The Age of Open Innovation

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Simply put, open innovation is the process of not only relying on internal knowledge for innovation, but also external sources such as customer feedback, competitors, and external agencies. The term was coined by Henry Chesbrough, in his 2003 eponymous book¹, and goes entirely against the previously general concept according to which companies had to innovate with their resources only and in full confidentiality, for fear of seeing their “secrets” robbed.

As technology and digitalisation progressed at an unequalled pace, so did innovations. Corporations found themselves unable to keep up. Those that already had a strong platform culture, such as Sun Oracle, Microsoft, Apple or Facebook blazed the trail and certainly stepped ahead of the competition for a while, but others also started jumping on the open innovation bandwagon. They got in touch with thousands of innovative start-ups. At the same time, they also began reengineering their internal organisations, which were too heavy and slow to cope with an ever-faster-moving environment. This was done to find new ideas, inventions, talent, teams, processes, and market validations, and with the ultimate goal of giving birth to the next disruptive innovation ahead of the competition.

Rather than pitting David against Goliath, major corporations have now decided to have both players combine their strengths. The idea is to create the conditions for a mutually profitable exchange between industry or a corporation that needs to change, and an ecosystem of start-ups that master technology and can produce innovative services. For large companies, open innovation is a way to outsource the risks linked to any innovation process and to mitigate the consequences of possible failures – especially in financial terms-. However, it also makes them somewhat humble. As Yoan Jaffré, who heads the BNP-Paribas lab puts it: “Open innovation also means you are humble enough to admit you are no longer able to internally produce the innovation you need”², in an environment where time-to-market gets ever shorter. Alternatively, in the words of Bill Joy, co-founder of Sun MicroSystems: “Most of the bright people don’t work for you – no matter who you are.”³

Unnatural alliances?

In essence, the alliance between a major company and a start-up appears as unnatural. “A large organisation is primarily built to resist change,” Yoann Jaffré explains. “All that produces novelty is not welcome.” This is why it might be preferable to favour limited-term cooperation schemes, on clearly identified projects.

Major corporations plan for the long-term. Start-ups, by contrast, aim for immediate results. They do not think in terms of quarters or half-year objectives but manage cash-flow weekly. As, Hugues Hansen, General Manager of Start’In, La Poste’s start-up accelerator, explains: “six months is a third of the average lifetime of a start-up”.⁴

Another significant difference between large businesses and start-ups lies in internal organisations and management. Whereas start-ups create direct collaborative schemes and favour “test and learn” and permanent questioning, larger groups have more vertical structures. They also rely on brand strategy and processes and must meet strict legal and financial requirements.

Even though international competition has rendered sharing imperative, managers in large corporations are still often scared of losing control over their processes and the outcome of these processes. The 2014 Arthur D.Little et Bluenove “Baromètre de l’Innovation”⁵ highlighted that 54% of large French companies expressed fear of intellectual property theft or forgery, while 38% said they were scared of losing control over their innovation processes. Transparency, from the get-go, and a clear agreement on potentially conflictual issues, are thus essential conditions for a successful alliance.

“Culture is also of the essence”, says Sandy Melamed, who works for Switch, a start-up specialising in helping people find the career path that best fits their abilities and desires. All major corporations have implemented new technologies. They all advertise about fully embracing digitalisation and keeping pace with the new ways of working. But that is not culture. And culture is not something that is sufficiently taken into account.”

The last possible hurdle is that in-house innovation teams may feel competed with or even dispossessed, without really understanding why. One should keep in mind, however, that they work on hundreds of innovation projects all year round, while open innovation programmes are only a few. Ultimately, these programmes should been seen as accelerating and complementing those that are developed on a daily basis.

A Whole Range of Possibilities

Open innovation relies on the desire to innovate through sharing, discovering, curiosity and the acceptance of failure. It can then hardly exist within rigorous frameworks. It also requires all stakeholders to be treated in a fair and equitable manner, without any naïve optimism. As a consequence, it ultimately rests on three cardinal values: speed, simplicity, and benevolence. “Open innovation is simply collaborating and co-creating with external partners, be they corporates, start-ups, universities or public bodies,” says David Nosibor, who defines himself as an innovation evangelist at Mazars in Singapore.

Structures do exist that can boost open innovation. There are incubators and accelerators, usually created and/or backed by major corporations, public authorities or large investment funds, to help start-ups grow. They include such well-known organisations as Ycombinator⁶, in the US or StartupBootcamp⁷, founded in 2010, in Copenhagen.

Innovation contests are also often held. Whether they are publicly or company-funded, they provide innovators with opportunities to display their creative abilities. For such contests to be as successful as expected, however, participants often have to organise as “clubs, that can take the forms of Fab Labs or hackerspaces,” says Matei Gheorgiu, a sociologist who authored a thesis on innovative networks⁸.

Less formally, companies can also decide to link up with private or public partners, to build common development projects. “Innovation is truly open, as each partner can contribute their ideas,” Matei Gheorgiu explains. “But such schemes require excellent coordination.” Moreover, the start-ups that are part of them must be careful not to be drained off of their creative juices.

Last but not least, in Matei Gheorghiu’s nomenclature, “ad-hoc” networks, based on informal cooperation between partners: they only exist as long as all players keep their commitment to the community they have de facto created.

Bruno Cirillo a professor at SKEMA Business School, and co-author of a white paper on innovation ecosystems and corporate transformation⁹, points out spin-outs as genuine tools to unleash innovation. In essence, spin-outs are start-ups, “founded by former staff, with the support of the company they used to work for, to exploit products or technologies that do not fit in the company’s core strategy.” The objective is to create new development opportunities, “at the edge of the company’s business model.” That is what Philips Electronics did with its New Business Initiatives, what Siemens did with its Technology Accelerator, or what Shell did, with its Game Changer programme. Such strategic structures act as trailblazers, that are both able to create new services and solutions and quickly market them. And the companies which back them can “benefit from the innovation they create through exclusive licensing or sourcing agreements, or can even buy them back.”

Many possibilities, indeed. As Claire Cizaire, Mazars’Chief Innovation Officer,  explains, “open innovation has yet to produce major breakthroughs”, it has already started changing the way large companies operate. For Laurent Furedi, Chief Strategy, Communications & CSR Officer for Engie in Latin America, “there will probably always be boundaries, owing to size, risk management or governance. But our people are really starting to work in project mode. We are also transitioning to smart working. All in all, our working methods are evolving and getting closer to what start-ups do and to how they function.”

A New Approach to Entrepreneurship?

Joseph Schumpeter¹⁰ defined entrepreneurs as innovators who express themselves through the creation of new activities or new businesses. As the 20th century went by it seems this notion partially evolved: managers and caretakers gradually took the place of innovators.

In today’s world, however, it looks like the tables are starting to turn. Corporations that want to acquire or maintain any competitive edge need to create or become part of large communities of entrepreneurs, start-uppers, researchers, incubators, accelerators, and venture capitalists. They have to continually interact with players who are passionate about innovation, in an environment where emulation is the rule.

With innovation increasingly originating from effervescent competing ecosystems, it certainly appears the Schumpeterian idea is regaining momentum. In October 2015, the Hitachi Social Innovation Forum, in Tokyo, featured, among others, Chris Anderson, a former journalist for The Economist and Wired, and currently CEO of 3D Robotics. In the 20th century, he said the “the nature of competition shifted from company-versus-company to product-versus-product.” In the 21st century, it “will be about ecosystem-versus-ecosystem, making it a battle between platforms”¹¹. This phenomenon is seen in the competition between major social networks taking place on the web. The winners will be those that can create the largest, most transversal and silo-breaking ecosystems, to attract the most brilliant innovators across the world and spread agility on the largest possible scale. “It seems likely that such an era will give rise to corporate practices that allow others to be successful on the corporation’s platform,” Chris Anderson enthuses. For the benefit of all involved!