Maximizing the Potential of Open Innovation

IdeaConnection Interview with Stefan Lindegaard, author, speaker and strategic advisor focused on open innovation Stefan Lindegaard is an author, speaker and strategic advisor who focuses on open innovation, social media and intrapreneurship. His books include Making Open Innovation Work and The Open Innovation Revolution and he also runs the popular blog 15inno.

In this first part of a two-part interview series he takes the pulse of the open innovation landscape and discusses the risks to those companies who have yet to open up to external input.

How close are we to open innovation being the norm?

We've moved from the why to the how and we actually did that about a year or two ago. I think we are getting to where open innovation is the norm in most industries. Not only corporate innovators, but also their executives know about open innovation and they understand they need to embrace this paradigm shift in order not to lose out on innovation opportunities.

But it's more a question of how well companies can build their learning curve in terms of execution because there is so much learning to be done and they need to learn from failures in order to build better programs.

Some companies keep pushing this. For example Ashish Chatterjee, the Managing Director of Procter and Gamble's Connect + Develop sees the Internet and social media as the key driver for their future open innovation activities.

Some companies haven't enjoyed a good experience with open innovation and given up at the first hurdle, what should they do now?

I think that lots of companies that gave up at the first hurdle now they realise that open innovation is not something that is going to go away and so that they cannot afford to give up. Companies that gave up a few years ago or recently say to themselves 'Ok that was a mistake, but what we should've realised is that we approached it in ways that didn't work for us'.

You see, every company is in a unique situation and they need to approach open innovation with their own approach and find their own way to make it work. If you don't do open innovation you are going to be in big trouble a few years from now and more companies are realising this.

What factors are helping its take-up?

Megatrends such as globalization, openness / knowledge sharing, and social media are driving open innovation.

In many ways with new start-ups today it's about how to become a global company from day one and it's so easy to do because the Internet has made it possible to reach out to so many partners, customers or suppliers. And in many industries, especially when you are working with digital products the whole world is your market in many ways.

It used to be that innovation was something secret, something magic, something that should take place in corporate headquarters but if you look at the big companies today innovation happens everywhere, they have innovation units all over the world especially in places like India and China where you can get more brainpower for less money. And also that brainpower is getting smarter in terms of understanding what innovation really is and how to make it happen.

How is this helping them?

I really like the trend that we are seeing now called reverse innovation where companies went to places like China because they could get cheaper manufacturing advantages and now it's being turned around so they are also getting innovations out there that are not only being adapted for the local market but are just as interesting for the more mature western markets. So things that are happening in China are being brought back to the western world.

And that's all because of globalization and it's what the western companies started but it's gone beyond cheap manufacturing and you see innovation going back and forth.

We are getting a more globalized approach to innovation. You still have your nuances and differences in different places, but innovation can happen anywhere as there are so many places around the world where people can contribute. It would be very stupid for companies not to tap into those opportunities and those clusters of knowledge in order to build better products and services and to get innovations to market faster. They have to do this today.

Do you come across many 'stuck in the mud', companies that refuse to embrace this approach?

Unfortunately I have to say that Denmark is an example of that right now. Denmark has been known as a country that is good at innovation and has been doing good innovation for many years. We have a company like Lego which is very much driven by user driven innovation as are some domestic companies, but I am amazed that so many companies in Denmark have not embraced open innovation and I ask myself the question why.

One of the reasons is that Danish companies and Danes in general are very good at collaborating but only once they get to know these people quite well. But with the speed of change we have today you don't have the time to spend two years to get to know your partners. You need to open up more or less immediately and trust that these people can actually bring value to what you do.

Americans do this much better because Americans always seem to be more open and approachable so that's always why you see that American companies are driving the open innovation movement right now.

Is open innovation a good fit for every company?

I usually say that open innovation is going to affect all industries, but some more than others, and some sooner than others. There are four factors that matter here: cycle time for products/services development, money needed, IPR needed, conservatism in industry. It's more difficult for service companies and financial companies. Is it for every company? Of course not. You can always find exceptions, but it's interesting to see that open innovation is becoming the way to innovate for almost every industry. Every company can benefit from external input to innovation processes.

In your book Making Open Innovation Work you write about how small and big companies can benefit from pursuing open innovation together and that they need to meet on equal terms. How is this possible?

Big companies need to move away from a win-win mentality. They still need to have a winning mentality of course; you need that to survive in the business environment we have today. But I like how Procter and Gamble go about it. They definitely have a winner's instinct but I like how they say 'we really need to set up scenarios where everyone's going to win'.

Open innovation often has one big winner and many smaller ones. Big companies need to understand this and try to make all contributors happy. You want to create a perception that you are a good company to co-innovate with because if you can build that perception not only will the partners you are working with now continue to work with you and enjoy working with you, they're also going to spread the word. And spreading the word in the positive sense means you are going to get even more opportunities.

Big companies need to get into the mindset of optimizing the opportunities and encouraging others to continue to do business with them.

If companies start saying that you're not a good company to work with on innovation because you're going to screw people and screw companies your bad reputation is going to spread very fast in the innovation ecosystems that you are dealing with and no one's going to work with you.

And then you've got some serious problems right there because in any given industry you have two to four big companies with the resources to really be able to make innovation a key benefit for them. But if you are going to build the perception that your company is going to be bad to work with then one of the other two to four companies – your competitors – will get the lion share of the opportunities. And that's one of the worst scenarios to be in as you are left with the leftovers.

Both big and small companies need to understand that their corporate structures work differently. They must educate each other and be open about strengths and weaknesses in an open innovation context. Also, is there a cultural fit? Do their values match?

So open innovation has to be intrinsically part of what a company is about and not just an add-on?

So true. And that's a challenge making that happen. That's also where you are going to see lots of mistakes and lots of failures, but that's where companies need to move. Open innovation is not part of a corporate function it's part of the whole company and the mentality of the company. And that process is going to take about five to ten years in every company.

That's also why if you mess up in the early years and you give up then you're set back a few hundred years. You can't afford to say that open innovation is not something for us, because you've got to realise in most industries and for most companies, well almost all of them this is the future so we need to pick up the lessons we learn from our failures and move on from there.

I would like to see a book or conference in which we focus on successes of open innovation because we are starting to see those out there, but the next step would be what were the failures in open innovation and what did companies learn from them. It would be great to drive the whole open innovation movement forward. And I would like to see companies sharing this information because we can learn much more from failure than successes.

Of course I'm not encouraging people to fail; I'm encouraging people to learn from their failures. The key element about open innovation and also about social media is experimentation and what I realize about Silicon Valley right now is that it's very much about fail often fail fast and learn from it. Go in and do those experimentations; that's something I would like to push more with big corporations.

What are the risks to companies that don't embrace open innovation?

That they are left behind. The train has already left the station in many industries, if you did not make it, then you have lots of catch-up to do. It takes several years to develop open innovation capabilities and some competitors might wonder what happened when they see a company being successful with their open innovation as they start churning out new products and services faster than before. Then they realize what open innovation can do, but they are in for a big surprise when they learn they can't just do this overnight. Building open innovation mindset and capabilities is difficult, it takes time.

How important is mindset – corporate and personal – to making the most of open innovation?

It is very important. Here is my "standard" definition that I give when people ask me what open innovation is. I suggest they should view it as a philosophy or a mindset that they should embrace within their organization. This mindset should enable their organization to work with external input to the innovation process just as naturally as it does with internal input. In a more practical definition, open innovation is about bridging internal and external resources and acting on those opportunities to bring better innovation to market faster.

In the second part of this two-part interview series Stefan Lindegaard will talk about the effects that social media are having on open innovation and why companies need to embrace it now.