Howard Yu, Lego Professor of Management and Innovation at IMD Business School in Switzerland and the author of LEAP: How to Thrive in a World Where Everything Can be Copied explains and discusses on his book, how the industrial cluster in the Swiss city of Basel is a unique example of enduring competitive advantage. Since Frankfurt startup ecosystem is growing and being the most important financial cluster in continental Europe, we believe that there are some lessons to be learned and that the Rhein Main region can take advantage from the southern city experience.
Frankfurt and Basel share not just the Rhein river shores. Both cities have endured through centuries as the predilect location for the pharmaceutical industry and for the financial services industry and banks. Novartis, and Hoffman – la Roche in one shore, Metzler and Hauck & Aufhäuser on the other. Having so much in common seems fair to question ourselves which the source of success of the pharmaceutical companies is and how have they enjoyed so much prosperity and stayed on top for centuries. According to Professor Yu, the answer relies on the fact that “this companies never stopped to innovate, and they embraced change via revolutions, explorations and a continuous modification on their objectives”.
Companies must innovate. No value proposition stays unique forever
According to Yu, “for the past decades, the dominant thinking among executives and managers is to create a market position and a competitor strategy. This is so entrenched -he says – “that you want to build up a defensible competitive position, to build a structural barrier and to protect your business against competition over a long period of time”. Yu says that “this a mirage because no value proposition can stay unique forever. What we see through different industries (automotive, mobile phones, heavy machinery textile) is that inevitably expertise, capital and know-how migrate from one country to another”. Interestingly Basel´s companies are settled in the same location for almost two hundred years. They continued to reinvent themselves, to stay competitive and to fan off other low-cost competition.
Take a leap into other disciplines
As seen in Basel, companies cannot develop and improve processes if they do not take a leap and decide to lead innovation processes. Pharmaceutical companies continuously changed their focus moving from organic chemistry into microbiology and today their research is focused on genomics. Robo advisors and mobile wallets could represent examples on how banks and financial services have changed to promote initiatives that solve customer issues through FinTech initiatives. “Recurrent or continues leap from one discipline to another allows pioneering companies to stay on top of competition and is essentially opening to a new discipline what represent a new path for growth so that the late comer and the copy cats always have hard time in catching them up”. Corporates can cooperate with startups to innovate and create new solutions for customers – a good example of that is ING DiBa Strategy and Innovation team an how they implement innovation strategies on an operational level.
Empower the middle manager and disrupt
But, ¿what causes some companies to be pioneers and prosper for a long period of time versus others being swept away? On Yu´s view “The idea to empowering middle manager to experiment with different initiatives around a new knowledge initiative, can have a huge impact in an organization. But willing to make small scale experimentation – from R&D to product development- and then no one finally makes the call or pull the trigger and move from an emergence strategy into a deliver strategy – can hurt potential programs despite the potential long term pay off”. Basel pharmaceutical industry have leap ahead and took an innovative approach in those terms. What companies realized, is that the past pre- knowledge can help you to understand the future, but to complete disregard of the past and forget about everything that you had as unique asset and never reimagine how to repackage this unique asset for future use – that is a big pity”.
Do not be afraid of disruption and to modify industry paradigms
Companies must understand that disruption often is a real threat, but not the only one. “In fact, even when an industry seemingly stays constant – if the pioneering company doesn’t leap to new knowledge discipline sooner or later, its financial resources or its market positioning would get threatened. As part of the Digital Hessen Strategy, and creative arena and melting pot for entrepreneurs and innovators from the financial industry in the Rhein main startup ecosystem, TQ supports innovative companies that are disrupting the market such as Tradeshift and Smartsteuer GmbH and PayDirect . The Rhein Main region can take advantage of Basel experiences and industries, their know-how, and ultimately to understand that no value proposition can stay forever and how an ecosystem can beat the competition, innovate and continually jump to new capabilities and thrive for generations.
Network, alliances and partnerships are also relevant to succeed, but most importantly a community that supports and brings together academia, funding and corporates can be a decisive factor on the success of your venture.
For more insights about the startup ecosystem of the Rhein Main region, the Masterplan and our ecosystem, we invite you read about our members, acceleration programs and some firsthand experiences from our community.