(This post originally appeared on Forward Metrics)
Back in 2005, on a trip to Germany, I was having a dinner with a business partner of mine, an innovation manager for a large German chemical company. Chatting about this and that, I argued that while open innovation was making good inroads into business practices in the United States, its progress was much less spectacular in Europe, in particular, Germany. “I can easily explain that to you,” told me my dinner counterpart, “the reason is our labor laws.”
I was surprised. “What do your labor laws have to do with open innovation?” “Well,” was the response, “when you guys in the U.S. want to lay off people, you’re free to do so. But here in Germany, you can’t fire people at will. So, before launching an open innovation initiative, our management wants to make sure that all our own people are fully employed.”
Notwithstanding the peculiar choice of words of my German friend, the perception back then (and, I have to say, not only in Germany) was that open innovation was taking away R&D jobs. Needless to say, such a perception wasn’t making the advancement of open innovation as a corporate innovation tool any easier.
Today, a few years later, we know that open innovation doesn’t take away R&D jobs. Internal R&D still remains the foundation of corporate innovation strategy; yet its role in the era of open innovation is changing in some profound way. Within the “closed innovation” paradigm, internal R&D is solely responsible for producing of all the knowledge an organization needs to stay competitive. In contrast, within the open innovation paradigm, internal R&D produces only part of this knowledge and then leads the effort to acquire the rest of this knowledge elsewhere. In other words, there is a shift from internal R&D being exclusively a “bench scientist” to internal R&D becoming a bona fide “knowledge manager.”
In practical terms, this shift is being manifested by companies establishing internal innovation networks, which play two important roles. Firstly, they foster the very culture of collaboration, bringing together corporate units (R&D, business development, marketing, etc.) that in many organizations often have no institutional platform to communicate on strategic issues. Secondly, internal innovation networks provide intellectual and operational support for the company’s open innovation programs. Initially, they serve to select and define R&D problems that are most suitable for open innovation approaches; later, they help assessing incoming external solutions and facilitate their implementation.
Unfortunately, some organizations ignore this new logic and begin open innovation programs before establishing functional internal innovation networks. The result is often disappointing: lacking internal support, external innovations meet with a stiff resistance inside the company, most likely at the middle management level. The innovations get stalled, then tacitly boycotted and eventually rejected. To add insult to the injury, such an outcome gives additional ammunition to the company’s naysayers, who would jump at the opportunity to claim that “open innovation doesn’t work for us.”
There are additional benefits for organizations in having internal innovation networks. One of them is the ability to identify the company’s emerging thought leaders who—especially if in junior positions–would otherwise remain unnoticed in “remote” labs and cubes. Another is the opportunity to use internal networks to find solutions to the problems that individual units have failed to solve by themselves. Such internal brainstorming is especially productive in multinational corporations with numerous units spread over countries and continents. People in different units—often created as a result of M&A—rarely communicate with each other and almost never meet face to face. Yet, people in one unit may possess specific knowledge that is desperately needed—and can be immediately used–in another. Connecting these “dots” through internal innovation networks will result in significant savings of time and money for internal R&D.
Internal innovation networks exist in different forms, and there is no “correct” one; each company will have to find a format that would suit its specific needs. One of the best known examples of internal innovation programs is Qualcomm’s FLUX (Forward Looking User Experience), an employee-driven, cross-departmental network that brainstorms novel solutions to the company’s technical and operational problems. Launched by just eight people, this program now includes 28,000 Qualcomm’s employees, yet exists on very limited budget and employs no single FTE. Other companies utilize various innovation management software and web-based platforms. Coming in different shapes and shades, these tools seek to capitalize on modern trends in social media.
This is not to say that companies should postpone experimenting with open innovation until they build internal innovation networks first (which may take years). My point is that the full potential of open innovation can only be realized by the concerted effort of properly connected people within organizations capable of identifying and properly defining their own needs. Or, saying this differently, the power of open innovation comes from the strength within.