A Safe Approach to Open Innovation for Big Companies

Posted by jartese on Apr 29, 2014 10:48:29 AM

by Stefan Lindegaard

Most companies have embraced open innovation today, but their efforts are still very different. Some get it, some don’t and some are still trying.

I would guesstimate that about 20% of the bigger companies (more than 500 employees) understand open or external innovation in the sense that this is no longer a novelty within the company, but an approach that is now a key element in their innovation efforts. They are still experimenting with the right approach and the mix of internal and external resources, but they are on track to make this work.

This is driven by strong onboarding teams (the first point of contact for external innovation partners) and these teams have also made a good impact on the internal business units that are starting to see the benefits of this external input and thus have begun to incorporate it into their business and innovation efforts. They are clearly getting beyond the “not invented here” syndrome, which is a huge hurdle to overcome in many companies. A key reason for this development is that this new paradigm of innovation has a growing acceptance and understanding among the senior executives. They work with you, not against you.

Some examples are General Mills, P&G and LEGO. You could also add P&G here, but they are actually even further ahead. They are getting to a point where they do not really differentiate between internal and external innovation; it’s all just innovation.

About 70% of the companies are curious about the idea of merging internal and external resources for their innovation efforts. They have been experimenting for a while, but they have not yet fully committed in terms of resources and, more importantly, by giving this the recognition, attention and support needed to succeed. A huge majority of these companies will be pushed to the next level out of two reasons; they get more internal traction, which gives them a bumpy, but steady and faster-moving path to even more innovation success, or they are pushed to re-wire their entire approach as they feel the impact of their competitors being successful with open innovation. The latter will be a more difficult and painful approach, but a competitive threat can force the right decisions to be made.

An example here is the medtech industry, which in general is lagging with their open innovation efforts. This is a puzzle to me as they innovate across an intriguing mix of technology, products, services, processes and business models, which is a perfect setting for open innovation. The medtech companies that crack the approach to open innovation success in this industry would be positioned to create some interesting competitive advantages in the coming years.

This leaves us with about 10% of the big companies that for a variety of reasons (but to a high degree due to poor leadership) do not really get open innovation. I will skip this part because until their leadership wakes up, there is not much one can say about these organizations. So let’s move on to my key message in this blog post.

Internal open innovation – a way to experiment and grow

There is a safe approach to open innovation that allows a company to experiment with their efforts and processes and in which mistakes and failures are not as critical as they could be otherwise. We can call this internal open innovation.

Big companies have several business divisions and even more business units. Do they innovate together? Yes, but not as much as they could. I am often amazed to learn about the lack of coordinated innovation efforts between business divisions and units within the same corporate structure. More often than not, they seem to be more like competitors than partners.

On a specific experience, I was working on a project with the goal of driving more internal innovation and it was quickly realized that there was a huge potential in what we called the “white space” opportunities. The white space is the cracks between the different divisions and units where no one is really in charge and thus the managers of the respective businesses are more likely to kill potential innovation rather than moving it forward. Remember that middle managers are hired to get things done (reach their objectives) within their unit and thus they do not always see the big picture.

innovation @work

You can argue that their bosses – the business division or unit leaders - should see this bigger picture and thus bring along opportunities for the overall company even though this does not necessarily help his or her own area of responsibility. This is not always the case either. Besides focus on their own efforts – and results – I also suspect a lack of understanding with regards to innovation on this level as a key reason for this situation.

To tap into these white space opportunities, you will need a dedicated team that works across divisions, units and functions without carrying the weight of past investments and vested interests. They must be able to judge the opportunities with a fresh perspective.

The white space ideas and projects they set out to unlock most likely fall into an in-between category of incremental and radical innovation. This is also where I think many companies can get the best return on their innovation investments. You can leave the incremental innovation to the business units and you can establish protected, arms-length structures for radical innovation, but while the latter is very difficult to achieve, you are in higher control of the input, processes and outcomes related to the innovation projects that fall in between incremental and radical.

We can also consider this to be on the adjacencies of the core, and this is also where open innovation tends to be the most successful. Now, you have a great place to start with your internal open innovation initiatives.

Why is this relevant? First of all, you are able to identify new business opportunities that have a good chance to succeed as you already have a head start on solving the internal issues related to bringing innovation to market. This is a strong value proposition in itself.

Next, you also get a safer environment to experiment with your future “external” open innovation efforts. You can learn a great deal by trying to get the internal divisions to work together and if you create a process not only to make this work, but also a process to learn from the experiments – both successes and failures – you will be much better prepared to work with the external innovation stakeholders. Actually, this focus on learning should be one of the stated objectives when you start internal open innovation initiatives.

How similar is the process of working with internal versus external open innovation? I would say you face 60-80% of the same challenges with internal open innovation as you do with external open innovation. Yes, your internal teams already know each other and you have a big benefit as the intellectual property being used or co-created is owned by the same corporate structure, but you will still have lots of challenges in making this work.

Some examples of companies that focus on internal open innovation like initiatives include Siemens and BASF which work hard to create strong knowledge management and sharing systems that can support their innovation efforts. 3M is another example although they are a good as well as bad examples. Did you know that 3M has more than 40 technology platforms that work across their business units? This is a very powerful innovation tool and it has brought them a great deal of success. However, we do not hear much about 3M and open innovation. Maybe they believe too much in their internal capabilities? Maybe they have too much of a “not invented here” culture?

The good thing for 3M is that they have lots of potential for further growth through innovation once they really start embracing open innovation. Once they get the right mindset for this, it will not be too difficult for them. They have lots of practice and processes in place from their technology platforms.

Your company also has lots of potential with internal open innovation as well as with open innovation itself. Are you ready to unlock this?

Topics: Innovation Insights

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