The first reason being the low return on R&D costs for a lot of industries. The more conservative industries like Pharma are seeing slowly their traditional R&D backed blockbuster business model loosing relevance. Actually there has not been a single considerable blockbuster drug (New Molecular entities of sales more than a billion dollars) for the past 7-8 years. My experience and research shows that Pharma companies on an average have the potential to appropriate 20-25 % efficiencies in their R&D spends.
The less traditional ones like the Information and communication technology industry, also have been seeing a spur in innovation- not radical but incremental, yet shifting the normal of their performance in between different competitors. In this, highly complex realm of dynamism and convergence, companies naturally tend to look outside for new product and service ideas.
The second reason is the global economic shift created by globalisation itself. One sees millions of middle class Indians and Chinese as consumers and those who still are on their path to join the middle class as the ones in the pipeline. As the purchasing powers, geo-political as well as cultural context, market dynamics are different than the developed world, companies tend to think of new ways of reaching them through new incremental service or product innovations which are downstream in nature; usually collaborating with Firms from those markets.
These bottom of the pyramid product or service ideas, usually lead to a paradigm shift in the traditional business models. From traditional clinical value thinking around the value of a drug, based on efficacy, price, dosage and side effects towards clinical value proposition, extended onto the pocket gain in value by a patient, considering the whole package of various drugs of a procedure or treatment as a whole. New smaller sashes for Shampoos to a new truck concept for a country like India by western automotive companies. One cannot come out of these ideas sitting in an ivory tower, one needs collaboration downstream- right where the market is, with people and organisations who understand the true dynamics of the market.
The third reason is not really a reason but a driver or an enabler – Web2.0. The new web2.0 tools and technologies are enabling collaboration in a distributed environment as we never imagined. Companies are of course using it- from online competitions to procure cost effective designs for watches, to automotive design preferences to consumer products- procuring significant product ideas using an web portal. Even the companies from aforementioned so called traditional industries, rightly and timely realised the significance building platforms like bountychem, eventually spinning them into what we all know as Innocentive.
There are many reasons to look beyond the walls of ones R&D labs, and many are doing so. However not many are successful. Those who are, are probably not in the ways they want to be. My research in the past years clearly shows that collaboration with companies in regional clusters provides a significant potential for innovation- but just for incremental ones not radical! So Drug companies expecting blockbusters working with regional clusters where they are located in beware!- chances are dismal that you get the next generation blockbuster from those collaborative projects. Indications even suggest that probably the revenue or profit impact of these incremental innovations coming out of collaborative engagements in these local clusters dies down over a period of time as well. For example, one could see, large OEMs from highly publicised clusters in Europe finding their dream mates for hybrid engines in the Silicon Valley. One could blame ‘cognitive distance’ to this malice.
When you meet people too often, you know more or less what they know. You know their ways to think. You come too close- not to have a cognitive distance in order to come out with creative ideas together. There are also good reasons to take into account the cultural ethos of organisations. In consumer product industry for example, when the American firms have been quite successful with online web2.0 kind of collaboration; many such efforts of their European counterparts have failed or at least have not been so successful as those of their American counterparts. The European companies are building scientific advisory boards instead of crowd sourcing like their American brethren. Similarly, position on the value chain, size, power, complentarity of internal capabilities, organisational design play a key role in determining how much, in what ways and when an organisation can be successful taking an ‘open to all’ collaborative way.
Actually, sometimes a blindfolded rat race can even be detrimental as management focus is limited and collaborative innovation is also a capability that an organisation has to learn and cannot be taken granted. Collaboration is not just for today, it was always there. It’s something that is not a medicine but a nutrient that every organisation needs for a healthy life. Have a strategy, know what you want and from whom; more importantly know yourself truly as that’s the first step to start collaborating.