Recently, I participated in MIT CISR’s Summer Session, where Alan Thorogood presented compelling research on xTechs and the impressive impacts they have on large organizations. Per his presentation, xTechs are “businesses that use technology to modify, enhance, or automate an area of services for organizations or consumers.” Think Fintech, RegTech, InsurTech.
In the same session, Alan talked about a phenomenon he dubbed the “Hug of Death,” where larger organizations over-engage their technology partnerships to a point where the xTech is unable to focus on the consistently evolving, quick-to-market solutions that make them valuable. While having seen this happen many times, until Alan’s presentation, I’d never heard it articulated in such a perfectly succinct way.
How can xTechs and large organizations work together? How can they form symbiotic relationships that allow both groups to continue to grow?
The Intricate Dance of xTech and Large Organizations
These relationships reveal an interesting paradox. On the one hand, for xTechs, particularly those in fintech, rapid growth is paramount. The fintech must demonstrate meaningful customer, fund, and transaction growth to attract the capital investments necessary for long-term success and viability.
On the other hand, large organizations must balance the xTech’s urgency with their own set of challenges: regulatory compliance, brand risk mitigation, avoiding product cannibalization, and the often painstakingly slow process of scaling and stabilizing new products and processes.
The tension does not only exist when things go south; it often intensifies when things are going exceedingly well. When a large organization is able to engage its xTech’s resources to solve issues around compliance, scale, integration, or change management, the xTech is left unable to prioritize delivering what they do best: driving operational efficiencies and improving the user experience by deploying and iterating on their platform. Enter: the “Hug of Death.”
Four Strategies for Strong Technology Partnerships
So, how can large organizations prevent doling out this “hug,” and what can xTechs do to sidestep it? Here are four key steps for both parties to consider.
1. Consider Standalone Launches. Rather than integrating the product with core business platforms and technologies, consider launching it standalone, either through the large organization’s platform or the fintech’s. This enables speed to market, value assessment, and easy separation, if needed.
2. Invest in an API Layer. An investment in the API layer allows seamless integration with core business systems without disruption. In a climate of booming technology growth driven largely by AI, a robust API layer has become increasingly critical to meet customer demands.
3. Start Small and Iterate. Often, the “Hug of Death” is a result of a growing or over-ambitious scope, resulting in an intense dependence on a variety of business functions. This can lead to schedule delays, internal collisions, and skyrocketing costs for the large organization. Instead, the large organization should fund and execute small projects with strong business cases. Learn from each and repeat.
4. Align Strategic Goals. Though it seems obvious, aligning strategic goals is crucial yet frequently overlooked step. Early in the process, define whether this is a transactional relationship or a strategic partnership. Ensure your strategic goals support each other.
By adopting these strategies, the “hug” in your partnership will feel more like an embrace from your favorite grandparent, rather than a chokehold.
Creating an intentional partnership with clear expectations will enable your company to better position itself for success. If you’re curious about specific steps you can take when developing a new partnership, or if you need help defining the roadmap to long-term organizational success, fill out the form below to connect with one of our consultants.