In a prior article we explored how SMEs conduct a self-evaluation, so that they have a clear understanding of their core competencies. In this article, we explore how that knowledge serves as a foundation for establishing strong and enduring innovation partnerships.
Need replaces want when dealing with SMEs as compared to large companies. The reasoning is simple; SMEs need the knowledge, skills or abilities of a partner to commercialize a product, service or experience. Rarely are SMEs in a position to design, develop, and deliver something to the marketplace all by themselves. Unlike larger companies, SMEs cannot leverage the resources of other business units or simply acquire competencies they do not have. If SMEs cannot address their needs through collaboration, then they do not have a solution to sell.
An accurate determination of an SME’s needs is possible only if three things happen first.
An SME must:
The first two requirements concern a firm’s ability to generate, explore and evaluate new ideas. If SMEs do not have an effective process for finding and evaluating unmet customer needs, it must first address this shortcoming. SMEs can do this internally or through association with an innovation partner. Additionally, if an idea fails to create enough value to share, then finding enthusiastic partners will be impossible and it is time to go back to the drawing board.
The third requirement gets to matters of implementation. SMEs must understand what they do well and where they need help. If an SME has yet to identify its own strengths and weaknesses, then it has no awarenessof how it can benefit from collaboration or what it should be lookingto gain from an association.If this is the case, it’s time for a self-evaluation.
Know replaces find when SMEs seek innovation partners. While it can be exhilarating to stumble upon a well-matched innovation partner — and this can happen — it is not sound innovation strategy to leave such matters to chance. SMEs also are unlikely to use their scant resources to scour the global marketplace to locate anideal innovation partner as a large company may.
This is a significant differentiator between large companies and SMEs. SMEs tend to work with partners that they already know from prior projects ormeet based upon the recommendation of somebody they trust. A pre-existing, trusting relationship often receives disproportional consideration when SMEs identify potential innovation partners.
So what should SMEs do? They should start by examining the list of collaborators assembled as part of the company’s self-evaluation. What contributions are upstream partners – for example, suppliers, designers, or research and development firms — making to the SME’s business? What contributions are downstream partners – for example, manufacturers, packagers, and distributors – making to the SME’s business?
Of course, existing supply chain partnerswill be most familiar. An SME will know their abilities and qualities,pricing and follow through, and honesty and integrity. In short, the SME will be able to answer these questions:
If an SME can answer “yes” to these questions, then it has a good basis on which to build an expanded relationship. An answer of “no” to any of these questions, and it may be wise to network to locate a better innovation partner. Hopefully, the contribution an SME is seeking to gain from a collaborator is available from more than one firm.
The optics company that I wrote about in the first article in this series was confronted with a sole source challenge. We could answer all of the above questions in the affirmative about a current partner, however, the business owner was over 80 years old and did not have a succession plan. Consequently, we were uncomfortable making long-term plans that included his technical expertise and equipment, so we investigated different industries for alternatives. We were fortunate to find several options through extensive mining of our partner network, and one of the options worked. (And, yet we still had another sole sourcing challenge.)
Having identified its needs and a potential partner to address those needs, SMEs now face the challenge of negotiating the terms of the partnership. Because of their limited resources, SMEs are rarely in a position todictate terms as some larger companies can. Hence, the term negotiate to getis preferable. Negotiating is about finding a balanced arrangement all parties can accept; getting implies unilateral action without consideration for balance.
Before taking a deep dive into the specifics of negotiations -how profits will be shared, how intellectual property will be treated, etc. -AMG suggests consideration of several questions. These questions are designed to confirm alignment between the parties.
If the parties do not find alignment on these questions, then they should not go further.Instead, the SME should return to the list of potential partners generated during the need phase and find a firm with whom it has better alignment. Contrastingly, if the parties find alignment on these matters, they should move into more comprehensive negotiations, and seek to structure a balanced agreement that is a win for all parties. (Key considerations for such a negotiation are the subject matter of the next article in this series.)
An example of how quickly a party can be eliminated as a possible partner comes from my experience at the optics company I have referenced in this series of articles. After we received a patent and completed prototyping for a technology, a potential innovation partner wanted us to cover all of its pre-commercialization expenses. Clearly, we did not have alignment in our objectives, roles and resources. Instead of “hoping for the best” and agreeing to this firm’s demands, we terminated discussions and moved forward with another partner with whom we had alignment.
An open innovation business model affords many benefits, but an obvious challenge is the reliance the partners place on one another to enable collective success. Poorly managed innovation partnerships will not fully realize the value they create by joining together.Partnerships that are managed well are more likely to capture value.
Consequently, a forward look to determine that an SME is prepared to manage a partnership is important. This assessment should be performed before the real work of the partnership begins.
Thriving innovation partnerships follow these basic management rules:
Each innovation partnership is unique so there will be many other management factors that impact success or failure, but following the above rules at least points the partnership in a positive direction.
Having evaluated its own abilities and identified a complementary innovation partner, it’s now time to negotiate the specific terms of the relationship. While the company’s principals may have negotiated many agreements, there are unique considerations to strategic partnership agreements related to innovation. The next article in the series will take a deep dive into the nuances of negotiating a rewarding and sustainable partnership agreement – one that allows all parties to succeed.
About the author
Seth Weiss educates, writes and speaks about innovation, collaboration and intellectual property. As an attorney and skilled practitioner of Open Innovation, Seth has extensive experience operating and consulting for SMEs. Understanding the unique and varied characteristics of SMEs, he designs pragmatic programs and strategies for effective open innovation implementation.
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