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Are you ready for open innovation?


Are you ready for open innovation by Mike Dalton; Michael A. Dalton

Open innovation, or partnerships for outside sources of new technology and market access, has become one of the most talked about movements in innovation. There are over half a million Google citations for open innovation, and Amazon lists no fewer than 4,500 books referencing the subject.

Are you ready for open innovation?One such quote comes from author Henry Chesbrough – “You cannot meet your growth objectives if you ignore all of the smart people out there who aren’t on your payroll.” Hearing that, you can’t help but think you’re missing out if you don’t have an open innovation alliance.

P&G has become the corporate face for the movement, and deservedly so; A.G. Lafley, former CEO, moved mountains to deliver P&G from the land of “not invented here” (NIH) to the world of “proudly invented elsewhere.” In less than a decade, they went from being an aging behemoth struggling with the new world of store brands and the emergence of Wal-Mart, to being an agile innovator that once again knows how to create products people want to buy.

Results like that make you wonder what role open innovation can play in your business. But we’re not all P&G, nor should we be and prescribing open innovation as a cure-all would be like suggesting everyone take two aspirins a day regardless of their condition. Open innovation alliances have their place. But you should read the warnings before you take the medicine. As English scientist Richard Dawkins said, “By all means let’s be open-minded, but not so open-minded that our brains drop out.”

So, how do you know if you are ready for open innovation, and what does it take to get there? My friends and colleagues, Dr. Gene Slowinski and Dr. Matt Sagal of the Alliance Management Group (AMG), liken alliances to corporate marriages.

  • The fairy tale: our corporate couple meets, gets married, has a wonderful family, and lives happily ever after.
  • The reality: AMG’s studies reveal that 70% of attempts to work outside of traditional buy and sell relationships fail.

Early on, companies get caught up in the excitement. They rush to consummate the deal.  Then when it comes time to execute, they find themselves misaligned with their new partner. Worse yet, they aren’t even aligned across all of the groups within their own company. Sounds less like Cinderella and more like a couple that wakes up hung-over and married in Vegas.

Unfortuantely, many companies wait until the corporate marriage is coming unglued to call in help. But there are tools you can use while still dating, to determine 1) if you’re ready for something more and 2) if your partner is a good fit: think of it as premarital counseling for companies. I’ve worked with AMG using their “Want, Find, Get, Manage” ® (WFGM) approach, which debuted in Gene’s book “Reinventing Corporate Growth“, and find it very powerful.

I.        Want – Do you have a clear understanding of what you want and need from the alliance? Open innovation alliances require clarity on what unmet customer need you are trying to solve, what value that creates and how much of that value you and the partner might be able to share. If you don’t have an effective process for finding and evaluating unmet customer needs, spend your time and resources shoring up that weakness instead.

II.        Find – Do you know where to look for external solutions? Or is your alliance strategy left to the chance meeting of two like-minded CEO’s or business development managers? Assign your R&D and business development folks to research the technology solutions that you “want” well enough to know who the players are and where the action is so that you can tap into the right networks. If you don’t have a network in place already, begin developing one within the companies and universities doing leading work in the area of your “want”. The players can change quickly, so you should also familiarize yourself with leading web-based open innovation sources such as NineSigma and Innocentive.

III.        Get – Do you have a rigorous process for evaluating and negotiating partnerships? AMG’s Alliance Framework®, starts with these questions to identify where your partnership might be in jeopardy:

  1. Objectives – why is each partner considering an alliance?
  2. Roles – what part will each partner play in the alliance?
  3. Resources – what will each partner bring to the alliance?
  4. Boundaries – where will the partners be allied and where won’t they?
  5. Market model – who and what will the customer see?
  6. Strategic exclusivity – Will the partners be allied exclusively for any markets, regions, timeframes, etc?
  7. Intersections – Does either partner have existing arrangements, such as exclusive sourcing or distribution, that would legally constrain their actions within the proposed alliance?

These seven strategic assessment elements tell you whether there is a reason to go further and begin negotiating more sensitive items like financial pie split, intellectual property, and termination. If not, you’ve quickly eliminated a relationship that could have needlessly tied you up for months if not years.

IV.        Manage – Do you have the tools, metrics, and most importantly the discipline necessary to carry out the alliance? Managing alliances is complex. If getting silos to cooperate internally is a challenge, try dealing with three sets of them: those in each partners business and the new ones that can form in the alliance. You must not only agree on how to manage the alliance, but you must be confident that your organization will cooperate. If you haven’t mastered the elimination of silo behavior in your own business, you’re not ready for alliances.

The Simple Bottom Line

Open innovation can be a potent approach to increase your innovation capacity, but it’s not for everyone. If you haven’t done the work to wring out all of the capacity from your existing resources or don’t have your own innovation process under control, adding a partner will be a disappointment for both parties. You’ll get more out of working on your own issues first. When you are ready to take on a partner, using the WFGM approach and the Alliance Framework to structure your search will ensure that you end up with an enduring alliance.

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