Leveraging outside innovation
In the 1980’s, approximately 70 per cent of industrial R&D took place at companies with 25,000 employees or more. That fell to 37.6 per cent by 2005. In 2005, companies with fewer than 5,000 employees accounted for 39.6 per cent of industrial R&D, up from 10.5 per cent in the early 1980s. This trend means that it will be harder for large companies to compete if they do not have a monopoly on top talent. Smart companies will move toward creating “innovation farm teams” that can leverage their larger channels to create a mutual benefit.
Corporate R&D spending is down in 2010, which strengthens the argument for the current trend and must inevitably lead to a drop in innovation output for quite a few larger companies. However, there are many leading innovative companies that have been able to buck these trends by collaborating more with external partners, using the principles of open innovation vs. closed innovation, where all innovation comes from within the company. Open innovation is becoming an imperative as companies seek to offset cuts in their own R&D budgets by soliciting help from outsiders, including customers, suppliers, and freelance experts.
This presents a few questions. What are some of the mistakes companies make while pursuing open innovation? What are some of the things a small company should consider when thinking about participating in open innovation? How do we manage the open innovation process?
Open innovation guru Stephen Lindegarrd spends most of his waking hours working on open innovation, its implementation and the ramifications of leveraging this process within firms, large and small. He recently commented on things that small companies should consider before engaging in the open innovation process.
According to Lindegarrd, “When considering open innovation opportunities, small companies should take a step that I fear too many skip: doing their homework to learn as much as possible about the corporation they are about to join forces with, particularly with regards to that organization’s history of dealing with smaller companies. This may be particularly apt to happen if a small company is approached by a larger one instead of the other way around. It can be hugely flattering to have, for example, a Fortune 500 firm say they’d like you to be part of their open innovation eco-system.”
Doing your homework has other benefits as well. The more you know about a potential open innovation ally from the get-go, the better prepared you will be to understand how your company might be of help to the larger company. This means you will be better prepared to showcase your firm’s assets. You’ll also have knowledge that will be valuable when both sides are trying to set the goals and objectives of the relationship.
One of the founding fathers of open innovation, Ben DuPont, also points out some of the mistakes companies can make with the implementation of open innovation into their firm.
DuPont outlines these considerations.
1. Culture—Changing the culture to be receptive to outside ideas and technology requires more than one speech or memo. Changing the culture requires changing work habits and changing incentives. 1) Every employee should be, looking for external ideas monthly. 2) Technology leaders should be; looking for and evaluating external ideas weekly. 3) Open innovation leaders should be; looking for, evaluating and championing external ideas daily.
2. Shopping Lists —Business units should have quarterly process for gathering the most critical and pressing needs, the shopping list should be aggregated across business units and the combined list should be widely available inside the firm. The process should be done bottom up annually, and it should include patents. Few companies manage this well.
3. People —The best scientists are not frequently the extroverts. Find the ones who are and name them the OI Champions. Find the person with friends in every business unit and name them head of OI. OI is about people. Most companies fail here too.
4. Staffing the Fire Hose—This is the place where companies underestimate and fail the most. World leaders in Open Innovation have a well oiled process for evaluating hundreds of leads, and drinking from the fire hose of the emerging technology market. Most companies fall in love with the first few technologies that are close, and stop evaluating others. Most companies fail to use retired scientists, engineers and university researchers to manage the new technology evaluation.
5. Building relationships—There is grace in the polite ‘no’, and most companies fail at this. Bright scientists who submit ideas, that did not quite make the hurdle, are frequently treated poorly. Open Innovation leaders need to be thinking of establishing a corporate farm team. Like in Baseball, major league teams will have farm teams to test and develop new technology. A good group of corporate farm teams will be a wining innovation strategy. Corporate farm teams consist of smaller companies, companies in different regions, venture capital firms, universities and government labs.
Smart small Canadian companies have noticed that they should be finding ways to engage customers all over the world as domestic markets may stifle growth and could cause competition blindness, leading to serious consequences. We were recently working with a company that in 2007 had a significantly unique innovation. By 2009, not only did we find an innovation that was an order of magnitude better, it was also cheaper. The company had no eyes out in the international market and as a result they were blindsided into obscurity. This is also a cautionary tale for large companies that don’t pay attention. Ask the folks at Borders how they feel about e-readers now.