March 30, 2016

Hackathons and internal startups—hype or necessity?

Joni Lehtonen

, Kone

“Why don’t we just focus on our core business and forget all the hackathons, experiments and sprints?” This could be a common managerial question in any established company. But is the internal startup culture hype or a necessity?

Have you used Compaq computers? Have you ever taken a Pan-Am flight? Did you sit in a back seat of an Oldsmobile sedan in your youth? Have you connected with other people via a Nokia mobile phone?

Some of us experienced these iconic brands when they dominated their marketplaces. Each enjoyed highly valuated positions in the Fortune 500 list, but over the decades, these brands have completely vanished. Literally speaking, they do not exist anymore.

Each of these companies has been outcompeted by a disruptor that was able to identify a discontinuity in a particular business environment and then change the rules of the game or perhaps the entire game itself.

There are several typical reasons for disruptions: sudden regulatory changes, new value derived from a redesigned value chain, trends and changes in consumer behaviour, global crises in the supply of raw materials or resources and conflicts between countries like wars or trade barriers.

Under these circumstances an organization can find new opportunities or adapt to the changing business climate more quickly than others, thus filling a vacuum of unsatisfied demand or underserved customer segments. This is what ultimately forced those iconic brands like Compaq and Pan-Am from the marketplace, and this is only going to happen more rapidly in the future.

Nowadays there is another root cause for discontinuities, and it is actually disrupting industries more dramatically and rapidly than ever before—digitalization.

According the Moore’s law, computing power doubles every second year, and this also applies to other types of technological advances like those in connectivity, storage, memory, and even the number of skilled,  ‘digi-native’ workers entering labor markets. Thus, digitalization (or technology in general) can drive non-linear growth in every industry.

Typically the established companies who have always created their fortunes by producing physical products employ an incremental approach to revising their corporate structure and culture. Over the years, these companies grow, building on their success in a linear fashion. A dedicated, secret, closed, internal R&D organization has been one of the most important assets for such companies.

However, this product-centric incremental approach is not a naturalfit when non-linear development can occur. Product-centric organizations with great company histories are also carrying a huge burden from their pasts. Their corporate memory instructs them to resolve their problems and dilemmas as they always have becausetheir old product-centric thinking has always solved their problems very well.

In the new non-linear development realitythese companies tend to use the same product-centric thinking with incremental improvement as a solution to new problems. Unfortunately, modern businesses are positioned in a new battlefield filled with agile new competitors.

What should established companies do?

Establish companies should be, on one hand, prepared to evolve more quickly than ever before, but on the other hand, continue with the existing mainstream business for which their brand is recognized. In the future, companies must drive two plans forward in parallel under what may be called a duality challenge.  

Duality in this context means that businesses need to establish new types of processes that observe the disruptions and generate experiments that quickly solve them. Yet, this needs to be done in parallel with the old good development processes such that each approach complementsthe other rather than replaces the other one.

Internal startupsare an excellent way to drive new agile models for growth and core competency development. Legacy elements can be combined with new digital capabilities in order to leverage business domain knowledge in a way that provides the best of both worlds. While maintaining the core strengths of a company, internal startups provide fertile soil for growing new ideas that would not be possible inside traditional established structures.

Accordingly, established organizations need to be ready for this new type of competition and continuous non-linear innovation. Startups and hackathons are powerful tools for this purpose because they promote future business success by creating software within a short lifecycle, at a high renewal frequency and with a big business impact.

Some companies are already monetizing new opportunities, while others are still considering what to do. Experiments can be started now because they are low risk–high reward options for identifying new sources of nonlinear growth.

Markets are being disrupted by tiny newcomers every day, and no one can predict the next Pan-Am or Oldsmobile until it is too late. Through well managed internal startups, large companies with impressive traditions can grow through traditional linear processes while leveraging a digitally empowered culture of innovation. The success of hackathons and other exciting experiments proves that the next big thing can even come from a giant international corporation. Startups and hackathons have so much hype precisely because they are necessities.

Find more information about Industrial Internet and its possibilities in your industry. Get familiar also with our strategic innovation program Tieto Exprience Hub having some examples of hackathons we have runned together with our customers. 

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