In my work, I am involved in many discussions with executives on the topic of open innovation in a corporate environment. Across those discussions, certain themes have emerged that highlight to me the different challenges that corporate innovators face from those facing startup leaders. I have also noted that while a lot of articles are aimed at those innovating within a new company, there is not a lot of practical advice on how to extend innovation — to startups and other external partners — for those doing so from inside a large company. In other words, while every corporate leader has seen some form of the innovation “funnel” slide, which pretty much tells you what to do, there are not a lot of people telling you how to do it. Thus, this short series of posts will cover, at a high level, a few of the main issues you need to understand, and in some cases define, in order to successfully develop an open innovation initiative.

The first issue I will cover is something that is often missed when companies being to connect with innovators, and it is setting the agenda that will drive those connections. Time and again, I come across companies that have started some sort of outreach effort to universities, startups, incubators, etc., and are getting little value for those efforts. Often, the reason for this lack of return is that even if a good innovation is found, there is little uptake within the larger company’s product development team. I have met leaders of corporate innovation teams who have spent several years finding and working with innovative startups, only to have those their ideas ignored or rejected by their own organization.

This phenomenon seems surprising to a lot of executives until I ask a basic question: “Why did you reach out to those innovators in the first place?” The usual response is something like, “Well we wanted to find interesting new ideas.” To this I reply that finding new ideas is not that hard — incorporating them into a corporate development cycle is. Moreover, the first step in that incorporation is to define well what the innovation needs are in the first place, i.e., what is the corporate innovation agenda.

Generally speaking, I have come across four broad innovation agendas in companies that are good at connecting outside innovators into their product development cycles:

  • Venture: These companies have strong in-house venture or capital group that is active in seeking and growing innovative ideas and startups
  • Connected: These companies cast a wide net so that any idea — relevant or not at first glance — is at least seen and considered
  • Gap: These companies are usually looking to fill specific, well-define innovation gaps in their own product development plans
  • Sync: These companies are synchronizing their innovation cycles to external innovation cycles so they do not miss out on a critical technology, material, etc., in the future

As you can see from the image below, each agenda seeks out innovators and innovations for different reasons and with different aims in mind.

The reality is that many high-performing corporate innovation outreach efforts have a dual or “hybrid” model, e.g., connect-venture or gap-sync; however, even in these cases one agenda is usually “dominant” within the hybrid model.

Contrary to this high-performing group, corporates who are not getting as much value as they hoped from external innovation efforts generally can not describe the rationale for these efforts beyond “getting better informed” or “understanding what’s out there.” This much larger group of companies often has not yet defined the strategic purpose behind their external outreach efforts, and this lack of defined agenda seems to be a major challenge in getting real and sustained value from external innovator outreach investments.

It’s not uncommon for executives to question what I have written above. Indeed, one product executive at an aerospace company I worked with recently did not, at first, see the direct connection between his product roadmap (traditionally not widely shared within the company) and the process we were designing for his ventures team. “What does it matter how my product roadmap changes,” he asked, “to the way in which we connect with startups?” I answered that it mattered a great deal and walked him through a specific example. At that very moment, his ventures team was in discussions to take a significant equity position in a company developing a particularly advanced form of machine-to-machine integration technology. The ventures team, I told him, really likes what the startup has shown them; however, your colleagues are debating the equity stake with respect only to the technology itself and not where it would, or would not, fit into specific product a year or two down the road. “Is it OK,” I asked the executive, “if they buy into this company and its technology never makes it into your products?” He replied, as I knew he would, that this was not OK, and that the goal of the team should not be to invest in companies just for the sake of investment. “Yet that is exactly what they are about to do,” I replied, “because after eight months of discussions with the technology team for direction about product plans and strategies, a clear agenda has not emerged so the focus has become ‘go find interesting things for us to check out.'”

I could repeat several other examples, and most would have had similarly discouraging results without a real and focused discussion about my client’s innovation agenda. My view, then, is that before spending a lot of time and money meeting with startups or innovation teams in larger suppliers, it’s imperative that a corporate innovation team define the agenda that is driving their work — be it one of the above or some combination. If this is not done, then all too often the result is months of meetings with innovators of all stripes, in which the focus is the next “shiny object” and not a specific goal that aligns to corporate needs and strategies. Conversely, companies that have a well-defined innovation agenda are more likely to select the right partners, and the right investment level for those partners, through their innovation efforts.

One further point is worth noting. The innovation agenda is one of three core elements of a successful innovation outreach effort. The second is having a solid engagement model to which startups and external innovators can connect. The third is having a well-defined value measurement model that projects, from the first step of the engagement with the external innovator, three key financial metrics: revenue, investment and risk. I will cover these other two elements in later posts.

For now, suffice it to say that taking a moment to have the innovation agenda discussion — and including in that discussion product, innovation, procurement and finance teams — is one of the best investments any company can make to drive higher returns from open innovation efforts. In my next post, I will discuss how the issue of intellectual property and finding the right model for information sharing in innovation efforts.

Read more:

Innovation In Action Series #2: How Intellectual Property Strategy Impacts Innovation

Innovation In Action Series #3: The Innovation Engagement Model

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Posted by Carlos Alvarenga

Carlos Alvarenga is the Executive Director of World 50 ThinkLabs and an Adjunct Professor at the University of Maryland's Smith School of Business.

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