These insights are based on a recent interview I did with Allagi, an open innovation service provider in Brazil.
What are the most important opportunities and challenges that open innovation brings to companies?
I think the below benefits are the most relevant for small as well as big companies when it comes to open innovation:
• Faster development and market launch of new products and services, which will build revenues, market share, and profits.
• More diversity brought to innovation, which will result in uncovering more opportunities.
• Improved success rate of new products and services by making the innovation process stronger.
• Diversified risks and the sharing of both market and technological uncertainties of innovation.
As companies embrace open innovation, they will find it to be rewarding, but also complex and challenging. These challenges seem to be grounded in three questions.
• What will open innovation do to your business model? In an open innovation world, you may end up working with anyone—even competitors. How will this impact your business model and alter your competitive landscape?
• How will your organization change to accommodate open innovation? What kind of collaborations do you want to engage in? What common vision and mission will you share with partners? Systems, processes, values, and culture across the company will need to be transformed. People who have spent their careers being internally focused must now focus externally as well. Change is resisted in many organizations, no matter their size.
• Do you and your organization really understand open innovation and what it takes? Silos can exist even in small businesses, meaning that even a small company may have problems with innovating internally, let alone doing so with outside partners. Leaders need to understand the impact of this movement—its opportunities and threats—and learn to adopt a style that optimizes trust, motivation, and performance. And they need to help their entire team understand the whys and wherefores of open innovation. This may be simpler in a small organization since it probably won’t entail educating hundreds of individuals.
What kinds of companies are capable of adopting open innovation processes?
Open innovation has been a hot topic among larger companies for a while now. This is true even in more conservative industries that have higher barriers to adopting open innovation, which include industries characterized by high capital investments, long product development cycles, and stronger focus on intellectual property rights (IPR) issues. Such industries also tend to be quite conservative which adds yet another barrier.
Imagine a continuum with two opposite ends. At one end, we have fast-moving consumer goods companies, many of whom have been early adapters of open innovation. At the other end, we have pharmaceutical or semiconductors companies, among others, which must deal with the higher barriers mentioned above. Yet even innovation directors in companies in such industries are trying to figure out how they can embrace open innovation. And certainly large corporations in industries without such constraints are exploring open innovation or have already adopted it as a part of their innovation focus.
Smaller companies play an important role in open innovation ecosystems as big companies that are taking the lead in open innovation hope to gain an advantage over their competitors by getting access to a more diverse inflow of opportunities, which can lead to faster and better innovation. Specifically, as they look to bring smaller companies within the orbit of their open innovation programs, corporations understand that small companies bring these advantages to the table:
• Small companies are often at the leading edge of breakthrough or disruptive innovation.
• Small companies can take risks that large companies can’t afford to take.
• Smaller companies are often closer to the markets they serve than large corporations are to their markets.
• Smaller companies are often more agile than large corporations.
Should a company with a profitable, but closed innovation model, consider opening up their innovation efforts?
Yes. Things are happening so fast today, and very few – if any – companies can maintain a position such as you describe for long. Innovation is a key element for sustained success and this innovation needs to be open and global. Entire industries rely on open innovation in order to get access to the best people, ideas and ecosystems in order to bring out better innovation faster. Companies with a closed mindset cannot compete against this for very long and if the open innovation mindset has not yet fully reached their industry, they should definitely see this as an opportunity to be a first-mover.
How can you transform the culture of innovation into an open model?
When I work with companies on this topic, I try to get an idea if they really have top-management support. If this is not the case, then they can just as well forget about the whole project. It will not work. We often talk about bottom-up or employee-driven innovation, but this is not really too big of an issue as many employees want to be engaged with innovation.
However, you have a big issue with middle managers who often end up hindering innovation just by doing their jobs. They have been told to reach certain goals and if they do so, they will be in line for a promotion, a raise and better bonuses. If you do not already have a system in place that engages them in the corporate innovation efforts – and rewards them – they will not be that willing to contribute to corporate innovation initiatives. They will focus on getting their jobs done.
Corporate innovation units must also understand that their key objective is to help the business units make innovation happen. They must act as facilitators on this and as integrators in bridging internal and external resources. Such a unit must also help develop a common language on innovation, educate all ranks from excutives down to employees and even external partners on how the company views and approaches innovation and they must help create the small wins that convinces the skeptics that open innovation holds a strong potential for the company.
As innovation becomes more and more important and as many companies claim innovation leadership positions themselves, how can we distinguish the best companies and recognize them as being truly innovative?
The marketplace will tell us which companies do well on innovation. The winners will have strong innovation capabilities that allow them to bring out better products and services and make more money doing this. On this, it is important to notice that innovation needs to be about more than just products or technologies. Processes will be equally important.
How can a government contribute to a national system of innovation?
They need to create the right framework and conditions for companies to innovate in an open and global way. How to do this varies and an approach depends on the specific challenges in a given country or region.
However, my experience tells me that they should try to minimize their work in this area rather than trying to control things. They should also adjust their perception of how much value universities and research institutions can bring to a global innovation marketplace. Yes, they are important players, but they are difficult to work with and this is only getting worse as the pace of business keeps picking up.
image credit: stimul8 & businesscafe
Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation.