A Hands-Off Approach to Open Innovation Doesn’t Work9 May, 2016 / Articles
In business, winning is often a matter of speed — to new markets with new offerings — rather than slow, steady plodding. And this is precisely the problem that many companies are having in their efforts to collaborate with partners, share resources and knowledge, and create new products and services.
For many business leaders — 85%, according to a recent Accenture survey — such open innovation is critical to their strategic plans. In particular, large companies want to partner with small firms that have developed advanced, game-changing technologies. Small companies see the benefits of such partnerships as well, in the form of access to resources well beyond their reach.
But many partnerships begin without due attention to what might go wrong, and the results show it. The challenges of big firm–small firm collaboration are considerable: different cultures, different attitudes about sharing intellectual property, different concerns about risk sharing, and others. So it’s no simple task to meet the strategic objectives of such partnerships.
In the survey, which examined 200 innovation collaborations between big firms and tech startups (100 in the United States, 50 in China, and 50 in India), we identified a major split in the way senior leadership at the large firms handled this challenge. On one side of the divide, senior leaders took a very hands-off approach. They didn’t exert heavy control in the negotiation stage, and afterward, when strategic, operational, or cultural mismatches between big and small arose, they left it to the innovation teams to solve them — a fix-it-as-you-go mentality. That doesn’t sound all that unreasonable, perhaps, but consider this: Only 38% of those who took this approach said they believed the innovation partnership had achieved its strategic goals. Hardly an encouraging finding.
On the other side were the hands-on, or active, senior leaders at the big companies. This group worked to anticipate and resolve problems before any product codevelopment even began. Bolstered by this active involvement of top management, the success rate for meeting strategic objectives was a much more robust 68%, close to double that of the hands-off group. The bad news? Only 14% of the companies we studied were in the active management category.
Looking more deeply into our data, we saw three keys differences between what the hands-on companies did and what the hands-off ones attempted.
Large-company CEOs were involved at the most critical stages. It’s a commonplace with any important initiative to say that “the CEO must be involved.” But that doesn’t mean much in practice since the CEO can’t be everywhere all the time. What we found is that the large-company CEOs of the winners in our study got involved at the most important junctures. Consider the task of scouting for partners. For the hands-on managers, nearly 80% of CEOs took the most active role; in contrast, hands-off companies relied much more on their R&D head or chief technology officer. The most critical stage — during the actual product development process — is also when things can unravel quickly. For 40% of the active-management group, the CEO was at the center, taking the most active role; for the rest, the CEO was often absent or was just one of a confused jumble of leaders.
They focused on the entrepreneurial talent, not the technology. The hands-off companies were heavily focused on the quick fix of accessing new technologies: 72% cited that as an “extremely compelling” outcome of collaboration with a small high-tech firm. By contrast, less than 50% of the active managers called that extremely compelling. They were much more focused on working with entrepreneurial talent: 65% found that extremely compelling, a significantly higher rate than the hands-off group. The lesson is that for companies looking beyond the immediate, the injection of not just new tech but also entrepreneurial talent is essential.
They used the right metrics to measure success. Figuring out whether you’ve succeeded with an open-innovation partnership isn’t a simple exercise. Consider the differences in what proactive managers measured versus the other groups. More than 65% of the hands-off companies put much heavier emphasis on creating their own financial performance index specifically for the project. That might sound wise, but it opens the doors to internal manipulation and infighting — and the active managers seemed to recognize this problem, since only 25% of them went down this path. Meanwhile, the companies in the active management group were more likely to measure the money and time they saved by going beyond in-house R&D. They also were more likely to measure how customers evaluated the results of the partnership.
Given these findings, executives embarking on an open-innovation initiative should consider these steps:
Make it a priority from the beginning to hold honest, open conversations with potential partners. It’s critical to not only share your strategic objectives but also ensure that your partner really understands them. Don’t assume that each side’s goals are obvious.
Treat interactions with partners as investigations, not interrogations. An open-innovation partnership is not a simple transactional relationship. Discussions should allow both sides to reveal “soft” aspects of their organization, such as core beliefs and values. Knowing this territory will help partners identify possible areas of conflict as well as solutions.
Create an “operating architecture” that facilitates quick responses to potential challenges. Projects can easily stall over unanswered queries about IP ownership or process, for example. The right operating approach helps keep the focus on strategic goals.
Open innovation is all the rage as a means of getting new products quickly to market. But for big companies, it’s not as simple as finding a partner and saying, “Go forth and innovate.” It’s possible to succeed eventually by fixing problems as they arise, and even by staying well out of the fray. But in the most successful partnerships, senior company leaders identify the problems up front and solve them.