- Open innovation involves the interaction and exchange of ideas, resources and expertise between internal stakeholders and external sources
- Organizations can boost their capacity for innovation if they can leverage collaborations
- The stigma attached to failure must be eliminated for an internal culture of innovation to thrive
- Businesses should prepare for the ways innovation can create paradigm shifts and disrupt the market
Although it has been less than two decades since Henry Chesbrough introduced open innovation, it has already established a steadfast presence in corporate culture. And yet, many companies still struggle with these types of collaborations. With expert guidance every company can effectively plan collaborations which successfully implement innovative practices for business growth and improved performance.
Open innovation level 1: sharing
What is open innovation? It is the process through which an organization shares ideas, expertise and resources with external sources so that together they can generate value and growth. These are collaborations which rely on the involvement of both external and internal resources for the innovation of products, processes, business models, etc. Open innovation can be implemented to address far-reaching issues as well as small-scale projects.
Even if relying on a singly entity’s resources to tackle vast challenges was possible in the past – like with the 1969 moon landing project – it is no longer possible in the current climate. It is now increasingly difficult for an organization or business to acquire the talent and technology necessary to launch large-scale projects independently. Today’s global health, social and environmental crises rely on public and private collaborations for resolution.
Companies generally start the open innovation process by searching for the right partner for collaboration. Well-established companies often look within their sector to build relationships with startups which are developing innovative products and services. But open innovation is not a one-way street: each partner must share their knowledge and resources with one another, and for some, this can be a real challenge.
Unlike startups, mature firms need to defend their market shares. However, it is in their critical interest to focus on creating value rather than increasing their existing market shares. It is important for these companies to protect their value and assets while sharing as much as possible with internal and external partners. The pooling of resources will ultimately create new opportunities for everyone.
In 2014, Tesla embraced this approach by removing their patents, thus allowing anyone to replicate and profit from their technology.
“Tesla Motors was created to accelerate the advent of sustainable transport. If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal.” – Elon Musk, CEO of Tesla
Rather than being afraid of competitors, Tesla sought to stimulate the electric vehicles market by allowing others to use their technology standards. Has this stifled their profitability? On the contrary, Tesla’s revenue has continued to grow exponentially, multiplying tenfold between 2014 and 2020. Strategically sharing knowledge to disrupt the market can be both virtuous and commercially successful.
However, this method is not necessarily appropriate when companies are facing strong competition and are seeking to innovate incrementally. In these cases, disclosing proprietary information would be detrimental. Open innovation should consequently be used in a different way: companies can generalize an issue and approach stakeholders from other industries for guidance and advice.
Companies in this situation can be found at Innovation Makers Alliance’s (IMA) DO Tank events. Businesses come and share their expertise on specific industry trends, such as low-code software development approaches, technology radar, and blockchain and GDPR compliance. Each participating firm benefits from sharing their experiences and providing and collecting recommendations, as well as identifying converging needs. Moreover, this is all accomplished without disclosing strategic and proprietary information. As IMA states, ‘It is about giving in order to receive and thus progress collectively. We do not come to attend a conference, we come to contribute to a community.’
Open innovation level 2: promotion
Breaking new ground is not only about letting a few internal stakeholders exchange ideas with external sources. For a truly significant impact, it is important to ensure a culture of innovation thrives within the organization itself. For long-lasting growth and expansion, it should be possible for anyone within an organization to become part of a new collaboration.
There are many ways to foster a healthy culture of innovation. Common strategies include building an innovation lab, presenting annual innovation strategies, organizing regular hackathons, and encouraging participation in innovative projects.
One of the most successful approaches to spreading a culture of innovation is one which is frequently overlooked – actively empowering middle management. Why is this approach so impactful? These managers are in a special position in every company; they are aware of short and long-term constraints and are also in direct contact with (potential) innovators. But how can companies empower them?
- Decentralize innovation by teaching local managers innovation techniques so that they can empower those around them and support individual initiatives.
- Consider implementing incentive models which keep managers accountable and actively involved in the innovation process. Allianz UK established an Innovation League Table which engages managers by grading the relative performance of each of their divisions.
- Determine which skills are important to nurture within middle management. Managers should be able to motivate and inspire, provide clarity and focus, and manage organizational change seamlessly. These leadership skills can be evaluated in the hiring process and further cultivated in onboarding and training sessions.
Strengthening a culture of innovation will undoubtedly create value and expand opportunities for organizations. An essential part of this culture, however, is a tolerance for failure. Innovation, by definition, involves dealing with new products, services or processes, which does imply risk. It is important that losses do not deter talented people from launching new ideas and projects. To properly secure a culture of innovation, it is thus essential to reduce the stigma surrounding failure. How can this be achieved?
- Exempt a new team or a new product from the company’s usual KPI for a predetermined duration. Kordsa, a global tire reinforcement technologies company, does not require its new businesses to meet financial requirements during their first five years in operation.
- Implement Proof of Concept (POC) and Minimum Viable Product (MVP) tools to determine the viability and profitability of products prior to full investment. Both of these processes ensure better stakeholder oversight and provide a safer and faster way to fail.
An organization’s ability to evolve is integral for their continual success. Provide adapted tools, processes, and talent management systems which allow for innovative projects to grow and find their rightful place beside well-established activities. Nonetheless, long-term growth requires acceptance of set-backs and failure. The key is to learn from losses without becoming disillusioned.
Open innovation level 3: anticipation
Whatever is being developed through open innovation must be able to leverage or create market trends. Take the example of Kodak: after inventing the first ever digital camera in 1975, they reached their peak the next year, followed by a decline which eventually resulted in their filing for bankruptcy protection. This downturn was largely due to their inability to create a successful business model which accounted for people shifting away from printing photos and towards online photo sharing. Their creation of a truly innovative product was not enough to protect them from inadequately adapting to a new market.
Companies need to be able to anticipate the scaling phase of new projects if they want to truly benefit from open innovation, and executives should be prepared for innovation to disrupt their current business model.
Indeed, most well-established companies will eventually be confronted with the innovator’s dilemma: what do you do when the old business model is doomed, but the new model is not guaranteed to succeed?
As explained by Philippe Silberzahn, professor at Emlyon Business School, the ability to innovate ultimately comes down to having a resource allocation mechanism which allows a company to manage several business models simultaneously. According to Harvard Business Review, it is also important to recognize when two business models are complementary or whether one should replace the other.
Even if an innovative project can be managed by a small team using limited resources (internal and/or external), the output cannot be delivered at scale without effective use of a company’s resources and talent. A real commitment from dedicated teams and partners is necessary for a new process, product, or service to flourish.
Often more than 50% of funds are released in product development only after the POC or MVP has been tested. With this in mind, to move from early adopters to the mainstream, organizations will have to tackle two main challenges:
- Specify at an early stage how an innovation could integrate into the company’s activities (production, distribution, maintenance, etc.).
- Innovators must think about how much money they might need in the long-term to adapt to new market trends, changing consumer expectations, etc.
The open innovation process is not an easy or simple path for companies to take: it relies on multiple elements which need to be handled strategically. Recognizing the right method to exchange knowledge and resources will help businesses boost their capacity for disruptive or incremental innovations. Overall, businesses will certainly benefit from leveraging external resources, empowering staff to embrace innovation culture, and raising awareness on the importance of adapting with the market.
Part of the Mantu ecosystem, the Mantu Innovation Lab has extensive expertise in innovation and collaboration, allowing clients and partners to innovate and create solutions for a better tomorrow. With our support, organizations can successfully implement transformative ideas and maintain innovative industry partnerships.
Innovation Project Manager
at the Mantu Innovation Lab