Optimise your open innovation strategy with these 6 questions
By Early Metrics Team - 13 January 2021
Designing an open innovation strategy that yields concrete ROI is difficult. Open innovation is a vast concept, lending itself to varying interpretations. Also, the time needed to develop innovative projects and the risks associated are such that it takes a careful mix of faith and pragmatism to make anything happen.
This is why asking yourselves the right questions as a team is important to angle your work in the right direction. And here by “right” we mean most in line with your company’s values, vision and needs.
Early Metrics’ co-founder Antoine Baschiera has worked with countless directors at CAC40 and FTSE100 companies, helping them get the right insight to optimize their open innovation initiatives. He found that there are 6 questions that enable open innovation teams to refine their strategy.
Early Metrics in partnership with White Space recently asked these 6 questions to a select panel of 50 European directors in charge of open innovation. Find out what they thought and get some tips on improving your open innovation strategy.
1. What kind of change is your company aiming to achieve with open innovation?
When designing your open innovation strategy, getting your priorities straight is a must. Are you looking to focus on incremental improvements? Or would your group benefit more from launching new products and markets?
In our survey of European innovation directors, only 1 in 3 said they mainly focused on incremental improvements. The rest (70%) said they wanted to use open innovation to go far from their core markets and products.
Some incumbents do open innovation to stay relevant and “save” their organisation. It’s often the case with players in heavily disrupted industries such as media and high-street retail. They therefore tend to focus on deep transformation based on business model changes to be more in tune with current market needs.
Others look more at the top line, working on incremental changes to improve on their existing activities and departments. This can mean creating better customer experiences, digitising internal processes, increasing transparency with tracking technology…the list goes on.
But, why should you choose between the two? Of course, most large companies have an appetite for both incremental and disruptive innovation, at varying levels. What is crucial is to make sure the priorities are understood and that the division of work for these different kinds of innovation is clearly defined.
One of Early Metrics’ corporate clients, for instance, decided to split their open innovation efforts across two teams. They gave their digital department the responsibility to centre their open innovation around incremental changes. While the strategy department focussed on long-term deep transformation.
2. Should open innovation be driven by client-facing results or by internal optimisation?
Once you have decided the nature of the innovation your company wants to focus on, you can go deeper into the kind of impact you are hoping to achieve. Here again, the survey participants mainly leaned towards one opinion. 25% stated they focused mainly on the topline impact, i.e. innovation pertaining to the core business areas and revenue-generating initiatives. 75% stated that they had a focus on open innovation that would impact transversal functions, such as HR, legal, procurement…
According to Antoine Baschiera, co-founder at Early Metrics, client and revenue-related topics should be the main drivers of open innovation. Then, if you have extra resources, you can expand to improving the company’s ways of working. Finding HR quick wins, such as digital tools that provide professional training, could help innovation effort throughout the company in the long term.
On the other hand, industrial companies should consider operational improvements as important as the topline. As a concrete example, the cosmetic group L’Oreal put almost an equal amount of effort into improving their industrial processes as they do in delivering client-facing innovation.
Depending on the length of product development cycles, an open innovation team should also launch their process early on to be able to deploy new products in a timely fashion.
3. Where should open innovation sit within the company’s structure to be most effective?
Open innovation is a fairly new activity which means its place within a traditional corporate structure is not always a given. The survey reflects the diversity in opinions that surround this question. In order of importance, most innovation directors said they thought it was best for open innovation to report to: the CEO (40%), the strategy unit (30%), the relevant business unit leaders (26%) and in last position to the digital department (4%).
The right answer? It depends. All in all, there are pros and cons to each option:
CEO and strategy department
For open innovation teams, reporting to the strategy department or to the CEO entails similar pros and cons. Working directly with the top management means the open innovation team can benefit from their strong decision making power. The CEO and strategy team can usually give a clear vision of the expected course of the group and they have the ability to create engagement throughout the company.
However, reporting to the CEO or strategy is often not the most efficient way. For instance, they might be less aware of specialised needs in local units. They might therefore provide little help in the definition of a precise roadmap or in generating adoption within autonomous business units, for example.
The main advantage of sitting within the digital department is that the culture of innovation, change and adaptability is already present in this function. In a time where open innovation managers still have to defend the relevance of their activities to traditional top management, the digital team usually requires less convincing to get new projects going.
However, as their appellation points out, the digital department is primarily responsible for digital transformation and solutions. But open innovation can address all aspects of business, including analog and physical ones. This might therefore limit the scope of what the open innovation teams can do.
An open innovation strategy can also be led by the business unit that is looking to adopt first-hand the innovations developed. Business units can test, integrate and deploy innovation faster than centralised departments. It’s also easier for them to find concrete use cases for innovation that can have a quick and direct impact on the activity of the business unit.
Nevertheless, there is a greater risk that the open innovation strategy might take a direction that is not in line with the global company vision. Moreover, business units might lack the proper structure and tools to organise long-term open innovation projects.
What about a mixed approach?
The trend we are observing is that some form of centralisation has to happen to enable successful open innovation strategies. By that we mean a person or a department who can share innovation throughout the group and give a coherent vision. But this centralised unit should work in tandem with specialised or regional business units to optimise POCs and the implementation of innovation. So a mixed approach can be most effective.
4. Which department should pay for the POC and/or for the deployment?
Often a contentious point, corporates can struggle to decide where budgets should come from for open innovation. Our survey reflected this well: 41% believed a centralised open innovation unit should have ownership of its budgets. The rest said the business units likely to deploy the innovation should pay for this.
It’s key for the open innovation to have some “money power”, because it allows to:
- kickstart innovation that can be useful across several business units/ markets, and take on initial risk of innovation
- get over risk adversity of business units and act quicker
- increase the chances of implementation.
However, the relevant business units should shoulder a deployment budget as well. Ideally, it should be agreed upon as soon as the proof of concept (POC) is launched to ensure clear ownership and smooth handover.
Groupe ADP (Paris airport group) is among the corporations that tested this model. Their open innovation team pays for the POC only if the relevant business unit agrees to commit to a budget to implement the innovation if the POC goes well. On the other hand, we have seen other corporate groups mutualise budgets between several business units to launch POCs.
5. Is tracking KPIs as important in open innovation as in other corporate activities?
The short answer is yes, they are. Sure, KPIs are more difficult to define and measure for open innovation than more traditional functions. But this doesn’t mean that they should be completely overlooked. In fact, we would argue that KPIs are the best way to know and show open innovation value.
While the majority of survey participants (79%) agreed with this statement, 1 in 5 still said KPIs were not so important in their open innovation strategy. This may be due to the fact that some teams perform more explorative work, which may not lend itself to formal KPI tracking. Uncertainty being part of the daily life of an innovation team, a loose approach to performance is not shocking.
Nevertheless, a lack of clear KPIs generally hinders an open innovation team’s chances of negotiating and protecting its budgets. At Early Metrics, we witnessed some corporates assigning huge budgets to launch open innovation because it was fashionable or they were excited by the novelty. However, the top management then drastically cut budgets because clear KPIs weren’t in place.
So which KPIs should you track?
It’s not advisable to focus only on short term P&L analysis. Testing and fine tuning new metrics, quantitative or qualitative, can yield a more insightful picture of your performance.
For instance, tracking the number of POCs that have been terminated is an interesting KPI because it’s a learning indicator and not necessarily a negative one. It can reflect the innovation team’s ability to prioritise and make hard decisions to better serve their company goals. Another useful KPI is short term internal adoption within the organisation, which can help project long term impact.
Last but not least, open innovation departments should spend time looking inwards to define what success looks like for them. For some, success might mean being able to learn and adopt internally innovative ways of doing things from startups, even if the POC fails.
6. What is the right size and scope for a POC?
As an open innovation manager are you more scared of launching a big POC that can take too long and involve too many resources? Or are you more scared of launching POCs that are too small and have little impact? Which ones should you avoid?
The community of corporate innovation leaders we surveyed were almost split down the middle:
Before you land on the perfect size or scope for your POC, you should decide if you’re in a win/lose scenario or in a qualitative learning scenario. This will then inform the level of risk you feel ready to take and help you assess your success.
There is also a best practice you can borrow from Scrum. The lead time is the time spent between the identification of a problem to solve and the delivery of the solution. The recommended lead time for an open innovation POC is a maximum of 6 to 9 months. Quicker POCs tend to increase the success rate of an open innovation strategy because they reduce the risk for a startup (which might go bankrupt if the deliberation is too slow) and for the business units (which might become less committed). After 12 months, there is a definite slump in the success rate of POCs.
So what can we conclude from all of this? It’s important to keep in mind that there is no single recipe for success when it comes to creating an open innovation strategy. Although we only surveyed a small, top level corporate innovation community, we could already gleam that opinions can widely diverge. Your open innovation team should look inward and ask themselves these six questions to make the best decisions for your group’s unique vision and goals.