In the first post in this series, I discussed the importance of having a well-defined innovation agenda. The second post discussed the impact of intellectual property on innovation. In this third post, I will discuss another often-overlooked dimension of innovation. I’ll start my discussion by recapping a call I received from a senior executive in the U.K. to discuss an innovation project with a Berlin-based startup that had run into major problems. The project was over-budget and behind schedule, and these issues were causing his CEO and CFO to question the value of continuing the effort. This executive, a long-time friend, was clearly exasperated at the lack of progress the combined-innovation team was making and was at a lost to understand why.
“We spent months evaluating startups,” he told me, “and the technology these guys showed us was clearly the most promising. We had shared goals when we designed the project, and I think both sides have worked in good faith. Still, the reality is that unless something changes, I am going to have to kill this project.”
As our discussion continued, it was clear that my friend’s issue was not having picked the wrong innovation partner, or even the lack of a strategy for the innovation effort. The cause of his problems was his company’s lack of a structured process for integrating external innovations/innovators into the company. This conclusion became clear once we started discussing what had happened after the innovative startup was selected and goals were set.
“Well,” said my friend, “we figured that they knew what they were doing so we pretty much left them alone, asking only for periodic status calls. The startup guys went to work on what they thought we wanted, and we only checked in to make sure they felt good about their progress and to answer any questions.” I asked him to what extent his own technical people had been engaged during this period. His answer was, “not much — they really only got involved up front pre-selection.” Unfortunately, the team in Berlin had gone ahead and worked on the objectives that had been set by my friend’s product team almost four months earlier, not knowing that aspects of the target product had changed and that these changes needed to be reflected in the work assigned to the startup. The startup, however, was being monitored by the ventures/new business team, which had not kept up with changes in the product development discussions. Of course, both sides thought they were doing the right thing, but the project was doomed to fail almost from the start.
The story above is not uncommon, and I could list many similar poor results, whose causes, however varied at first glance, were really all tied to the same thing. All these failed projects lacked a common, well-understood and rigorously applied innovation engagement model that set out, step by step, how an external idea was to be identified, evaluated and eventually integrated into internal innovation efforts. Indeed, in a recent survey I did of over 25 senior executives involved in innovation, approximately 70% of respondents described challenges that external innovators have in connecting to and working with their companies. As one executive told me:
If you asked our suppliers, most would say we are very difficult to work with, even when we have common goals. We often communicate too much or not enough. To be honest, we’ve launched probably a dozen innovation projects with startups in the last three years and maybe two or three ever had any market impact.
Yet another executive noted that “we don’t have a simple process for having suppliers connect with us,” while adding that “a lot of innovators can’t pass our standard due diligence process to make it easier for startups to work with us.” Even an executive from a company known globally for innovation noted that his company also could do better at this issue:
As far as supplier interaction, we do see the need to be better at this. We are making efforts to highlight supplier innovation for us, and I can see how this would be a challenge for anyone.
What exactly is an innovation engagement model (IEM)? Successful designs can vary in my experience, but a good IEM would — at the least —have the following elements and address the following questions:
- Explore: how do we make connections with external innovators to understand new ideas or technologies?
- Assess: how will we evaluate the ideas encountered in our “Explore” efforts?
- Prove: how will we validate the performance and relevance of innovations to us?
- Scale: how will we identify any specific challenges in taking a potential innovation into production?
- Develop: how will this innovation be integrated into a specific product or service that we provide or will provide?
- Deliver: how will we put the completed innovation into our customers’ environments?
This model, moreover, needs to be supported by the people who are engaged with startups and external innovators at every step of the way. Indeed, in my consulting work and research, I have found that companies that are doing innovation well all described a strong, dedicated and focused set of specialists whose role is to help external innovators connect with their companies. As one high-performing company’s executive told me, this is also because he sees his team as responsible for putting external innovations together in the most value-added way: “Sometimes suppliers only have part of the solution — we are often the ‘innovation integrator’ who puts various innovations together.
Within the companies best at collaborative innovation, external innovators find not just and IEM and skilled people but also structural and financial support models that increase the odds of succeeding. One company I know has “innovation labs” around the world to which outside partners can connect, or even physically move into, in order to create value for the company. Another high-performer told me her company is able to bring not just people or technical skills but also capital to an external innovator. “We often supply financial support to get a small company to be successful,” noted this executive. “When it comes to core elements of innovation,” she added, “some things really come to mind and one is our relationship with our in-house capital team, which is focused on the same goals as we are.”
What is important is less the detail in the IEM elements and more that it is accepted by all the leaders and organizations that will make or break an external innovation effort. Lastly, being flexible in the application of the model as business conditions shift is also a key to the success of a good IEM.
In summary, success in external innovation efforts does not just depend on luck or ingenuity. It depends on methods and techniques that define the selection strategy and way of working between corporate and partner. A small amount of effort focused on the elements I have described in this series of posts is one of the highest-yielding investments a corporate innovator can make. Indeed, in my next post I will discuss how such investments should be considered from a value standpoint by not just corporate innovators but also senior company stakeholders and even the external startups/innovation partners themselves.