An End to In-House Innovation

The modern world is constantly moving forward, and at an ever-increasing pace. The rate of change is highly influenced by the rate of technological development.

Whereas in the past it took 75 years for Alexander Graham Bell’s telephone to reach 50 million users, it took Facebook only 3.5 years to reach the same number. It can take just 30 days for a game or app to reach 50 million users. Today’s technology makes possible what was impossible in the past. To be precise – today’s technology makes possible what was impossible just a few years ago.

Corporations in every field must constantly monitor technological advancements which affect their business. If a manager thinks his R&D department can keep up with the constant changes in technology taking place around him and remain relevant, he’s mistaken.

Corporate R&D departments are inundated with everyday, routine matters and don’t have the time to stay up-to-date. This is precisely how innovation, which is meant to improve corporate performance, slips through managers’ fingers, leaving the corporation in the dust. Corporations must wise up and realize that no matter how big and talented their R&D departments are, there are several times as many entrepreneurs outside the company walls who will come up with more and more varied ideas than the corporation’s employees will. In many cases R&D managers have sabotaged their own corporations by persuading their higher-ups that if they only get the budget they need they can develop what a startup develops. In most cases the result has been that the corporation invested 5 to 10 times as much as a startup requires – and didn’t reach the technological goal it aimed for. As a result the corporation lost a fortune, and even worse, even if it managed to put some technology or other on the market, it did so long after its competitors.

In order to remain relevant and on the technological cutting edge, corporations must abandon old paradigms and create organizational structures that are able to spot and adopt innovations from the external ecosystem – innovations that will help them survive (in the worst case) and move ahead of their competitors (in the best case).

In the past, corporations relied on an internal innovation division whose aim was to come up with innovative solutions within the corporation through the initiative of its employees. In most cases this model of in-house innovation didn’t achieve the desired results. One reason for this was that for many employees, innovating was an extra task to do for which they weren’t rewarded. In-house seminars and other organizational initiatives aren’t sufficient to make employees realize the importance of innovation to the organization, and as a result, the employees aren’t truly committed to innovation. In many cases the management’s support of in-house innovation is nothing but talk, and setting goals and assessing achievements proves difficult.

Over the past fifteen years we’ve witnessed a dramatic shift toward a new model which was first described in 2003 in a book by Henry Chesbrough – open innovation. This model is based on the corporation making use of its surrounding ecosystem and collaborating with other corporations, startups, entrepreneurs, academic institutions, customers, or any other relevant entities that can provide the tools that will take the corporation to the cutting edge and keep it there. This is an integrative approach which combines needs that come up within the corporation with out-of-the-box solutions that come from outside of the corporation.

According to the LEAD Institute the factors that lead to the growth of this new approach include: the increasing availability and mobility of experts in the field of innovation; the increasing availability of capital; more opportunities for realizing the potential of innovation; and a growing number of clients, suppliers and other entities which become relevant to collaborative efforts.

According to a comprehensive, professional study by Creators published recently, the riper for innovation the corporation is, the more it tends to adopt open innovation programs. In their report they mention that open innovation programs run for an average of four months and in many cases they’re funded by external innovation experts who assist the process.

Experience shows that the process of open innovation motivates strong employee involvement in innovation, even encouraging in-house innovation as a side effect. In order to initiate a process of open innovation, managers must first leave behind their traditional way of thinking – that all answers are to be found among company employees – and open up to the idea that external factors bear a strong influence on the company’s future, power to innovate and value.

In other words, the important insight that managers should learn from this is that innovation won’t come from within. It will come from without. An insular organization must open up to its corporate environment.

This means being attentive and open-minded toward technological innovations developed by entities external to the corporation. The corporation must make sure that relevant startups come to it before they go to a competitor, otherwise the corporation will end up with startups that aren’t as good or suitable to its needs. The corporation must be proactive in finding compatible startups and not wait for startups to contact the corporation arbitrarily.

The managers’ commitment is crucial to this process. Without it, the middle management echelon will stand in the way of innovation. Managers must make sure the organization is proactive in finding initiatives which are valuable to the company’s corporate and technological challenges and that once the right startup is found the corporate acts effectively and quickly to establish a basis for effective collaboration between the two sides while removing bureaucratic obstacles, allocating the necessary budget and designating high-quality, appropriate human resources. The proper treatment of startups by the corporation will attract more quality startups to the corporation.

One of the most common and detrimental flaws among corporations is that instead of a single senior manager in charge of innovation for the organization, responsibility is spread among several different entities. This causes chaos both internally and vis-a-vis startup partners.

In the past, the relationship between corporations and startups was such that the corporation had the upper hand. This has changed in recent years and today a quality startup with a unique, advanced technological solution chooses the corporation it wishes to work with. Such a startup will choose a corporation that takes open innovation seriously over a corporation for which “innovation” is nothing but a marketing slogan.

Over 350 mega-corporations run important operations in Israel through which they utilize the brainpower the startup nation has to offer and learn about applicable, creative solutions. They do this in order to incorporate the “next big thing” before their competitors. Israeli corporations such as Strauss, Elbit, Teva, banks and insurance companies have also instituted open innovation programs which utilize external entities to keep up with the changing world and reduce the risk of being rendered irrelevant by their competitors. One of the main reasons why the people in control of corporations encourage their managers to adopt open innovation programs is that they’re afraid their competitor will beat them to a technology that will make a serious dent in the corporation’s performance.

One action taken by Strauss, for example, was the My Strauss campaign in which the company opened the discussion regarding new products to the public, allowing the customer to decide which new products the company would be offering in the future. Another one of the company’s projects is the Alpha Strauss project – a community of inventors, entrepreneurs, nutrition experts and food scientists brainstorming together on how to overcome the challenges of the food industry while leveraging a local ecosystem with creative ideas and quality initiatives with the aim of bringing about a significant change in the foods we consume. Strauss is an excellent example of successful open innovation.

Besides creating a community, there’s a variety of other means for fostering open innovation and opening corporate doors to startups: making the corporation the startup’s customer; covering the cost of the prototype developed by the startup; funding technological think-tanks; opening accelerators; establishing investment funds; investing directly in new companies; even purchasing a startup.

The open innovation model is only effective when there’s true partnership between the corporation and the other entity, usually a startup. If the corporation feels superior to the startup it will sabotage the process. The corporation must see the startup as a partner, not a supplier. A study conducted by a group of researchers in Germany and Russia (Kratzer, Jan, Dirk Meissner, and Vitaly Roud)   showed that open innovation won’t flourish unless the company fosters a culture of innovation and openness. Such a culture recognizes the importance of the human factor in the corporation and the idea of knowledge-sharing and cooperation between internal and external entities. For this reason, company managers must encourage this kind of culture in the workplace.

To sum up, the current trends in open innovation can be expected to remain with us in coming decades. Companies must learn to cultivate partnerships with startups so they can continue to develop their technologies and cope with corporate and technological challenges.

In recent years Israel has accrued much knowledge on the subject of open innovation thanks to the global corporations coming here in search of the next big startup. This knowledge is yet another addition to the tremendous resources of the startup nation in the form of particularly creative initiatives. Israeli corporations would do well to leverage both of these assets toward ensuring their corporate and technological superiority.

This is the optimal time to make sure that open innovation is a high priority for 2019.

About the author

Itai Green is the founder and CEO of Innovate Israel. He is one of the dominant leaders of Israel’s corporate open innovation. Itai is recognised as a leading player in Israel’s startup ecosystem and is at the forefront of launching its growth at a rapid pace. Itai leads innovation processes by connecting global corporations with the Israeli startup community to create advanced technological solutions; focusing on IT, consumer products, pharma, finance, travel, e-commerce, retail, banking, insurance, energy, construction tech and IoT. Itai is a member in several startup advisory boards. In the past, Itai was head of business development and Innovation at Amadeus IT Group in Israel, amongst other prominent positions at Elbit, CEO at Maxtech Technologies, VP Business Development at Techtium and the co-founder of JerusalemOnline. Itai is the founder of the ITTS community (Israel Travel Tech Startups). ITTS houses 350 Israeli traveltech entrepreneurs and strengthens the internal collaboration between startups, as well as increases the level of engagement between startups, multinationals and investors. Itai has also created the IITS community (Israel Insurance Tech Startups) for the Insurance start-up sector.

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References

1) Zapfl, D. (n.d.). Open Innovation vs. Closed Innovation. Retrieved from https://www.lead-innovation.com/english-blog/open-innovation-vs.-closed-innovation

2) Kratzer, Jan, Dirk Meissner, and Vitaly Roud. “Open innovation and company culture: Internal openness makes the difference.” Technological Forecasting and Social Change 119 (2017): 128-138.

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