Evangelos Simoudis is a Sr. Managing Director of Trident Capital, a #VC and #PE firm he joined in 2005. Evangelos focuses his institutional and private investments on Internet (#adtech and #ecommerce), #SaaS #applications and #bigdata #analytics companies. Before Trident, Evangelos spent 5 years as a partner at Apax Partners, a #PE firm where he invested and served on the boards of early and growth IT companies. As he did at Apax, at Trident Evangelos leads the firm's SaaS and Internet advisory boards.

Evangelos' current directorships include @BrightRoll, @eXelate, @ExtoleInc, and @HostAnalytics. He is a board observer at @ThisMoment. He is a strategic advisor to several public and private software and Internet companies.

Prior to entering venture capital, Evangelos had more than 20 years experience in high-technology industries, in executive roles spanning operations, marketing, sales and engineering. His experience as a technology executive includes serving as President and CEO of Customer Analytics, a Trident-backed, eCRM company acquired by Xchange, Inc. (NASDAQ: EXAP), and as Vice President of #BI Solutions at @IBM.

Prior directorships include Bristol Technology (acquired by Hewlett-Packard (NYSE:HPQ)), Composite Software (acquired by Cisco), Confluent Software (acquired by Oracle Corporation (Nasdaq: ORCL)), DesiHits, Hip Digital, Princeton Softech (acquired by IBM) and Vidavee (acquired by OpenText (NASDAQ: OTEX)).

Evangelos earned a PhD in computer science from Brandeis University and a BS in electrical engineering from Caltech.

Philippe Mauchard is a principal in McKinsey’s Brussels office and a founder and global director of McKinsey Solutions. He focuses on helping clients upgrade their business-intelligence capabilities and adopt innovative approaches to develop and capture value from business insights.

In almost 20 years with McKinsey, Philippe has served leading clients across a range of sectors from pharmaceuticals to retail, business services, and public institutions, working on issues in strategy and marketing and sales, as well as business intelligence.

Philippe’s recent client work includes designing a best-practice-learning organization to build a foundation for knowledge management and enhanced business intelligence at a global utilities company. In another project, he advised a Europe-based business-services company on defining and delivering market insights to advance its ambitious international-growth objectives. Working with a pharmaceutical company on its go-to-market strategy, he helped put in place global standards for performance management in marketing and sales.

In addition to his work for McKinsey, Philippe is a professor of marketing and market intelligence at the Solvay Brussels School. Earlier in his career, he was a consultant at Mercer Management Consulting in Paris and London. In his spare time, Philippe pursues his interest in education as a member of the board of Teach for Belgium, a non-profit organization of which he was a co-founder, and a member of the Teach for All network. He holds an MBA from INSEAD and a degree in business engineering from the Solvay Brussels School.

Todd Schofield is Managing Director of SC Studios Innovation Centre at Standard Chartered Bank. Having diligently worked his way up through the ranks of IT over many years, Todd brings practical and structured guidance, aligning the IT organization with the needs of the business units.

Beginning his IT career in the entry-level position of Junior Computer Operator working the overnight shift, Todd worked full-time at night every weekend while attending university full-time on the weekdays. Todd went on to manage technical teams, eventually leading a variety of IT functions, including support, administration, networking & telecommunications, security, operations, helpdesk and project management. Todd has been involved in many diverse enterprise IT initiatives, including major systems consolidation, offshoring, outsourcing, network rearchitecture, mobility and app development. Through a balanced-finance approach Todd has saved his employers millions of dollars in technology spending while increasing service quality.

Todd did his undergraduate work at UC Berkeley, earning a Bachelor’s degree. He also completed an Executive double-MBA program, earning an MBA from UCLA (University of California, Los Angeles) and an MBA from NUS (National University of Singapore.)

Being extremely passionate about technology leadership, Todd consistently brings innovation and creativity to IT organizations.

Todd currently manages Mobility & Innovation for an MNC. He lives in the San Francisco Bay Area with his wife and four (yes, four) daughters.

Expert Panel on Corporate Innovation

Michael:         

(00:02) Welcome to episode number 97 of CXOTalk. I am Michael Krigsman and my friendly co-host Vala Afshar. Vala how are you, how’s it going today in the snow?

Vala:   

(00:19) Michael, I’m inside so things are wonderful and I’m super excited to learn about start-ups and corporate innovation with three experts, so this show’s really special. We have three and we normally have one so this is great.

Michael:         

(00:33) Yeah, I’m excited to and we should jump in. our guests today represent a spectrum from investing in start-ups to guiding start-ups to being an entrepreneur inside a large organization, and let’s start with an introduction. So to begin, we have Evangelos Simoudis, who is managing partner of TridentCapital. Evangelos how are you?

Evangelos:      

(01:08) Michael, really good to be here and good afternoon to everybody. So I’ve been in investing for the past 15 years and before that I’ve been working in operations for 20, and in the past three years and in addition to investing, I have been working with large corporations on the topic of innovations and how ecosystems such as Silicon Valley can contribute innovation, initiatives and goals.

Michael:         

(01:44) Fantastic and our second guest, from Silicon Valley as it turns out with you also is Todd Schofield with Standard Chartered Bank, Todd how are you today?

Todd:  

(01:59) I’m doing very well thank you and I’m also very glad to be here. My own history primarily is a corporate CTO and so I’ve been driving innovation my whole professional life into a multitude of different large companies. And for the past five years I’ve been leading the technology innovation outpost office for Standard Chartered Bank here in San Francisco.

Michael:         

(02:22) And last but not least and joining us from Europe is Philippe Mauchard with McKinsey, and Philippe welcome to CXOTalk.

Philippe:         

(02:36) Thank you Michael and thank you all the others and nice to meet you all. I’m Philippe Mauchard, based in Brussels. I’ve been with McKinsey for about 20 years and the last eight years I’ve been writing a business plan and launching a new division called McKinsey Solutions, which specializes in software, data and analytics and through that we’re starting a lot of new start-ups an investing in some start-ups.

Vala:   

(03:03) Well, we have three start-up and innovation experts on our show, so perhaps we can start with defining the term innovation for our audience and maybe Evangelos if you could start. What does innovation actually mean?

Evangelos:      

(03:21) Well you know when I started looking into this I had been, I was very surprised at how (loaded?) of a term innovation is. Different things to different people and infact I will encourage you to look on the web for the search of defining innovation and you’ll literally get hundreds of millions of answers to that query.

(03:52) But that said, the word means different things to different people, and first I think we have to recognize the many different types of innovation. We have technological innovation, we have business model innovation. We have innovation to sustain existing product services and processes to innovation called sustained innovation and innovation that’s used to disrupt markets, the so called disruptive innovation.

(04:28)To me the definition innovation is the transformation of what is possible to something that is valuable, and I’ll focus on three words for this definition.

(04:45)The word possible means that we are looking to capitalize on what is known and what we can create for what is known. Innovation means (all?) invention, but should not be confused with invention.

(05:03)The word transformation, implies that we focus on execution which I think is very important especially for corporations. And the word valuable implies that we arelooking for transformations that provide value.

(05:19)To be effective, innovation has to be continuous and it has to involve the solution to the problem. Now this problem maybe an existing problem or maybe a perceived problem, but it is the creation of the valuation on the right culture. And culture is another thing to talk about today.

(05:46) Being in Silicon Valley for the past 25 years and working and investing on start-ups I have been very interested in disruptive innovation and how it impacts corporations. To me it’s innovations that can change industry structures and the process and may alter technologies and may alter the business models and other characteristics.

(06:11) As a couple of examples I will mention Amazon did in the area of books and book selling, Apple did with music and maybe saleforce.com did for enterprise software.

Michael:         

(06:26) So disruptive innovation is making a change to a some type of breakthrough change to the technology to towards the business model. Todd, any thoughts on amplifying that in what Evangelos was just saying?

Todd:  

(06:43)  Absolutely, I think sometimes we will actually differentiate innovation as a thing as a kind of a behemoth that everyone has a different description of to something around how to be more ‘innovative’ so when we think about innovative mindset, we think about initiatives and projects and things that will wind up making a change for the better for business. Sometimes it’s around efficiency, sometimes it’s around new capabilities.

(07:11) Several years ago, Standard Chartered for example were the first and biggest companies in the world to move to iPhone and away from Blackberry to become our enterprise mobility platform and in 2009 that was unheard of, but that is now kind of quite considered the standard. At the time that was considered a very innovative move, because it gave a lot more capability to our people in the field, people that are on the go. And at the same time it helped to actually drive a lot more innovation through the company because it showed that we can do things, we can go do things and that there’s a lot more capability that we can take advantage of.

(07:50)So by working with big companies like that, all the way of setting up of our office here in San Francisco and in Silicon Valley and setting up engagements with startup companies we’ve actually been able to bring in a lot of different kind of products, innovative thinking, and innovative mindset. It’s all this really broad spectrum to really help the organization to become more innovative in the way that we serve our clients.

Philippe:         

(08:21) Just a couple of things Mike, on the one hand we talked about the nature of innovation. Evangelos was talking about the disruptive nature as opposed to incremental innovation, I would also talk about the critical mass of innovation that need to take place in organizations and that it not just happening at the periphery that can really transform the organization.

(08:43) Also something we see at times like a bit of a burst and then goes away so it’s important that innovation is truly indurate versus temperate so it can get installed in organizations.

(08:54) So there’s the nature of innovation on the one hand and also the process. The way to get innovation and I think we’ll talk about that as well, what it takes innovation to see the light into a bit sustainable. Also just cite there ideation, the execution and the most fundamentally the ongoing change and cultural change that it requires, which is probably as an innovator in the company one of the biggest points of attention. Not just getting ideas and seeing how they can be successful they are in the market, but how to make sure the rest of the organization changes accordingly.

Vala:   

(09:27) Can you guys help link in innovation and achieving corporate business objectives?

Todd:  

(09:38) Sure, so I can give you an example of something we’ve done at Standard Chartered Bank. So our bank is actually an emerging markets bank. Our headquarters are in London but 90% of our business is Asia, African, and the Middle East.

(09:51)And one of the issues we have there is data collection, specifically in Africa. And so there are always questions around, how do we make decisions around investment? And because we also bank a lot of institutional investors, how do we advise them to make good decisions about investment in an emerging market?

(10:12)So an initiative we launched recently is a new consumer price index, that we actually have running live now in Nigeria, and we’re going to be expanding to Ghana and other African countries and onto Asia as well. And it is crowd sourced data collection through photographs of economic information.

(10:33)So Nigerian’s walking through markets will be able to use their phone, and be able to take a photo of a price tag of rice or bananas, or onions or something along these lines. And then be able to actually go and when they take the photo it gets geo-tagged so they know what market its end, they categorize it and it gets uploaded, and in real time it gets processed. And through machine learning we now have economic data and we now have hundreds and thousands of these photos that have now kind of created entirely new economic index of data that was previously unavailable.

(11:08)And now Standard Chartered can make investment decisions. Our clients can make investment decisions around how these indexes are comparing to other indexes of things such as inflation.

(11:22)So this is an example of innovation and working with a start-up – a San Francisco start-up, where we were only able to apply this internationally.

Michael          

(11:35) Wow! This is mind-bending and the idea of a major European bank getting these folks in Nigeria with their smart phones gathering that data, collecting, collating, accumulating, and analyzing that data and now you have an index and it’s extraordinary.

Todd:  

(11:59)So I’ll be glad to send you the link which you are welcome to put into the show notes to share with the folks that are watching. It is something where it is becoming successful and we are in turn now of rolling it out to different countries.

(12:14)And for us we took a different approach, we took an innovative approach around rather than going into say, let’s systematize all of these merchants and try to get everyone onto the same database where we can pull data. We kind of found a different way around of being able to gather data so that we can in turn make better decisions about how to manage our business.

Philippe:         

(12:38) What kind of business benefits are they getting, is it more ideas like new investment would have done or you would have not done otherwise or differently, or efficiency.

Todd:  

(12:50) So we have a lot more information now about price fluctuation, both of price fluctuation of different commodities – how the prices go up and down, as well as price variation by location. Because these photos are being geo-tagged, we know in which markets bananas costs more and in which markets they cost less.

(13:11)And then we can actually start to make some correlation around, is one closer to a seaport and those bananas came through that seaport. We can actually start to infer some of the reasons behind this, and those in turn point to bigger things. Standard Chartered is a – while we have retail locations in many countries, a good portion of Standard Chartered’s business is around trade finance.

(13:38) And so the more information that we can have around the kinds of things that we’re providing trade finance funding for the better decisions that we can make, and in turn the better service that we can provide to our clients.

Evangelos:      

(13:50) Michael, it is very interesting of what Todd has spoken about is to start making the distinction between sustaining innovation and continuous innovation and you are looking to improve on your existing processes and recognise big returns in the result of this improvement.

(14:18) And the start-up innovations, which a lot of times require a corporation in order to achieve each objectives to be patient and to take short-term hits, in order to achieve something bigger. One example of that is what IBM is trying to do around computing initiatives with their Watson platform.

(14:45) They are investing very cleverly, and they Investing in research and investing very cleverly and bringing together start-up’s bringing together their own market effort for something that would hopefully pay off dividends in years to come, as opposed to having an immediate impact to their business.

(15:08) We also see companies that we traditionally associated with innovations such as Amazon or Facebook and taking this kind of long-term view, which I said may have negative short-term financial impact, which the corporation’s shareholders have to be, or should be willing to understand and accept in order to achieve of the balance of the longer term corporate objectives.

Vala:   

(15:43) Do you believe that corporation companies need their formal innovation management program, or can you have ad hoc process depending on their culture and the make-up of your company to bring some of this innovation to life like Todd just mentioned.

Philippe:         

(16:06) I think you need both, you need some informal to encourage people to come up with ideas and to let a number of flowers bloom whether it is 1000, but let their flowers bloom.

(16:17) But at some point in time if you do want something that is really transformational, that goes beyond the critical mass in your core business, so the question, does it have to do be into the core business? At the end of the day yes. And to be especially sustainable and then during this, I think at some point you need some kind of formal mechanism. But when I think of formal mechanisms, I don’t mean a mechanism that is necessarily top-down and try it to organize everything for everyone.

(16:45) I mean by the process that where you can point and you can recognise this is indeed the place where we are going to go from ideas and all the way to making it work, execute, and initiate the change management processes associated.

(17:00) So make it to come a bit more to life and to preach from my own chapel, what we did with the Mackenzie Solution vision, it was about it or nine years ago with the result of some flowers bloom around the firm and thinking that when we are doing our consulting engagements, we tend to develop databases here, databases there, tools, and benchmarks and what have you - the flowers blooming everywhere. But at some point of saying, our clients want that to be a bit more formally organized. And we would also like to get it better structured, so that we can get a better impact out of these many flowers.

(17:38) And for that you need to put more muscle behind it and overinvest in one area and reduce investment in those that are a little bit less successful. So at that point I wrote the business ensure the Council for global directives, and the result and formal mechanism was actually nothing but creating the equivalent of a start-up, so an entrepreneurial start-up.

(18:02) I was directly reporting to a board of directors, so in that sense getting the top-down commitment from our leadership. Being shielded from the day-to-day situations, although that being said was to make something that would support the core business you would say, let’s make it shielded for now.

(18:16) Get to the proof of concept and like any start-up would know in what is required to get to a proof of concept before trying to roll out, and progressing are making its way to proving that yes it is possible, to let me say (unclear 18:29) the databases, the assets, put software around it, make it usable and useful for a consultant, but more importantly for our clients so they can use that as an ongoing basis.

(18:40) And wants we’ve passed the critical mass of showing that there is demand for that very individual items of software, then let’s make it more integrated into the rest of the company. And that is the next stage of the formal mechanism to integrate, train people, and (18:55 applying an adaptive incentive which we could talk more about?)

Michael:         

(18:59) Okay, so clearly, all three of you have spent a great deal of time thinking about the various processes and mechanisms associated with innovation. But you are also, all three involved with start-ups, so let’s begin this segment of the show by talking about the relationship between start-ups and corporate innovation. And for those of us who are not experts in this, how does that work?

Todd:  

(19:41)It’s a fine balance and often it depends on the start-up. Sometimes the start-up is to women and their dog in their garage working on something great. Other times the start-up is something that has hundreds and millions of dollars in funding and thousands of employees.

(19:56)So it really depends on what you consider as a start-up. The other point is that there is a lot that depends around your organization and how tolerant they are as far as being able to engage a kind of company that come on and do different things.

(20:14) For Standard Chartered for example, data analytics is very important to us, so recently we brought on a data analytics firm to do work for us around some background information. And that particular firm could do it better than we could do it internally, and better than some of the other smaller start-ups that we looked at. They were already geared towards being able to bring their equipment and bring their software on site, and being able to plug it into our systems and be able to provide the analytics that we were after.

(20:48)So the answer to your question is that will depend on the size and scope of the start-up. How position they are to be able to integrate in a smooth way with your organization, and if they are just starting out, do they want you because they want investment? Do they want to deal with you because they want to test an idea? Sometimes they want to deal with you because they simply want you as a customer. And other times they simply want your input they say, you know what, I’m iterating my product right now can you simply just give me some feedback. That’s something that all of those different things provide value to the start-ups in different ways.

(21:34) So it’s not always around them shipping with a perfect product that would be perfect for you, it’s really a multi-facet, and multifactor decision to make and then to move forward with what’s going to be to the best interest to your company.

Evangelos:      

(21:52)So we are seeing a couple of different modes of interacting with corporations to interact with start-ups around their innovation initiatives.

(22:09) In the last two or three years we are seeing corporations that are actively, particularly coming to Silicon Valley and they are asking for introductions to our portfolio companies around specific areas of interest particularly big data and analytics, cloud computing is another one and mobility is a third one.

(22:39)So through this interaction, the start-ups tend to establish the initial relationship which offer proof of concept agreements and may be something more. In another way is for corporations very much again like start-up charters and they have started establishing operations in areas such as the Valley and either through their incubation program or direct funding because they have venture comms they are starting to engage very actively with the start-up ecosystem.

(23:30)Finally, we as investors and part of the value that we provide to our portfolio companies, we maintain broad networks of executives in corporations. Through the dialogue that we have with these executives, we try to understand what the top-of-the-line problems and depending on the problems if we have relevant portfolio companies, we will also bring them into contact with the corporations, so three different ways for start-ups to engage with large corporations.

Michael:         

(24:20) Philippe, how do you ensure that when you are working with a start-up that it is fully aligned with the corporate innovation objectives, and how do you make that relationship work in an effective way from the McKinsey perspective rather than the start-up perspective.

Philippe:         

(24:47) Well it has to go both ways to be effective for the start-up and us, and just from our side maybe just a little bit of context. As you can imagine, we are looking for a pretty broad set of use cases in which some start-ups are active is that as managing consultants being global firms and basically addressing all sectors of the economy including public services and basically all functions. Our intent with division is to have an activity that we would say is asset-based consulting or software and data and virtually every one of those intersections between the sectors and functions.

(25:27)So you can see on the one hand, well it should be fairly easy to find something or relevant. But actually that can make it also a bit difficult, because we are looking for a series of characteristics that made those start-ups fit in a number of used cases. Where we are as consultants reasonably ensure that there is sufficient demand from clients that they will want to address these issues on a returning basis.

(25:50)That more importantly in the short-term that what we call our practice (solution? 25:56) in the field will definitely want to develop an activity that is you can say asset-based.

(26:02)So what we do, we have to physically make it simple. Two types of approaches to look for start-ups that would fit that, and therefore could be aligned with our agenda. If we already have a solution in the field and again I will repeat a solution is a combination of data and software and analytics software services if we only have a solution in that space (we call? 26:24) our own start-ups because we have built our own software company over time. Or we have an intent to clearly build one (unclear 26:31).

Then we have a proactive outreach of networks start-ups be it coming from the evangelists of the world, interacting with investors in several areas like Israel, London etc. and we try to stay in touch with them and say, these are the use cases in which we know we are currently investing or would want to invest in building this – when I say investing, I’m not saying we want to buy a company necessarily. But we are looking for start-ups to complement ourselves.

(27:00) In which case we say to investors do you have that, and even reach out to some of the larger visible start-ups (that we are eluding to? 27:07) or we can even asked our clients and say, who do you know in your environment that you wish we would partner with. That’s the proactive side of things. The reactive would be in all of the other areas that we don’t yet have a solution or a clear plan for building a solution – we have about 30 or something solutions now and intending to go to 70, we are more reactive.

(27:20) So, if someone calls out and we are starting to get many more calls of people saying, would you consider partnering us, start-up or invest in that field we can react. But the alignment is going to be very critical with the agenda of our practice. To make sure that there is an alignment, after having spotted a company that can purely respond to those used cases, we have two or three simple steps.

(27:52) The first one would be due diligence, we have our experts talk to them, see if what they have makes sense and can fit those used cases. If it does go through then we have a pilot and we will find one of our clients where we can test it in the field. We would go jointly (or there is a supplier versus start-up supplier? 28:09) but we go jointly and test things, one phase or two with the pilot client.

(28:16) And if it does work out to be something really interesting, then we go into something more formal - usually we don’t start with the formal part and the formal can arrange from commercial agreement, mobile acquisition, joint-venture etc. and we’ve done a bit of all of the above.

Vala:   

(28:33) There has been a lot written about technology shifting outside of IT. My question if there are formal programs within the company to engage with start-ups, are you seeing the line of business championing and sponsoring the relationship with the start-ups more so than the traditional IT CIO. Or is it still this Chief Information Officer that’s the glue between the programs within the company and the start-ups that companies engage with.

Todd:  

(29:04)So at Standard Chartered we really like to see both. We like to not necessarily have a hard path to go through. Sometimes a business here will hear about something or sometimes the technology will hear about something. We try to make sure that those folks are aligned, and ideally when I will bring a start-up to them or something like that, I like to have them together, to bring them together at the same time.

(29:29) So it’s not necessarily a path to go through, it’s a matter of getting everyone together because then we can make a quick decision and we can decide either or not that start-up is appropriate fit for us to move forward with.

(29:45)And we want to be saving everyone’s time because then we’re not having a whole series of meetings and it winds up being a more efficient role. And it also gives because a lot of the start-ups have competitors who vary but are similar kinds of approaches each with their own slightly different secret sauce. It also gives both the technology leader and the business head who gives her a much better idea of the kinds of caliber companies that they are dealing with.

(30:17) Because sometimes they’ll say, you know what, this company is either to established for us, because they have already gone on, their prices are very high or something, or this company is not established enough. Or we are a very large bank and they have only been servicing small credit unions, so we want to know could their product scale up to be able to service a large international bank.

(30:39)So regardless of the company and the fact that you have the conversation with the business head and with the IT head, it prompts the kinds of questions that you need answered, and is it actually a more innovative way to go and look at how you can do on boarding.

Michael:         

(31:01) So Evangelos mentioned earlier this notion of culture. And we have a question from Twitter from Arsalon Khan, who mentions in the innovation mentality. So do you look to start-ups to help jumpstart that innovation mentality and culture, and maybe just talk about this role of culture.

Evangelos:      

(31:36)So we are seeing a spectrum of situations, in general it is true that when corporations visit innovation centers such as Silicon Valley or Israel or New York or others, they are looking to start-ups to larger companies that became larger after being successful start-ups for one of the cultural characteristics that drive their success.

(32:21)So, what are they looking for? They’re looking for characteristics such as the team size. Characteristics such as ability to experiment and the ability to pivot quickly, and even to experiments that shows that you are going down the wrong path. They are looking at hiring and firing practices.

(32:47) Where the big difference is exists in how they take this observations and try to reduce them to practice, and that’s where we see many large corporations is still lacking. I think the reason for that is they want to or they aspire to understand how innovation is created by start-ups or by certain other companies, they lack the culture internally to make the necessary changes that will enable them to get to that point.

(33:33)In my opinion, it all starts at the very top. So in order for that change in culture to procure you either – you know the decisions have to be made at the top of the corporation and certain norms get to be established very prompt. Or corporations are now starting to consider creating whole new units where they can build the culture from scratch. And I think a very good example for that is what BMW is doing with the I-brand where they have created a competing division with a completely new set of driving principles in order to foster and expand innovation.

Michael:         

(34:27) Philippe, any thoughts on this notion of using start-ups to help drive innovation culture inside a large organisation.

Philippe:         

(34:37) Yes, I mentioned a bit earlier in the call. In culture is fundamental to not only create ideas, but especially make the mistake and make the organisation transform itself thanks to the good ideas that come from the innovations process.

(34:52)So when I’m looking at start-ups, I would say there is one thing that is good about it but one thing that is not as efficient and I’ll come to it. So the one thing that is good, is it can help leapfrog certain innovation steps like coming up with a proven idea that really focuses on an important and address or badly address or sufficiently address used case business issue of the business owners.

(35:15) It can also bring and leapfrog an important step in bringing talented people that are really entrepreneurial and make that thing happen. So another good thing about that, that push the approach that the company that may have had a difficulty with. We have brought in some start-ups in our division in an area where we knew we wanted to build something, and we gained years by basically bringing in that start-up and investing into it and using them as the McKinsey solution for call it for instance customer care and call centre experience.

(35:47) What they don’t bring is a fundamental first and a very important a condition for success, for which at least to my taste only the corporate can and should do, is basically organize as in for the collaboration with the start-up to be a successful one. Basically to collaborate or even more if it wants to integrate the start-up and it does so in a way that it doesn’t show and it does not dilute the start-up within the rest of the organisation.

(36:13)It keeps basically it’s different shading elements, helps it succeed while aligning the rest of the parts of the corporation that it should work with. And as you know that 10 years ago or more than that, McKinsey was pretty reluctant to try and collaborate with external companies that don’t like start-ups will also acquire smaller companies, because we have a very strong culture and we still do have a very strong culture. And it was very difficult for us to integrate them in a people base model.

(36:44) And now that we also have this division of solutions we have a better way to basically shield those individuals start-ups. Give them the benefits of being associated to us in terms of validating their radical position and accessing our clients, and getting support to globalization and increasing the talent capabilities through our global network etc.

(37:06) Why not let’s say dilating and choking them and I think that last part is the word that the corporation has to do itself, may be triggered by collaboration and interactions with start-ups. But it would be dangerous if a start-up goes to quickly inside the world of the corporate, and hasn’t done it and so turn around and change of mindset more than anything else.

Vala:   

(37:29) Todd, when you’re working with a corporation or company, what do you look for to see if they have innovative culture. We’ve used words like innovation and defined it, even although there is not a standard definition and use words like start-up and as you mentioned it could be two persons in a garage to 1000 employee and 100 million revenue. Now, can we define culture, or how do you know the company has the appetite to work with a start-up?

Todd:  

(37:57) Well culture is another one of those sort of hard to pin kind of things, because it means that it means something different to to the different folks that you are talking about. That’s why we wind up talking with lots of start-ups to find who is going to be the right fit for us. And in our case as an international bank we find that some of these start-ups that we talk with in the financial technology world, or in things related to what we’re interested in. That there is not necessarily a focus on wanting to do something in an international aspect. It might have a US market focus in mind, and in that case that’s very clear and it’s a no harm, no foul and we’re not that offended nor are they offended. It just happens to be not a very great match.

(38:42) Others have to deal with what their particular focus is, is if they really want to to drive something that has perhaps a social mission that doesn’t align exactly, we would love to support social missions, but if it doesn’t align exactly with what Standard Chartered is doing, we need to make sure that those kind of things fit.

(39:06) Where we do find things that is aligned is when the attitudes tend to be right. And the attitudes that we really want people to be able to really look at the traditional things that we think of with our brand culture which is, how is failure viewed, how is mistakes viewed or mistakes punished, or mistakes celebrated in a way because that’s the learnings as opposed to something that went bad.

(39:33)So we think there is a lot of opportunity to continue to learn in the way that start-ups work in a much more agile way. There is less political capital involved in making mistakes in the start-up versus making mistakes in the corporation -depending on the corporation of course! And so with all these different things we find that there are aspects of start-ups that are very inspiring.

(40:01) But on the other hand we are also a highly regulated institution. We have to be very respectful of our financial regulators, they do hold our banking licenses. And so we have to make sure that we’re hearing to both the letter and the spirit of the law that our regulators have, and many of these start-ups are not in that kind of situation where they have these structures to make sure that they need to be able to work with them.

(40:27) So having the idea of both sides of that, it is really important and being able to keep those in mind, but especially being able to making sure that we are working within the guidelines of our regulators. Again, to both the letter and the spirit of the law and that’s really kind of critically where it comes down to for us.

Michael:         

(40:47) We have only about five minutes left, so and we actually have about another two or three hours of material that we should talk about. So in that spirit – let me direct this to Todd and may be Philippe and Philippe first. Are there metrics or KPI’s that you use for evaluating the relationship that you have with a start-up that is an innovation partner with your organization.

Philippe:         

(41:20) Well that’s a couple of elements there and we are still a reasonably young organization on that front, since we created ourselves about eight years ago and our approach to working with external parties like a particular start-up is only three years old and we’ve done a number of collaboration deals since. But what are we looking for directionally?

(41:39) First I would say in terms of its more the qualitative, it’s not really a KPI but a qualitative indicator is that in the sense that having a high chance of working with them will increase our chance to have the impact with our clients. So it’s not purely looking at do they have a great analytical model, a great software that does XYZ, but even in the collaboration with them in the way they talk to their own clients, the feedback in talking with their own clients, and the feedback we get from their own markets today do we get a sense that there is a high potentially that they speak reasonably the same language as us in terms of helping and improve a certain type of use case from the clients that have that impact, as opposed to purely the technical capabilities.

(42:23) Then at one point that you were saying that ranged from small to big, we tried to shy away a little bit from the person and a document because that is typically the way we do it with our own start-ups. We do our own investigation at the seed stage.

(42:37) So when we look outside at existing start-ups or start-ups from the outside, we would tend to look for a company that would already have a few or some revenue from their clients - so I don’t want to put a number too much as a rigorous element, but it should be somewhere in the few millions or $10 million of revenue because that has already shown that they have proven that they could make a living out of working with them.

(43:02)The third element is this notion of sustainability of what they do. So we need to feel that there is a sense of potential to grow out of that, and this is a topic for another discussion that we look at growth potential, and if this is a (unclear 42:15) company and we’ve all sick yes, but may be working with (unclear 43:18) there is always a danger that we bought be able to accelerate. So we need to be able to say that there is some dynamics in the way that they have been working and from talking to the clients to see that there is a demand coming, and especially talking to our own colleagues.

(43:33) If we make the pitch of the start-up to our own colleagues do we sense that they will be able to bring them to their own clients that they will demand is really impactful.

(43:43) Something about qualitative alignment and something about the current size of achievement and something about the dynamics going forward, not too much profitability but growth wise I would say at this stage is the type of thing that we are looking for.

Michael:

(44:00) Todd, any quick comments.

Todd:  

(44:03) I think that’s right it’s very much around the kind of flexibility and the right fit. And so depending on the size of your organization and the size of their organization, in needs of the organization especially and what that start-up has to offer or what they can bring to the table.

(44:20) It needs to be something that’s compelling, because you always have the option of other start-ups, or the option of creating yourself of that skill set. And so you as a corporation, you have different options, so it’s important to find that start-up who is the right fit for you, who can really end up helping your business, and at the same time you’re helping their business so it really works both ways.

Michael:         

(44:48) Evangelos, you know we are just about out of time. Vala you’re being strangely silent.

Evangelos:      

(44:56)Well I was going to and I’m being very respectful of the time, but I was wanting to close by making one comment on KPI’s in particular. So I’ve worked with several corporations over the past two or three years around innovation as I said. And what I found is at corporations a lot of times confuse of what I term their operational KPI, you know what hub they measure their day-to-day performance with their innovation KPI’s. And I think that it is important for corporations to be establishing two different sets of KPI’s in order to measure performance.

(45:38)So they should continue with the operational KPI, but they really need to define a new step of KPI’s to measure innovation. I also think that as part of this innovation KPI’s a lot of times corporations use the number of patents applications they compile is a measure of how well they are doing in regards to innovation.

(46:05)And I have found this to be a misleading metric. They really need to establish they need to work and establishing a new set of metrics for that. I think for example from companies like Google, 3M make a good guidelines that they know how to measure innovation, or know how to create innovation KPI’s but we should not be confusing the two types.

Vala:   

(45:58) Michael I’m usually quite because we have one guest dropping lots of science on us and today its three so I’m just trying to keep up

Michael:         

(46:47) I know, it’s like both of us are trying to tweet but how do you do it.

Vala:   

(46:56) We have exceptional content for our up-and-coming blogs but yeah, very hard to keep up. Extraordinary answers, thank you all.

Michael:         

(46:02) You know I think we are just about out of time, but this has been a fascinating discussion and one that I hope both start-ups and large companies who are not here today, and hearing it live well turn to later. Because the amount of content that you have given us and the advice for both sides is fantastic. And let’s do this again either CXOTalk or maybe live and I hope you guys would be coming back for that.

(47:40) And with that we are drawing to a close on this week’s episode of CXOTalk. We’ve been talking about corporate innovation and start-ups and the relationship between large companies and start-ups with Evangelos Simoudis, who is a venture capitalist and an expert on innovation based in Silicon Valley. With Todd Schofield, who runs the innovation centre and I guess it’s like an innovation lab for large London based banks Standard Chartered Bank. And PhilippeMauchard, who is a partner with McKinsey and the co-founder of McKinsey Solutions. Vala, this has been awesome.

Vala:   

(48:31) What a great way to end a Friday afternoon. Thank you very much to all of you, thank you.

Michael:         

(48:38) Thank you so much and I want to thank everybody for joining us. Next week, we are joined with a great photographer and venture capitalist and investor named Christopher Michael and I hope you will come back for CXOTalk next week. And if you live in Boston like Vala and I do, we’re getting another foot of snow so enjoy, and with that we say goodbye. Bye bye.

Companies mentioned on today’s show:

TridentCapital:                                                www.tridentcap.com

Standard Chartered Bank                             www.sc.com   

McKinsey                                                         www.mckinsey.com   

McKinsey Solutions                                        www.mckinseysolutions.com

IBM                                                                   www.ibm.com

Amazon                                                            www.amazon.com

Apple                                                                www.apple.com

Salesforce                                                        www.salesforce.com

Blackberry                                                       www.blackberry.com

Google                                                             www.google.com

BMW                                                                www.bmw.com

3M                                                                    www.3m.com