What is the problem?
Corporations are very much at home with incremental innovation – often defined as ‘better sameness’. But disruptive innovation, i.e.; changing the playing field, is generally a bridge too far.
Start-ups live at the edge. Disruptive innovation is their game. They have a flattened hierarchy and a shortened decision cycle. They focus on products versus process and view their organization as a ‘greenfield’; i.e.; not constrained by legacy people, process or technologies. The end result: speed to market of minimum viable products (MVPs). MVP comes with ‘build-test-iterate’ cycles that don’t wait for approvals or annual planning sessions. The impact on legacy companies? A digital gap that can’t be closed with a long “Transformation” process. Sure you need to be more agile, innovative, streamlined and customer centric, but while you are in meetings about this, startups are running after your customers. A better way forward is to work with startups and other open partners to transform faster.
If you are going to re-shape the market, you want to start with a greenfield. Not just in the areas of your people, process and technologies, but in how you think about your business. A tall order, but with a proven solution: Open Innovation. A way of thinking that involves leveraging internal and external ideas to create new pathways into the marketplace.
In an internet-based world, it is critical to survival that companies engage in ‘Open Innovation to Leverage Entrepreneurial Minds’
Fast Follower has Been Good Enough Till Now – What Has Changed?
Staying close to the market-leader, matching the leaders’ innovations after confirmation of success; has been a viable strategy. There are at least three reasons that ‘Fast Follower’ no longer pays the bills:
- The rapid introduction of new technologies and business models haven’t just changed the landscape. They’ve changed the customers’ expectations from; ‘buying a solution for my specific need’ to; ‘buying a solution for all my needs’. For example: a smartphone isn’t just a phone, a smartwatch isn’t just a watch; Smart Products don’t just do what they used to – they take you farther down the path of what you really want to do.
- There used to be one category of competitor – legacy companies competing against other legacy companies, presenting incremental advances (better sameness). Now there are three competitors: 1) companies like you, 2) Digital Giants and, 3) Start-ups. All coming from different directions, reaching your clients and prospects across the customers preferred channel.
- Once a digital giant like Amazon or a fast-growing start-up like Airbnb has changed the playing field, it is virtually impossible to dislodge their dominance.
These three realities simply reinforce an old saying: the sled-dogs following the sled-leader have a view that never changes.
How does Open Innovation Leverage Open Minds?
One of the more successful Open Innovation pioneers is Unilever, a $59 billion CPG company. In 2014 they started with a mindset of: “In a world that is changing so fast, experimentation and failure are actually key ingredients’ for leading and learning.
Unilever’s three stage process for leveraging open minds involves – pitch, pilot and partner. They have launched some 90 pilots with 90 different start-ups and according to a recent interview with Jeremy Basset, head of the Unilever Foundry, are planning to scale about half of them.
The Foundry’s website is a poster-child for leading practices in engaging with start-ups and entrepreneurs. It speaks to the company’s reason for collaborating with startups as: “Our objective is to build and cultivate strategic partners for the future, with Unilever as a partner of choice.” The Foundry invites entrepreneurs to create a profile, attend hackathons and other events; respond to challenges posted by various Unilever brands; or learn more about landing an investment from Unilever Ventures, the company’s venture capital arm. For more on this interview go to the Innovation Leader post @: https://www.innovationleader.com/how-unilever-foundry-works-with-startups/
Healthcare On The Move
The Healthcare industry is particularly well-represented in the Open Innovation movement. J&J Innovation, has created a synergy around its’ three divisions: pharmaceutical, medical device, and consumer – putting scientific and technical experts from J&J strategic areas of interest in the innovation centers, within easy connection of smaller companies and entrepreneurs.
A few other Healthcare examples of Open Innovation initiatives – each aligning engineers, designers, start-up providers, and customers in a search for better healthcare outcomes:
- Medtronic’s Applied Innovation Lab – Ninety percent of their initiatives focus on experience and solution design – involving collaboration with business unit teams, insurance companies, technology vendors, and other outside partners (startups)
- Cardinal Health’s Fuse innovation center – Fuse uses techniques from Lean startups, and some that mirror the Google one-week sprint process. From MIT interview with Brent Stutz, SVP and Fuse Co-Founder: ‘We sprinkle in design thinking and user experience mock-ups throughout the process. Our innovation process has three phases: explore, experiment, and then pilot. We have an opportunity to pull the plug at any time, so we kill and archive project frequently. I’m not afraid to try 42 things and only have six make it out the other end. The sooner we stop working on an idea that isn’t panning out, the faster we can move on to the next, better solution’. See more of the interview @ http://sloanreview.mit.edu/article/digital-innovation-lights-the-fuse-for-better-health-care-outcomes/
- Pfizer’s Dare to Try program – a unified innovation and experimentation framework. This framework, known as “Dare to Try,” is comprised of a variety of tools, a champion network, and training sessions, dedicated to helping teams create open, innovative solutions.
What do these Successful Programs Have In Common?
They are working with many startups on many initiatives. You can’t analyze yourself to greatness, you have to ‘do’. That means run pilots and know when to ‘fold em’. It may be that only 25% of these efforts actually scale according to your needs, however you have to be in the game to win. This recent paper by 500 Startups supports this idea.
Your Open Innovation pipeline will look more like a Venture Capitalist ‘deal flow’ than a typical corporate projects pipeline. In order to make 10 investments, the average venture capital firm reviews approximately 1200 companies! Managing your innovation options through the process of Discovery, Assess, Pitch, Select and Pilot needs to be a core competency of your team.
Venture Capitalists always invest within specified areas of interest or expertise for their firm. The first step is to layout the foundational areas that your team will want to source ‘open’ solutions. Heineken recently launched its Open Innovation initiative The Brewhouse. With a mantra of ‘Collaborate to Innovate’ – The Innovators Brewhouse is Heineken’s ‘connected innovation space – open to entrepreneurs, inventors, universities, suppliers and of course, great beer minds’.
Notice it is clear that they are sourcing startup partners within six specific areas: ecommerce, sustainability, marketing, brewing, enterprise, and product ingredients.
Heineken’s Innovator’s Brewhouse Challenge Areas
The Brewhouse publishes a number of challenge initiatives and an evaluation criteria for Start-up Ideas that includes:
Evaluation Criteria for Start-ups
- Feasibility: Is the concept feasible at scale and at what cost?
- Viability: Will this concept contribute to the performance of our company?
- Desirability: Will this concept be perceived positively from consumers/customers?
How Do You Leverage Entrepreneurs for Open Innovation?
And Know They Are Right for Your Business
The process for finding the right start-up begins with an effective ‘Challenge’. A statement around the ‘job that must be done’. From that comes a Scout Canvas of the customer journey, competitors, success metrics and technologies needed to develop, incubate and launch a minimally viable product (MVP). When you have completed the Scout Canvas and have a handle on the Challenge, it’s time to access the Innovation Marketplace and search for your start-up partner or acquisition.
My co-author, Annette Tonti and I recently wrote a whitepaper on the Evolution of the Innovation Marketplace. Our findings: The Innovation Marketplace is literally exploding with new ideas, processes and technologies – becoming too vast and too fast for manual tracking, searches, and legacy R&D processes. Consider those millions of tech startups created each year and the nearly 4500 Universities with labs and incubators. That’s a lot of information to sort through! No human could actually access everything that is going on at this point. This is a perfect opportunity to let artificial intelligence show you the way and below is an illustration of the process and platform we use to find just the right match for your challenge.
How does a Legacy Corporation Work with a Start-up?
At the beginning of this post, I wrote about ‘Open Innovation to Leverage Entrepreneurial Minds’; as a way to close the gap with Digital Start-ups. This different way of thinking is wonderfully stated by Athena Health’s Open initiative: “More Disruption Please”. A program started in 2014 offering start-ups a way to connect with Athena Health’s ecosystem.
Embracing the chaos might be the best thing to think about here. If that is too much to take in, all at once; try this: ‘not invented here’ used to be both a lament and a source of pride. Now it’s a mortal wound.
Try this as well; part of the reason legacy companies are vulnerable to Start-ups is a focus on process versus products. Process requires planning, timetables, budgets, all of which constrain speed.
If you are only doing budgeting or planning once a year, that means start-ups have the whole rest of the year to run past you.
Start-ups are not good with numerous meetings, paperwork, tedious tasks and discussions with Human Resources. Start-Ups are extraordinarily good however, as bell-weathers for what is happening, why it is happening and what you can do about it.
Their entrepreneurial focus is on mapping the customer journey to create products that fulfill a need. Thus, they spot trends, weaknesses, and opportunities before legacy companies (who are generally focused on making core offerings: faster, better, cheaper).
One more: you won’t out-innovate a start-up. If you want to close the digital gap, you have three options:
• Buy or partner with a start-up – spin-in their capabilities, then spin out the enhanced products as platforms – retire early
• Let a Digital Giant buy you – or Amazon you – which might be the same thing
• Continue doing incremental innovation until a start-up or Digital Giant runs past you – retire early, but not in a good way
Engage with Start-ups and entrepreneurs around what they are good at. Remember their speed is tied to a greenfield mindset, i.e.; they won’t think in terms of legacy people, process or technology. They will invent ways to circumvent constraints, use technology to shortcut processes and will try to answer every question with: what is the minimum viable product, that answers the customer need, that we can sell. We can work with that; right?
Am sure, most everyone reading this would agree; in our current digital age, everything – products, services, business models, markets etc. – are continually being disrupted by technological change.
With that in mind, conventional wisdom might say: every company must escape legacy and transform. Consultants, Authors, Digital Subject Matter Experts are saying; ‘the consequences for not transforming are dire’. But three out of four corporate transformations fail and such a prescription looks very much like a ‘drug that kills the patient’.
Finding the right partners in the Innovation Marketplace, leveraging entrepreneurial resources through Open Innovation, can be the right choice for closing the digital gap.
About The Authors
Michael Glavich, Chief Business Accelerator & Change Catalyst for The Innovation Scout. Michael delivers a unique combination of digital strategy, marketing, and whole-product development that seeks to “change the playing field”, creating unique and unbeatable competitive advantage. His background includes business acceleration consulting at Diamond Technology, Index and most recently Maxos.ai; a combination start-up factory and global think-tank. He has spent a lifetime creating innovative new ways to grow successful businesses and representing thought-leadership service offerings from ten of the top fifty living business thinkers in the world.
Annette Tonti, CEO & Co-Founder, The Innovation Scout. She is an executive with over 30 years of corporate and entrepreneurial experience. As founder and CEO of 3 high-tech startups, she has developed early stage businesses and raised over $30M from Venture and Angel investors. Early in her career she delivered digital strategies to Fortune 1000 businesses, ran a global program for the MIT Media Labs and headed up operations for a global telecommunications consultancy.