Saying 'Yes' to Open Networks

A conversation with Arv Malhotra, professor at Kenan-Flagler Business School at University of North Carolina at Chapel Hill.
By Alice Bumgarner
With a background in engineering, information technology and business, Arv Malhotra began working with Boeing in the 1990s, which was facing down one of its biggest challenges yet.

In light of reduced support from the government and increasing competition, how would it go forward to create new products? Boeing's solution was to form virtual teams across the organization, pairing people of diverse backgrounds together. In the '90s, this kind of cross-collaboration was radical.

That's where Malhotra's focus on organizational innovation began. Since then, he has researched and consulted (with IBM, Exxon, etc.) on the topic of innovation. He now teaches a rising generation of business students at Kenan-Flagler about leveraging digital innovation and virtual teams.

Alice Bumgarner: What is the importance and the role of innovation in today's global economic environment?

Arv MalhotraArv Malhotra: When has it not been important? It's extremely important now because there are so many choices. We're in a global marketplace, where there's a lot more competition. Even when you try to go into China and India, there's more local competition than ever before. When there are a lot of choices, it's harder to stand out. So there are only two ways to distinguish yourself: either you innovate your operations to be low cost, or you're an Apple and your product looks really different.

AB: What are some of the obstacles that prevent teams from creating innovative products?

Arv Malhotra: Primarily, it's a company culture that doesn't promote mistake making or incremental changes or taking risks on a small scale. The second biggest obstacle is a company that doesn't make an effort to promote cross-collaboration, within the same unit, across divisions, across companies.

AB: What is the most exciting innovation you've seen develop?

Arv Malhotra: I see a structural change in what we've known as a company. The notion is evolving. It's no longer the Detroit model, where you do it all vertically. Companies are forcing people into cross-barrier innovation, so you don't have to have all the ideas internally. They're building more open networks, where they do a lot of stuff outside the company, then appropriate and commercialize it.

For example, Procter & Gamble says 50% of innovations should come from outside the company, and Gore-Tex looks for materials from outside the organization.

AB: When teams are working on a problem or developing a product, and they hit a barrier, what do you recommend?

Arv Malhotra: You can't simply lock yourself into a room and emerge like Moses with tablets in your hand. The best thing—though most companies forget to do it—is to get in front of the customers you're making the product for. When you run into trouble, the question that's begging for an answer is, "Does this fly with customers? Do they really want it?"

Because of the Internet, these collaborations are much easier than getting a group of 20 into a room. Lego is a great example. They let customers build their own ideas, then post videos about their concepts. YouTube is a great way to figure out what customers are doing with your product.

AB: What is the most difficult problem you have seen solved?

Arv Malhotra: One difficult challenge is, product life cycles have changed forever, whether you're talking about a computing system or drugs. Things become obsolete faster, so they have to be done faster, correspondingly. Here's what companies are faced with: We can be different, if you give us time to think. And we can be faster, if we do the same thing over and over again. But being different and faster, that's the tough challenge. Apple's a great example of the new product pacing.

AB: What, if any, problem solving, creativity tools or innovation software do you use or are you familiar with?

Arv Malhotra: I've seen companies investing in technology tools and digital platforms, so they can bring customers in early and often. These are not just focus groups, but customers being the source of ideas. They design the product, test and refine the idea, tell you the emotional response of what you're proposing. Dell's trying to do it, for example, as well as a European motorcycle maker called Ducati. What's different now is how early and often companies are engaging customers.

AB: Are you familiar with virtual collaborative innovation communities and networks such as that bring together experts, facilitators, and product developers for confidential collaborative creation?

Arv Malhotra: I'm not familiar with yet, but formal and informal networks like that are things to capitalize on. Those kinds of collaborative tools are not a bad thing—they can help idea generation.

For example, there's a startup that came out of Eli Lilly called InnoCentive. It's a platform that drug companies can use to outsource their problem—a lower level of drug discover—instead of spending company time on it. Using a social network is a great example of how many companies across different industries can use an open innovation mindset to solve problems.

AB: What good books, articles, blogs or other media on the topic of innovation have you read? Are there any that you recommend to employees?

Arv Malhotra: I love reading anything Fast Company and Wired puts out there. Digg is a good place to go if I'm looking for technical information. Books are usually outdated by the time you get to them, but a couple of authors I'm fond of are Clayton Christensen and the futurist Paul Saffo.

AB: Do you have any other thoughts you would like to share about innovation?

Arv Malhotra: The more your culture supports small teams that are banded and disbanded to work on emerging problems and solutions—like IDEO does, for example—the better off you'll be.

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