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Open innovation is great. What about internal readiness?

Updated: Jul 5, 2023

internal innovation

As more and more organizations seek to reap the potential rewards that innovation offers through the means of open innovation, they encounter frustrations that are very similar to those experienced when innovating internally. The narrative goes more or less like this: “We invited startups and had a fantastic event. The media was invited and it created a real buzz and excitement in the organization. Management even approved a few pilots to follow up on. Six months later, no real impact has been achieved”.

Innovation theatre is a term often attributed to internal events of creativity, ideation and workforce engagement that while do achieve a positive effect of employee engagement in the short term, leave a bitter aftertaste months later as no substantial business or operational outcome can be identified as a result.

Open innovation events and activities are much more visible as they involve elements external to the organization. Therefore, the collateral damage to an organization’s reputation due to this sort of “Open innovation theatre” is even more substantial since it is not confined to that organization’s workforce but actually spills over to the surrounding ecosystem. We are now seeing this open innovation theatre effect in organizations that tried opening up to the ecosystem with the best of intentions but a common attribute for all of these failed attempts is a lack of internal readiness for open innovation. Our observation is that such internal readiness is what sets apart organizations that were successful in generating open innovation related outcomes from those that failed in doing so and could never go beyond open innovation theatre.

What is open innovation internal readiness?

Let’s take a hypothetical example and imagine a startup that developed a technology that allows a device that is the size of a few millimeters and doesn’t require a power source to report its position from anywhere in the world within a 20-meter radius. Now, this startup participates in an open innovation event of a large transport and logistics corporation, which identifies an opportunity to attach such a device to any of its millions of parcels and containers being transported worldwide and thus, have much better control and data collection over its activities. Another corporation is an agricultural wholesaler that wishes to have better control over the time it takes produce to get from field to plate. The startup in question consists of many talented people, however, these people probably do not have any background in agriculture, transport, or logistics. Moreover, chances are very high that no one in those startups has any former familiarity with the two mentioned corporations and their internal workings.

This means that with every good intention in place, these startups are constantly in a position of being outside and looking in as they try to deal with an established corporation with all of its inherent resistance to innovation. Organizations respond to innovative opportunities similar to how the human body does to potentially life-saving organ transplants. It’s as if a corporate immune system kicks in and destroys the opportunity as a means of protecting the organization from attempting something new and unfamiliar.

For open innovation, there are certain specific scenarios we encounter frequently that cause any such opportunity to stop dead in its tracks. Here are some of the most common:

The day after the pilot

This is a classic case of corporations focusing on the front end of the process and dedicating attention to the exposure stage, selection of the most promising startups and a few weeks of attention until a pilot is created. The problem is that pilots are usually just scratching the surface of a corporation and the really hard part begins the day after the pilot. Most corporations simply aren’t ready for this effort in terms of the required skillset and a lack of motivation that their employees have to take on such challenging and risky endeavors.

Senior personnel lack of availability

Corporations are filled with very busy people. The more senior the people the busier they are. Startups, on the other hand, have a very limited runway for takeoff and every passing day brings them closer to the end of that runway. When a startup-related opportunity requires the assistance of a senior executive and the meeting is scheduled for two months later, this is just one of the many early signs that the opportunity is going to end on a sour note.

Legal overload

The legal aspects of cooperating with established corporations usually involve thick “standard” contracts or lengthy NDAs (Non-Disclosure Agreements) that have been formulated over the years to cover every possible base for corporations that simply wish to protect themselves from potential litigation. Once again, this is not okay when dealing with startups that do not have the manpower nor the access to legal resources for such purposes.

Procurement setbacks

When a corporation decides to pay the startup for its time investment in the pilot (a common practice), it is not uncommon to see a lengthy procurement process that exhausts what is usually a very small and young company. As stated above, startups live on borrowed time and delaying the start of activities until a standard procurement process is completed is another major mistake that corporations with good intentions make. This is simply how things are done over there. However, this practice is detrimental to open innovation efforts.

So what should corporations do in order to develop internal readiness for open innovation?

The answer consists of three aspects:

1. An orderly process

When a corporate employee identifies a startup that could become an opportunity within the context of this corporation (for example, the tiny tracking device serving to follow individual fruits and vegetables from the field to plate) then this becomes an innovation project that goes through a well-defined process with clear decision gates. This cannot be left to improvisational efforts that simply believe in the goodwill of corporate citizens. It has to be a controlled, measurable and manageable process.

innovation champions

2. A supporting internal community

We tend to use the term ecosystem to describe the external environment of startups, corporations, academia and the relationships between them. For open innovation to thrive in an organization, it must have an internal innovation ecosystem as well with a supporting cast consisting of innovation coaches, champions and mentors. This eliminates the need from any single central figure to be at the center of every opportunity and creates a distributed network that allows open innovation to take place at scale.

3. Involvement of key executives

For open innovation to generate clear, valuable outcomes, every organization has certain key executives that must be involved in the innovation process. We must always remember that when an executive makes the decision to take a startup-related opportunity and create the first version of a product or service as part of a unit’s work plans this has to come at the expense of something else that is of a much lower risk level and whose impact is much clearer in the outset. In order to get executives to make such a decision, there are very specific ways in which they must be involved in the process. This involvement has to generate maximum effect while requiring as little of their time and attention as possible.

In summary, open innovation has many similarities with internal innovation simply since internalizing a startup technology into a corporation and generating products and services based on that startup, is essentially like taking an internal idea through an innovation process. The technology the idea is based on is simply based on a startup technology and the opportunity’s success depends on how well the organization handles its interactions with that startup on one hand and its internal ability to handle the opportunity on the other.

What about your organization? Are you internally ready for open innovation? Tell us about your organization's internal readiness for open innovation and we’ll get back to you with our insights.


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