Open Innovation: “The Brave New World”
Let’s start with a short perception test: What do you see in the picture below?
A) A hospital, introducing its team of physicians;
B) NSA technical team, responsible for wiretapping the world;
C) A world-renowned R&D center;
D) The postdoctoral fellows of a global university.
If you’ve opted for C, you are right! The picture was taken at the Bell Labs in the 20th century, a period of “Closed Innovation” when new ideas were generated only by large corporations behind closed doors. A picture is worth a thousand words, and in this case, the frame reflects how confidentiality was understood - a mindset obsolete in today’s world.
Because today we live in the era of “open innovation” with doors wide open – in a brand new brave world…
In this new world, information is accessible to everyone.
Innovations happen when new and entrepreneurial companies (start-ups) partner with large corporations. While organizations that interact with the rest of the world are leading the field, those that continue to use conventional methods are lagging increasingly behind.
Now let us briefly look at the reasons why open innovation is the “new and lasting” formula for success in the business world.
What is Open Innovation?
Despite numerous books written on the subject, open innovation is still a relatively new but critical business trend gaining momentum. In a nutshell, it is innovation coming from inside and outside of the company to be used internally and externally. It is hard to be open as it triggers many concerns such as “What if others copy me?” “The competition will see my weaknesses, what then?” “Why license my patent if I won’t use it myself, and let the competition have it?” Just like a boat that cannot leave the shore, in time such fears start to increasingly constrain the playing field. Only organizations that embrace open innovation can bravely sail out into the open sea.
- Position their technology teams as ones who do not only “generate ideas” but “find and combine the best ideas available internally and externally”. The major difference is that they do not try to generate the best ideas in-house!
- Do not view errors as failures when trying out innovative ideas, but accept them as part of the learning process;
- Create a difference not by being first in market with the best product, but by rapidly trying out and executing the best business model. There they attach great importance to partnering with new/small companies (start-ups).
All cards on the table...
I think the best analogy to compare cultures of closed and open innovation is that of “chess vs. poker”. In chess, one knows all the pieces and the board. Chess is a “closed” system, there is no new outside information. In poker, on the other hand, you stake money, change cards, lay them on the table as you play… You exchange new information; your sources change continuously depending on your competitors. This information is extremely valuable for good players. In other words, it wouldn’t be wrong to say that managers, who want to create a difference through innovation, should be like good poker players, reaching beyond the competencies of a closed chess system.
The inevitable cooperation of "The Big with The Small”
Talking about innovation, the first thing that comes to mind is Silicon Valley that keeps delivering new entrepreneurs and technological success stories in our age.
When you spend some time on this fertile ground of entrepreneurial spirit, you see everyone’s goal is to start a business… Most of them have academics as active partners in the business to make the best use of technology. Everyone is looking out to receive funds from a venture capital, and eventually be acquired!
The lion’s share in the rapid growth and market access of these new companies comes from “large corporations”. So, what is it that increased the appetite of big companies? The experience of General Electric (GE), one of those large corporations whose name comes up frequently here, very aptly explains the scale of this transformation:
One of the leaders of the conventional energy sector, GE knew it had to approach individual entrepreneurs and start-ups in order to be closer to developments in the renewables segment where innovation was actively taking place. However, GE had an adaptation issue: The corporate culture and processes of the large organization that were geared toward scale and efficiency were not suitable when working with such small companies. To overcome this hurdle and improve its culture of working with start-ups, GE organized an online competition open to everyone (crowdsourcing). The company took a gigantic step toward open innovation by receiving nearly 70 thousand applications from a diverse group of entities from individual entrepreneurs to university R&D centers, and gathering many innovative ideas. That also marked the beginning of a new era for the company’s employees: For instance, how did the organization have to manage its relationship with these 70 thousand separate entities to improve its success in innovation? The incoming suggestions on a new business model and market were way beyond the structures the company was used to; where and how was it going to build on these opportunities?
This very experience of GE shows how large corporations both approach the world of the start-ups, and are forced to create a new organizational culture and interface to collaborate with these entrepreneurial entities. However, one thing is for certain, the big and the small increasingly learn to and do collaborate. Research also confirms that companies have increased their use of innovative tools dramatically.
What, then, should be done, what is important now to internalize open innovation in our companies, and to start implementing it in such a way that it lasts?
- Innovation map: First, we need to draw our innovation map by looking at the timeframe of our current innovation activities (short-/medium-/long-term) and their alignment with our existing business model. Then we have to divide this map into three horizons, namely core business/emerging business/future business (see template below). If most of our work evolves around our current core business, the impact of open innovation there will be relatively low. The main influence of open innovation is pertinent in emerging and future business. In short, if we want to be more ambitious in emerging and future business, open innovation seems to be the ideal solution.
- A new language, “LEAN START-UP”: By now it is well established that emerging and future business development is not in tune with the complex planning and control culture of large corporations. This is exactly the reason why innovation fails to survive in many organizations. A new language is needed for novel endeavors and, consequently, for working with entrepreneurial companies, and it is called “lean start-up”. Lean start-up could be summarized in the following three steps:
- Develop new business model hypotheses using the business model canvas.
- Rapidly develop the leanest/simplest product and get early feedback from customers.
- Using the lean development methodology, execute the product development process with fast and frequent updates to accelerate commercialization.
- Start experimenting! Now it is time to roll up our sleeves and get to business either by crowdsourcing, start-up competitions or supplier innovation days, or directly by experimenting with open innovation fearlessly and undauntedly. It’s high time we joined this movement that started about 10 years ago.
Right, it is essential to talk a new language, and this signifies a major change for big corporations. And just like for all other major changes to succeed, it is one of the imperatives that the top management personally learns this language, and strongly supports its promotion.
Since most of the industries in our country are in search of a way to increase competitiveness and added value, it seems one critical item on our agenda is to accept and adapt to the fact that success in this brave new world will come from the development of an “open business culture”. If companies take the world as a reference and embrace the open innovation culture, and the state gives priority to new innovation clusters that focus on the fundamental needs of our country, rather than to industry clusters, we, too, can position ourselves in the open world of the 21st century.
I hope that being open and living boldly brings success and leading innovations to our business life as well.
Mehmet N. Pekarun
The New Imperative for Creating and Profiting from Technology , Henry Chesbrough (2003; Seminar in Istanbul, June 2015)
Center for Open Innovation, UC Berkeley (Seminar notes, June 2015)