Why Smaller Companies Should Embrace Open Innovation
Open innovation at small and medium-sized enterprises (SMEs) presents both great opportunities and great challenges. Forming open innovation relationships can give a growing enterprise access to resources that might normally are beyond their reach with the potential for greatly speeding up time to market. At the same time, working with larger–and in some case much larger companies–is not without its perils.
Let’s consider a growing startup or a small company that is on its way to become a mid-sized enterprise. The early phases are very much about executing on single, great product, idea or technology. However, as the company grows focus tends to shift towards control rather than keeping the visionary thinking and bold approaches that build the company. This must be re-ignited. Open innovation can be the vehicle for accomplishing this objective.
Because of the high level of risk-taking involved with young ventures, leaders of entrepreneurial enterprises often have healthy or even outsized egos; it takes a certain amount of hubris to believe you can defeat the high odds against the success of a new venture. This can lead you to believe that you and your people have the best ideas. But in reality, there is a strong possibility that the best people and the best ideas are to be found outside your organization.
One key reason for Procter & Gamble to initiate open innovation programs was that they learned that for each of their 7,500 R&D people there were 200 people outside the company with equal skills and competences. An ignorant – and arrogant – company would ignore these 1.5 million people, arguing they do not matter as they do not work for us. P&G did not ignore this. They understood they should connect their own organization with the best and brightest from the outside world. Given the limited size of smaller companies, this mindset becomes even more important.
As I wrote earlier, SMEs often start with one great product or service idea and as they grow they might fail to recognize that innovation is about more than just bringing the core product or service to market. Innovation can occur at all stages of the business process, from the business model itself through to the customer experience. By broadening their thinking about what actually constitutes innovation, SMEs can more easily see the wisdom of open innovation, which can help them innovate in areas where they may not have internal expertise.
I will post more thoughts on open innovation for SME’s this week. Let me know if you have any comments on this or if you know of smaller companies that have adapted open innovation. It would be interesting to get to know more about their processes, failures and successes in order to get a better understanding of how this is different from large companies. Since small and large companies meet on open innovation, they need to start learning more about each other on this.
Open innovation for SMEs (in the bio-products based chemistry, more specifically) is exactly what I am working on these days, so this post could not be ignored… In my limited experience, there are some challenges for SMEs to overcome, if they want to be successful in open innovation:
- There is a natural distrust for the larger companies, whereby SMEs which often have poorly protected IP are afraid of exposing themselves.
- There is most often a very different perception on the value of the IP, and there is also often a misunderstanding (by the SME) of the efforts required to scale up.
- The Open Innovation platforms are typically controlled by the larger companies (Innocentive, P&G come to mind), to the benefit of the… larger companies!
Current innovation marketplaces, crowdsourcing environments, partnering databases that focus solely on the SMEs seem to have little success compared to the corporate initiatives. As part of a study we are conducting later this spring, we will try to find out the barriers to (open) innovation between SMEs and with large companies. Thereby we need to cover all aspects of the equation: organizational readiness, process maturity, legal aspects, competency issues, financials, and technology of course!
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Stefan, couldnt agree more on this subject!…And its about time that we can start referring to other OI initiatives and successes than P&G..;-)
Christian, to some extent, I do agree to your concerns on organizational readiness, legal aspects ect. BUT (I think i wrote this before somewhere else), to quote Gary Hamel; “While we are in here bullshitting about strategies – things are happening out there!”
Not to say that you should cut every corner, but the adoption of some trial&error should be present – otherwise you will find yourself with an over managed solution – ready to launch in 2027…!
I agree with much of the above. Smaller companies are generally more “flexible” and can ususally
“move faster” than their big brothers. One of the reasons for success at P&G is because they collaborate with smaller
companies. As Michael points out above, experimentation (trial & error) learning from failure is alsmost
a must; but – fail quickly and fail cheaply!
You smash it Stefan!
At the end of the day it comes down to the definition of ‘innovation’ (a topic you addressed in What is Innovation). Word content analysis could make an argument when a term, buzzword starts to get media play or CEOs speaking it, the time has come for a new semantic.
When 10 people state it cannot be done, you know you are on the innovational road. Through open innovation (exquisitely defined by Henry Chesbrough in ‘Open Innovation’) we are in agreement with you having seen the innovation S-curve at work ranging from ticketing to workforce management open innovation processes breakthroughs to have organizations and industries sail out of the red oceans to enjoy the winds of blue ocean strategy. The key to open innovation is not to get the people, processes, technology sequence out of sync.
Continue to get the word out on how to provide a great equalizer to small businesses and rebuild the world economy….easy no….if it was easy it would not be disruptive open innovation. Convert a skeptic and day or do like Cortes and burn a boat a week…our approach is a product at a time, a merchant at a time, and a city at a time helping rebuild America with open innovation and providing a slice of the revenue pie to all as part of the business revenue model….pizzazz, the silos of internal and external innovation forming into silos of collaboration for trust, transparency, and shared goals.
When the tough CEO question arrives, “How can you save us money (or add new revenues) without sacrificing quality?” you need a prolific answer to gain a standing ovation at Open Innovation stadium. We can learn to survive in the innovation game by catching the value of perseverance, much like Carl Ripken, Jr. – http://bit.ly/cuKij8 a key differentiator for small businesses!
Stefan, as often the case, you’re on the right track – SME’s need big companies as much as big companies need SME’s. The trouble is that it’s a classic example of one being from Venus and the other from Mars.
Precisely because they’re different and they need each other, they often come into conflict early in a relationship. Us big company guys still have plenty to learn about how to work with SMEs without killing the very things that make them valuable (e.g. creativity, flexibility). Meanwhile, SMEs also need to learn to have realistic expectations of what they have and what they still need if they want to make their ideas real – much of which can often be found in the hands of the corporate types (e.g. financial resources, complementary skills, practical context).
My experience is that most often there’s more enough value at the intersection for both to be happy with the gains of a relationship, as long as they don’t kill each other in the process of creating it.
Stefan:
We at InnoCentive couldn’t agree more with your point of view.
In fact we launched a new program at InnoCentive in Q4, 2009 called “InnoCentive for Startups” targeted not just at venture backed startups but SMEs with annual revenues below US$50 million:
http://www.innocentive.com/crowd-sourcing-news/2009/10/13/innocentive-expands-support-for-startup-businesses-with-new-offering/
I’d be happy to talk to you about the program and our early experience with it if that’s of interest.
best regards
Steve
More and more SMEs are using software to collect employee and customer ideas, embracing all forms of open innovation.
Interesting read with some examples: http://www.inc.com/magazine/20100201/rounding-up-staff-ideas.html
Hello there,
this is part of my on going PhD research on open innovation.
I think a critical question is:
What are the chances for SMEs and small start-ups to grow up and become large companies as more and more of them are engaged in OI, particularly when good enough for small companies and individuals is to provide innovative solutions to large firms’ requests?
I would be indebtful if you can point me to case studies that are on favor to one or the other direction.
(please excuse my not-native english!)