The digital era has injected speed and disruption into innovation. At a time of accelerating change, innovation is an especially important skill. In April 2020, however, as companies grappled with the pandemic, the number of executives who listed innovation as a top priority fell by more than half, from 55 percent to 23 percent, according to a McKinsey survey. But companies that take their eye off innovation in the midst of a crisis are likely to miss rich opportunities. The same McKinsey research shows that companies that innovate through a crisis outperform the market by an average of 30 percent in the four-year period following.
One effective innovation approach in recent years has been to leverage the power of ecosystems—a network of external partners and service providers—to rapidly develop new products and services and expand into new sectors. Many companies, however, do not engage with ecosystems effectively because they either lack the experience or have a limited appetite for an often long-term timeline before seeing substantial returns. These issues cause companies to leave a potentially significant amount of growth on the table. McKinsey estimates that by 2025, ecosystems or integrated networks could represent a global revenue pool of $60 trillion, or roughly 30 percent of the estimated global economy, up from the 1 to 2 percent such networks account for today.
Harnessing ecosystems to innovate is often associated with tech companies like Amazon or Google, but the strategy can be just as powerful for companies in more traditional sectors. Majid Al Futtaim, a Dubai-based, regionally focused lifestyle conglomerate that includes a range of businesses—including retail, malls, mixed-use communities, hotels, cinemas, and entertainment—is a case in point.
As Joe Abi Akl, Majid Al Futtaim’s chief corporate development officer, said recently, “Last year, we doubled down on our ecosystem strategy and wide stakeholder-engagement approach, given the increasing importance of open ecosystems in driving innovation and, more importantly, growth.”
The following article is an exploration, based on discussions with Abi Akl, of how a large business can successfully and quickly innovate through a thoughtful digital-ecosystem approach.
Starting with a bold vision
Despite the short-term challenges of the pandemic, in 2020, Majid Al Futtaim set itself a clear tenfold growth ambition over the next decade.
As Abi Akl says about Majid Al Futtaim’s goal, “This is not simply about hard financial-growth targets, though we do obviously aim for outperformance. But more than that, we remain focused on expanding our relevance with all stakeholders, scaling our business across existing and new footprints, and, above all, being a company that has a long-term sustainable vision.”
To achieve this bold ambition, Majid Al Futtaim has developed a growth strategy based on three pillars:
- Expanding into new verticals: Majid Al Futtaim continuously pursues diversification opportunities that complement its existing businesses, allowing it to drive synergies and deeper customer relationships. Recent examples include food manufacturing, vertical farming, fintech, and wellness and lifestyle.
- Accelerating digitization of existing businesses: Besides rapidly scaling e-commerce across businesses and geographies, Majid Al Futtaim drives a wide range of digitization initiatives to fuel growth. These include proprietary technology to develop a common voice interface for all of the company’s digital assets and a “lifestyle digital concierge” super app that integrates all of Majid Al Futtaim’s diverse products and services in a single customer interface.
- Monetizing digital assets including data and analytics: In a recent addition to its growth strategy, Majid Al Futtaim is moving to build revenue streams across data, insights, platforms, advisory, and adtech. One early move has been a recently announced partnership with retail-analytics provider Dunnhumby to generate insights for Majid Al Futtaim’s retail partners, which is expected to drive significant bottom-line impact in coming years. Over time, Majid Al Futtaim aims to build an open ecosystem of data and platforms, and aspires to create a new billion-dollar vertical for the group.
Setting (and staying) the course
Innovate fast, stay ahead, work the ecosystem
One of the paradoxes of managing companies in the digital era is the need to both move fast and have patience. New technologies and potential disruptions are emerging with increasing frequency, which require companies to move fast. At the same time, companies need to deliberately set and stay true to a long-term vision. Balancing those seemingly opposing goals is an enormous challenge. The skills and mechanisms that work for one usually do not work as well for the other.
Majid Al Futtaim has managed to strike the right balance by turning its holding-company structure into a strategic advantage. Executives at the holding-company level have a broad view across the entire business portfolio and act as strategic orchestrators for the entire group. On the one hand, they work with business leaders to maximize value creation, for example by sharing best practices across the group or facilitating capital allocation. At the same time, while the business units focus on growth and managing day-to-day operations, the holding company looks past short-term volatility to maintain a strong focus on long-term strategy. One way it does this is by identifying promising new opportunities in adjacent sectors and pursuing them by kickstarting new business ventures in service of the long-term vision. Abi Akl describes the role of the holding company as “a strategic architect and the incubator of new and enabling capabilities that are needed to support the transformation of the core business as well as the creation of new verticals that complement existing businesses.”
This balanced approach helped Majid Al Futtaim to respond swiftly in the midst of the pandemic. To meet the massive rise in e-commerce demand for its Carrefour stores, executives at Majid Al Futtaim launched its largest e-commerce fulfillment center and a network of automated micro-fulfillment centers. At the same time, the company continued to invest in innovation and future growth, including the recent launch of a new retail concept that combines experiences, products, and services. To support this commitment to innovation, they have committed to structural capital reallocation based on a view of the post-pandemic future.
Working the ecosystem
Importance of ecosystems in driving innovation and growth
Given its experience operating as a conglomerate with a range of businesses, Majid Al Futtaim already has ecosystem skills built into its DNA. This has enabled the company to bring together disparate businesses and capabilities to develop new products and services quickly and to extend these skills to activating the external ecosystem. It often brings funding resources, strategic oversight, and management expertise to its partnerships with start-ups that have unique skills, digital products, and an entrepreneurial mindset. This approach allows Majid Al Futtaim to bring to bear its own experience while taking greater advantage of innovation outside its organization.
“The core question for us always is who to partner with, in what capacity, and to serve which strategic objectives—and this is becoming even more important as ecosystem thinking becomes prevalent and other organizations start moving in this direction,” says Abi Akl.
For example, in 2020, as the pandemic raged and customers spent more time at home, Majid Al Futtaim decided to provide its customers with a broader set of aftersales and home-management services. After deeply evaluating the options, the conglomerate partnered with a UAE-based start-up called Mr. Usta, a home-services provider. At the same time, a partnership in Egypt provides customers with the ability to buy now and pay later. Both of these new services are attractive to Majid Al Futtaim’s large customer base on a standalone basis, but are also being cross-promoted—with plans for tighter integration—to support sales at its Carrefour retail business.
With this momentum, Abi Akl emphasizes Majid Al Futtaim’s focus on developing “asset-light” business opportunities that build on both its existing assets and its new partnerships. One example is franchising the company’s intellectual property, such as its unique indoor-skiing concept, to players in other regions.
Extending foundations for new ways of working
Engage the organization in the innovation agenda
To support scaling innovation through partnerships, Majid Al Futtaim is scaling its internal capabilities by:
- Investing in talent as a competitive advantage: Majid Al Futtaim has extended its efforts to recruit new talent from across the region by also finding people with skills that are relevant to ecosystem growth, such as managing strategic partnerships. It also continuously nurtures its talent base so it has the flexibility to address new business challenges across its ecosystem—for example, reskilling cinema frontline workers during the pandemic to work in the e-commerce fulfillment team for the retail business, or upskilling data analysts into data scientists for the new data-and-analytics vertical. Majid Al Futtaim is able to build on its solid foundation of training centers to provide this focus, including its School of Analytics, School of Great Moments, and its Leadership Institute.
- Developing scalable digital capabilities and platforms: To capture and scale the full benefits of the ecosystem approach, Majid Al Futtaim has invested in a platform approach that makes it easier to scale and share capabilities. These include, for example, dedicated centers of excellence, such as a common shared-services center, and the newly formed Digital Labs, with the goal of accelerating the development and dissemination of digital products across its businesses. Some recent outcomes include a groupwide data lake; MAF Pay, a payment option to be embedded across all of Majid Al Futtaim’s digital assets; and Share, Majid Al Futtaim’s recent groupwide customer loyalty-and-engagement platform.
- Championing a learning culture: Majid Al Futtaim focuses on experimentation at all levels, starting from the CEO. This includes actively promoting an internal return-on-experimentation metric and adopting agile ways of working across the organization by supporting collaboration and creativity in cross-functional teams. The company is extending this learning culture across its partnerships with a focus on experimentation and rapid time to market.
- Agile capital allocation: Majid Al Futtaim frequently reallocates human and financial capital toward the highest-return opportunities across the group. The holding company constantly monitors the needs and progress of existing businesses as well as new partnerships, which allows it to intervene with resources when necessary to bolster success.
This ecosystem approach is central to making successful innovation a companywide priority, and it requires committed efforts to engage the broader organization. “Innovation cannot remain purely the domain of a few experts in small centralized teams,” says Abi Akl. “A company with the size and presence of Majid Al Futtaim counts on all its ‘MAFers’ and external stakeholders to shape and drive the innovation agenda.”