution of sail to steam, containerisation, customs pre-clearance by computer and many others, show that the industry is capable of innovation on a global scale. However, it is interesting to note that the examples I quote are industry innovations. They may have been developed by individual companies, but then gained general adoption across industries. Many of these innovations gained traction in the face of fierce opposition and derision and they only succeeded due to the focus and determination of their supporters.

The industry sits at the centre of multiple industries, all of which are being subject to the disruption unleashed by new technologies. This should provide great opportunities for innovation and new business models to emerge. The familiar examples of AirB&B and Uber sidelining existing industries and business models only serve to make the point that an established presence is no guarantee of continued dominance in any industry.

Established logistics players should consider the inherent advantages they have and how these can be exploited to support innovation. These advantages probably include the following; established relationships with a network of suppliers and trading partners, a large customer base, access to capital and industry knowledge.

Note that an existing systems infrastructure should not be considered as an advantage. This is because in many companies, the internal technology landscape is rapidly becoming redundant and not cost competitive in comparison with Cloud platforms.

Any major enterprise exhibiting these advantages will be seen as a very attractive partner for any ‘start-up’. They potentially bring validation of ideas and innovations, access to a customer base, how they need to engage with similar large customers and potentially, investment. How the two parties engage with each other is probably the most difficult aspect that will need to be addressed. The small company should recognize that they will have to understand the boundaries and frustrations of working with a large partner and at the same time, the enterprise should not try to stifle the start-up with unnecessary processes and procedures.

There is an obvious question to be asked which is “why doesn’t the enterprise create it’s own start-up?” Many have tried to do this and formed their own ‘incubators’ to foster new ideas and spin them out into the market. Apart from the earlier examples I mentioned, there have been very few success stories. Any attempt to do this within a large organization causes friction, becomes embroiled in departmental politics, imperiled career paths and so on. It is also a huge management distraction.

To avoid these pitfalls, large companies should consider how they can present themselves as a partner and market gateway for innovative solution providers. If they do so, they may ultimately become the platform for innovation. Imagine the implications if the logistical equivalent of iTunes was enabled by a major logistics player such as a large integrator or pallet network. I choose iTunes as the example because it works across multiple players, content and capability (e.g. apps) can be placed into it by anyone for a small fee and it continues to expand into other areas.

The more direct example is Amazon who, having created a physical capability, managed by their technology platform to provide access to a global fulfilment and logistics capability to anyone wishing to exploit it.

Understanding the strength of each party and what they can bring to the relationship may be the best way to introduce innovation on a large scale to the logistics industry.